Problems

Input side of the agricultural supply chain in India was not efficient.
- The limited technological resources in India had constrained the dissemination of
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know-how in rural farming communities.

Farmers did not have access to quality inputs such as sowing seeds, herbicides and
pesticides or information such as accurate weather reports that would help them

improve their crop quality as well as the process of bringing it to market.

They did not reap financial benefits from any profits made off the valuable

soybean-derived materials.
In fact farmers were losing 60-70% of the potential value of their crop with

agricultural yields only a third to a quarter of global standards.

Output side of the agricultural supply chain in India was also not that efficient.
- Middlemen clogged the supply chain reducing profit margins for both farmers and
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buyers such as ITC.

Unfair practices affected the way the farmers were paid, the weighing of the
produce, and the amount of time taken by the process. This drastically increased

transaction costs, slashing potential profits for the farmer.

Both farmers and soybean processors were locked in an unproductive cycle. Farmers had
limited capacity for risk and therefore tended to minimize their investment in crops, lest
inclement weather or pests destroy their investment. This however meant a lower value
crop which translated into slim margins for both the processor and the farmer. With such
risk aversion farmers were also loath to experiment with new farming methods. Since,

this meant that few new sources of value were found the cycle continued unabated.
Fragmented farms, overdependence on monsoons and lack of sophisticated inputs and

farming practices- undermined the competitiveness of Indian agriculture.

Although the CA knew what price ITC would pay nothing prevented him from buying
from the farmer at a much lower price selling to ITC at market price and pocketing the

difference.
Farmers suffered as a result of the time it took to sell produce in the mandi for they were
dependent on timely cash flow for subsistence. Thus when harvest time arrived they all
descended upon the mandi at once. The crop had to go to the market immediately and
more importantly it had to be sold. Farmers were stuck in the position of not being able to
turn down a CAs offer, in many cases it had taken him all day to reach the mandi from
his village and to return with a full cart of unsold produce would be a waste of time and

money. Farmers rarely had access to adequate storage facilities in which to hold the crop

if it was not sold. In short farmers did not have other options.
The farmers isolation from one another and lack of telecommunications meant they had
no way of knowing ahead of time what price would be offered the day they arrived at the
mandi other than word of mouth. As a result, price discovery occurred only at the end of

their growing and selling process.

Knowledge shared and captured in the traditional choupal had traditionally been

limited to verbal communication.

The uncertainty surrounding cash flow prevented the farmers from creating a sound

financial base, instead they had become locked into subsistence living.
Given the volatility of the spot market and the fact that the value of agricultural
commodities was based on largely uncontrollable factors such as weather, disease and

pest infestation farmers needed to be aware of market activity.

Some very useful information was previously unavailable to farmers in Madhya Pradesh.
Weather forecasts were rarely communicated to the remote villages of the rural farmers.
When they did reach the villages they were too generalized and did not accurately cover
the 30.75 million hectares of Madhya Pradesh. Farmers needed to know their regional
weather in order to accurately expect the rains. Without reasonable knowledge of weather
trends there was reduced incentive for a farmer to spend additional money to produce a
higher quality crop from higher quality seed. In short weather based risks were important

to consider and address.

There was cost inflation and cheating that occurred through the middlemen. Also trading
outside the mandi was very difficult. There were certain facilities that did not existed in

traditional mandi.
There wasnt a system interactive enough that could churn out enough profits for the

Sanchalak and Samyojak. Huge profits were not possible under the traditional system.
As seen with soybeans margins could be generated in many other commodities through
logistics cost savings between the farm and the factory where non- value added activities
were eliminated. While these savings could be instantly realized Siva Kumar wondered if
they were sustainable over a period of time as the savings were benchmarked against the

current inefficient market.

The task of adapting the eChoupal concept for different crops and regions continues to

test ITCs entrepreneurial capabilities.

eChoupal as a marketing channel faced problems in

Some farmers could not easily access the fertilizers they needed. They were also
unable to access many rural markets because of fragmented or non-existent

distribution channels.
Given the short product cycle big companies needed immediate market access.
Farmers too suffered when they could not access these products. High costs of
labor for example hurt soybean and wheat farmers whose fields could have been

covered with herbicides instead of weeding workers at a lower cost.

Still there were lead times of up to three years to make seed varieties available to

rural farmers.
Insurers however had been biased toward larger accounts leaving less prosperous
farmers unable to participate. Insurers lacked quality data on risks and parameters
of farm life and were hesitant to insure rural customers. With ITC as a liaison
however data on rural farmers could be delivered to insurance companies thus

demystifying and uncovering the rural market.

Both private and public sector banks lacked a customer friendly approach and
were often avoided by rural farmers. One of the main reasons that farmers avoided
saving through banks was that they were often linked to a loan. If a farmer had
savings in the same bank he had borrowed from the bank could demand that he use
those savings to pay back the loan. Often times farmers would rather defer the

loan and simply save their cash in their homes unbeknownst to the bank.
The poor and fragmented rural consumers were traditionally underserved but the demand
was growing with rising aspiration levels triggered by for example broader advertising.