eChoupals

A Study on the Financial Sustainability of Village Internet Centers in Rural Madhya

Pradesh

ICTs and Sustainability

• Author focuses on financial sustainability b/c without financial sustainability project will not survive– Large funding agencies typically fund the ‘incubation period’

• India’s largest commercial ICT project ITC - IBD eChoupal– Ability to recover investment of ICT infrastructure through a

more “efficient” agricultural supply chain

Before eChoupal (Mandi)

• Farmers in trolleys -> Mandi -> auction to Agents• Necessity of Mandi / Commision Agents

– Lack of physical infrastructure (distances, small sized farmers)– Responsibility / risk of dealing with large number of farmers

• Costs to farmer– Transportation Cost– Cost of weighing produce– Labor charges moving product from Mandi to warehouse– Price fluctuations based on quality of product -> traders mix product

& sell for profit– Paid in installments (few days to few months)

eChoupal

• Set up agri supply chain that reaches farmers (like Mandi)– Set up to increase soybean quality, decrease procurement cost

• Soybean Procurement– Farmers come directly to one of 9 warehouses

– Spends less per ton of produce • No commission / transaction costs to middlemen

– Crop tested for quality

– Crop weighed on automatic scale (people don’t calibrate the instruments)

eChoupal Operational Model

• Find an entrepreneur – Farmer w/ medium sized operation in a village to become “agent of

change”– To receive .05% of every rupee sold through Choupal (incentive)

• ITC pays start-up costs– Computer & printer / solar panels / UPS with battery / optional

VSAT (internet)– No rent b/c using sanchalaks– Entrepreneur pays electricity / telephone / travel to office

eChaupal vs Mundi

• eChaupal Advantages to Farmers– Provides futures price information to farmers

• They can know when to come to sell crops

– Bypass middlemen by selling directly to ITC– Reimbursement to farmers for transport costs– No payment to for bagging / weighing– Pay farmers full payment at time of transaction– Farmers save Rs 270 / ton

• Only reaches middle-sized farms

Reduction of Transaction Costs

eChoupal Sustainability over 16 months

• Primarily used for soybean procurement• Choupals: 461 in Year 1 -> 796 Year 2

– 133 K tons of soybean product purchased through eChoupals

– Saved Rs 25.8 million in transaction costs (2% of produce)• Rs 194 Rs / Ton savings

• 15.9 Million savings through improved quality (No Mixing)

• Total Savings = Rs 41.7 Million• Total Investment = Rs 75.7 Million

eChoupal Financial Analysis

• Extrapolation of 16 months of financial data to 7 years

• Variables– 20% to 50% failure rate of crop from lack of rainfall– 6% to 15% - Lost opportunity cost (vs. investment in bonds,

etc.)– 15% to 20% cash depreciation

• Would recover its costs within 3.9 to 5.8 years

Payback Period

Not only sustainable, but eventually profitable

Future Stories?

• Mobile Phones vs. Computers?• Information exchange between the farmer & the

eChoupal?

• eChoupal used as distribution of other products / services?

• Reach into poorer and more remote parts of India?• Dissemination of agricultural best practices?