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World Bank Study
establishment of e-Choupals in the vicinity leading to transfer of surpluses from traders to farmers and resulting in some reduction of their traditional local monopsony power. Table 5.4 provides a comparison between the costs of procurement through the traditional channel and the electronic intermediation provided by ITC ABD. The e-Choupal system results in cost savings of 3.8 percent of the MSP and, therefore, a significant benefit to the rural economy. The implication is that the benefits of this kind of corporate activity in rural logistics chains are not a transitory phenomenon. Further, as mentioned earlier, Goyal (2007) showed that the introduction of procurement of soybean through e-Choupals had the general beneficial economic impact of enhancing prices received by the farming community for soybean even at mandis near e-Choupals, as well as increases in the area under soybean cultivation. With greater information and understanding of prices, farmers have become more aware of what they can receive for their crops. When farmers sell to ITC through the e-Choupal, prices are 2.5 percent higher on average than if sold at the mandis (Annamalai and Rao 2003). Even though ITC is paying more for the produce and compensating farmers for transport, ITC is paying less than before (Prahalad and Hammond 2002). Because ITC cut out the intermediaries, the mark up paid by ITC has decreased from 5 to 2.5 percent. Export Logistics
Close to half of the purchases by ITC-ABD are export driven, meaning that the e-Choupal intervention has increased the participation of small-scale farmers in international trade. Most of the company’s DOC exports are presently not containerized. DOC, as breakbulk cargo, is loaded on pallets from Kandla port in Gujarat. Mumbai11 is generally used if the product is containerized. The FOB value of DOC is such that road transport to
Table 5.4. Comparison of Mandi and e-Choupal Wheat Procurement in Rs/t Transaction
CY 2005–6 Supply Chain Costs Mandi Supply Chain
Freight Labor/Handling Commission
CY 2008–9 Supply Chain Costs
e-Choupal
Farmer
ITC
Farmer
120
120
120
Mandi Supply Chain
ITC 0
e-Choupal
Farmer
ITC
Farmer
100
100
100
ITC 0
50
40
0
40
50
50
0
50
150
100
0
50
270
180
0
50
Handling Loss
50
Bagging
-
75
-
75
-
75
-
75
Cash Disbursement Costs
-
-
-
50
-
-
-
87
Totals for farmer and ITC
370
335
120
215
510
405
100
262
Total for the Supply Chain
705
MSP for Wheat Farmer’s Savings as % of MSP
0
335 7,000 3.57%
90
0
915
362 10,800 3.80%
Source: Anupindi and Sivakumar (2006), ITC ABD, RBI (2009a) and author’s estimates.
0