In my previous posting about Mukesh Ambani’s ambitious plans for Reliance Retail, Ltd., he intends to “revolutionize” two sectors: farming and retail in the process of establishing this new business. His plan to “invest more than $5 billion by 2011 to put both the farms and the stores on the road to modernity, connect them through a distribution system guided by the latest logistics technology, and create enough of a surplus to generate $20 billion in agricultural exports annually” is a bold statement of the speed, scope, and degree to which he will attack the prevailing system. No doubt this will have an impact – revolution does that, although there are often unintended consequences!
Usually, “revolutionize” in the context of agriculture means introducing labor-saving, automated, integrated mechanical and biological systems that eliminate the need for human participation. This accomplishes three things: reduces the cost of the operation by taking people out of the equation; displaces people who are no longer needed in support of agriculture so that they are compelled to do something else; and lengthens the distance between the point of agricultural production and the point of consumption of food, feed, fiber, or fuel. This approach was effective during the last century in those areas of the world where human labor was needed to power the growth of the industrial sector. In fact, the mechanization of agriculture and the subsequent displacement of people from farming and rural areas was a perfect complement to the growth of industries in the urban centers. Is the world ready for more of that?
The last thing countries with the most populous cities in the world need is more people migrating from the less populated rural areas to the urban areas. Further overcrowding of already overwhelmed infrastructures helps no one and contributes further to decline in the quality and even sustainability of life. Still, with nowhere else to go and no hope where they are, relocation to the cities is often the only recourse people have in these circumstances.
The question is: how can technology be applied in the farming sector such that the people whose welfare is dependent on agriculture are able to have sufficient quality of life centered around the principles and values they hold dear at their local community level yet be able to scale their output to meet the demand of more distant communities in need of what they produce?
One way to begin to answer this is through the e-Choupal system introduced by ITC, Ltd. to farmers throughout rural India.
ITC describes e-choupal as a system that…
…leverages Information Technology to virtually cluster all the value chain participants, delivering the same benefits as vertical integration does in mature agricultural economies like the USA.
‘e-Choupal’ makes use of the physical transmission capabilities of current intermediaries – aggregation, logistics, counter-party risk and bridge financing – while disintermediating them from the chain of information flow and market signals.
With a judicious blend of click & mortar capabilities, village internet kiosks managed by farmers – called sanchalaks – themselves, enable the agricultural community access ready information in their local language on the weather & market prices, disseminate knowledge on scientific farm practices & risk management, facilitate the sale of farm inputs (now with embedded knowledge) and purchase farm produce from the farmers’ doorsteps (decision making is now information-based).
Real-time information and customised knowledge provided by ‘e-Choupal’ enhance the ability of farmers to take decisions and align their farm output with market demand and secure quality & productivity. The aggregation of the demand for farm inputs from individual farmers gives them access to high quality inputs from established and reputed manufacturers at fair prices. As a direct marketing channel, virtually linked to the ‘mandi’ system for price discovery, ‘e-Choupal’ eliminates wasteful intermediation and multiple handling. Thereby it significantly reduces transaction costs.
‘e-Choupal’ ensures world-class quality in delivering all these goods & services through several product / service specific partnerships with the leaders in the respective fields, in addition to ITC’s own expertise.
While the farmers benefit through enhanced farm productivity and higher farm gate prices, ITC benefits from the lower net cost of procurement (despite offering better prices to the farmer) having eliminated costs in the supply chain that do not add value.”
Of course, for ITC to make this work requires a dedication to growing its business by engaging farmers as partners in making their businesses successful. ITC’s sustainability policies are based on a deep and unwavering commitment to the people of rural India: to help them improve the quality of their lives, provide them with the wherewithal to keep their families intact and grounded, and contribute fully to the betterment and sustainability of their local communities.
The effectiveness of this program on multiple fronts has not gone unnoticed. ITC has garnered several awards for the e-Choupal program namely, the Corporate Social Responsibility Award in 2004 from the Tata Energy and Resources Institute (TERI), the Wharton Infosys Business Transformation Award (WIBTA) in 2004, and most recently the Stockholm Challenge Award in May 2006.
The goal of e-Choupal is to sustain, strengthen, and scale the operations of farmers with small agricultural holdings throughout rural India. The success of this system is earmarked by farmers staying in business, improving their operations, caring for their families, and contributing to the welfare of their local communities. This outcome scores well in following the sequence of localize, link, and globalize mentioned in last week’s posting by the same title.
And there is room for more! In a country of one billion people, three-quarters of which live in rural areas the efforts of ITC and e-Choupal only touch a narrow few. Reliance Retail, Ltd. is branching out with farming and retail and is committed to build an infrastructure that stabilizes small scale farming operations rather than destroy them; in direct competition to Reliance Retail, ITC is introducing Choupal Fresh.
Then, there are companies like Bharti that partnered with the Rothschild Group to form FieldFresh Foods. They are entering the next stage of scaling up agricultural production in rural India to supply global markets. Are Indian farmers sufficiently stabilized in their newfound capabilities to remain sustainable as small businesses in light of this rapid scaling?
Andy Mukherjee writing for Bloomberg.com paints companies Reliance, ITC, and Bharti with a common brush regarding their intentions for the Indian farmers in light of a worse fate – Wal-Mart. The title of his article “Indian Food Trade Lures Reliance, Bars Wal-Mart,” suggests that a preferred strategy is keeping Wal-Mart at bay. Unfortunately, there are many paths that lead to premature globalization of food production at the farm level – even a seemingly healthy alliance between Bharti and Rothschild is fraught with difficulties!
Clearly, a Wal-Mart excursion into India would have a significant impact on the economics of farming and retailing in India. It poses a dilemma in whether to keep expanding the agricultural sector globally by building from a firm foundation of localized – linked – globalized farming operations, or prematurely opening the floodgates to global markets, compromising the system at local levels, and either becoming non-competitive due to excessive cost or entering the slippery slope of farm consolidation.
The title of a Knowledge@Wharton article, “Will Wal-Mart Succeed in India? Perhaps…But It Won’t Be Easy,” suggests imminent conflict with Indian retail chains and the Indian government in their unwillingness to allow direct foreign investment into the retail industry. In response, Wal-Mart has formed a joint venture with Bharti. Will that be enough to overcome native resistance? And in “Wal-Mart Pushing India to Lift Ban on Global Chain Stores” published in The Hometown Advantage by The New Rules Project, the argument is raised that large non-Indian retailers like Wal-Mart are not good for the local Indian economy because their realm of interest is with absentee shareholders, not the people of India at the local level. Proceeding further while carrying this lack of concern for the impact one’s business model has on people whose livelihoods are placed squarely at risk is catamount to unethical business practice. In this case, it reverses the preferred approach of localize – link – globalize to drive globalization first and align linkages to suck profits and resources away without stabilizing the local economies first.
The world has endured this “global first” extraction / domination model for centuries. It doesn’t work. It’s time to give it up!
Originally posted to New Media Explorer by Steve Bosserman on Sunday, September 3, 2006