jp8589 WRI.qxd - World Resources Institute

BOX 4.3 SERVING THE POOR PROFITABLY: A
PRIVATE-SECTOR APPROACH TO POVERTY
THE 4 BILLION PEOPLE WHO LIVE IN RELATIVE POVERTY
are a potentially huge market. In the aggregate, their purchasing
power is substantial, even if their individual means are
limited. Increasingly, innovative companies are finding ways to
serve these customers—meeting their basic needs and empowering
them through access to information, access to credit,
expanded consumer choice, and other benefits. These are not
philanthropic endeavors; they are market-driven and intended
to be profitable. Indeed, to be sustainable and scalable, they
must be profitable. The hallmark of these private-sector
approaches to poverty is close attention to the real needs and
social and environmental circumstances of the intended
customers. In many cases, new products or services are cocreated
with the communities for which they are intended.
An example of these poor-focused business models is the e-
Choupal system deployed in rural farming areas in several Indian
states by ITC, one of India’s leading private companies with
interests in agribusiness, packaged foods, and a range of other
products. The e-Choupal system was designed to address inefficiencies
in grain purchasing in the government-mandated
marketplaces known as mandis. In the mandi system, traders
who act as purchasing agents for buyers control market information
and are well-positioned to exploit both farmers and buyers
through practices that sustain system-wide inefficiencies.
Farmers have only an approximate idea of price trends and have
to accept the price offered them at auctions on the day they
bring their grain to market (Annamalai and Rao 2003:1, 8-9).
The approach of ITC has been to place computers with Internet
access in farming villages, carefully selecting a respected local
farmer as its host. Each e-Choupal (choupal means gathering
REDUCED TRANSACTION COSTS UNDER E-CHOUPAL
Costs (Rs/metric tonne)
600
500
400
300
200
100
0
Source: Annamalai and Rao 2003
Transportation
Bagging and Weighing
Labor Costs
Handling and
Transit Losses
Commission
No
Transaction
Costs
Farmer Farmer ITC
(Mandi)
Farmer
(e-Choupal)
Farmer
(Mandi)
ITC
(Mandi) (e- (Mandi)
Choupal)
ITC
(e-Choupal)
ITC (e-
Choupal)
place in Hindi) is located so that it can serve 6-10 villages, or
about 600 farmers. An e-Choupal costs between US$3,000
and $6,000 to set up, and about US$100 per year to maintain.
Using the system costs farmers nothing, but the host farmer,
called a sanchalak, incurs some operating costs and is obligated
by a public oath to serve the entire community. The sanchalak
benefits from increased prestige and a commission paid for all
e-Choupal transactions (Annamalai and Rao 2003:1, 11).
Farmers can use the computer to access daily closing prices on
local mandis, as well as to track global price trends or find
information about new farming techniques. They also use the e-
Choupal to order seeds, fertilizer, and consumer goods from ITC
or its partners, at prices lower than those available from village
traders. At harvest time, ITC offers to buy crops directly from any
farmer at the previous day’s market closing price; if the farmer
accepts, he transports his crop to an ITC processing center, where
the crop is weighed electronically and assessed for quality. The
farmer is then paid for the crop and given a transport fee. In this
way, the e-Choupal system bypasses the government-mandated
trading mandis (Annamalai and Rao 2003:1, 13-14).
Compared to the mandi system, farmers benefit from more
accurate weighing, faster processing time, prompt payment,
and access to a wide range of price and market information.
Farmers selling directly to ITC through an e-Choupal typically
receive a price about US$6 per ton higher for their crops, as
well as lower prices for inputs and other goods, and a sense