Collection of Case Studies 2. - Seas of Change Initiative

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4. What are the key implications for scaling inclusive business?Key featuresEffective governance. ITC is the chain governor, and decisions are made to benefit its stockholders. However,a win-win situation has been created because farmers also benefit from cost reductions in the chain, without anyobligation for farmers to sell to ITC. The farmer’s purchasing power has also increased through availability ofcheaper and reliable agricultural inputs sold in the e-Sagaars, along with his/her bargaining power, which hasbeen enhanced through improved access to information.Information flow. Internet kiosks (e-Choupals) located in the villages allow farmers to gain access to informationon weather, crop prices, scientific farming practices, farmer peer groups, soil testing services, trainings; thisenables farmers to improve productivity and make better informed selling decisions. This online information ismade available in Hindi. Furthermore, the recent wide availability of televisions in rural villages has provided anextra means for farmers to access valuable information.Trust. Transparency in the products’ analysis, measurement, and weighing (electronic weighing devices), hasenhanced the level of trust within the chain. Moreover, farmers’ free access to information from sanchalakswithout compulsion to sell to ITC increases the level of trust even further.PPP. This is a private initiative.Provision of credit. All transactions are on a cash basis and no credit is involved.Diversification. ITC is primarily dealing with soya beans.Capacity building. Market and weather knowledge is shared, and training is provided in better farm practices,risk mitigation and holistic crop management.Chain efficiency/Competitiveness. Chain efficiency has been achieved through reduction in costs at thefarmers’ as well as at ITC’s (supermarket) level. The chain’s competitiveness has been enhanced by eliminatingUSD 13/ton of the costs. These savings are shared between the farmer (USD 6/ton) and ITC (USD 7/ton).Inputs. ITC sells high quality inputs at a lower price, and this has allowed farmers to increase yields.Technology transfer. Technology is transferred at ITC Sagaars and is available to all producers.Market linkages. The initiative provides an alternative market linkage mechanism (previously the only options forfarmers were mandis) at a lower cost.Sustainability. Since ITC is the chain governor, sustainability will be assured for as long as the companycontinues to find this to be a profitable business.Drawbacks. No specific attention was given to gender equity or to the landless.Sources:• Field mission: ITC Ltd. Agribusiness Division, Bhopal, 7 th June 2008.• Data provided by Dr. Nirmal Reddy, General Manager (Commodities), ITC Ltd - Agribusiness Division.• E-Choupal: ITC’s Rural Networking Project, case study prepared by Prof. Subhash Bhatnagar and Ankita Dewan at theIndian Institute of Management (Ahmedabad) and Magui Torres and Parameeta Kanungo at the World Bank.• E-Choupal lauded by the President of India, NASC Complex, New Delhi, 5 th June 2007.• E-Choupal Case Study from India. Information Technology and Social Enterprise. E-Choupals Use Internet Kiosks toIncrease Food Price Transparency. Jan 2009.• ITC e-Choupal: Corporate Social Responsibility in Rural India, A. Farhoomand, S. Bhatnagar, 2008.• Nurturing entrepreneurship in India’s villages, The McKinsey Quarterly, Nov 2008.• What works: ITC’s e-Choupal and profitable rural transformation. Web-based information and procurement tools forIndian farmers. University of Michigan, K. Annamalai, S. Rao, Aug 2003.• Use of ICT in Agri Business: Prospects and Challenges. FAI workshop on importance of ICT in the fertiliser andagriculture sectors, May 2006. http://www.faidelhi.org/training%20programme/workshop-Gao-06/Use%20of%20ICT%20in%20Agri%20Business%20-%20Sanjiv%20Sharma.pdf7
2. Cocoa chain in Indonesia, Island of FloresAuthor and organisation: VECO/VredeseilandenThis case is one of a series specifically prepared by VECO/Vredeseilanden and local partners for the “Seas ofChange” event. The business partner involved in the case is PT Mars.Why is the case an interesting example?Current practice of sustainable agricultural chain development shows that the initiative of converting chainstowards sustainability is owned by a variety of chain actors and chain supporters. In this case VECO contributesto a link between a private sector enterprise (Mars PT) and local cocoa farmers in Flores, Indonesia.1. Context and backgroundCocoa subsector in IndonesiaCocoa is one of the most attractive crops for farmers around the equator because of the specific climate and thecertainty of income in the long term. The Indonesian cocoa sector has experienced tremendous growth duringthe last 25 years and is now the third biggest cocoa producer with about a 15% share of the total world cocoabean production. Cocoa is cultivated in Indonesia on over 1.5 million hectares, providing the main source ofincome for over 1,400,000 smallholder farmers, generating over USD 1.2 billion in exports annually. Thecountry's cocoa plantations are among the most productive in the world, with each hectare able to producebetween 400 and 800 kilograms of cocoa. Up to now, smallholders contributed 93% of national production.Despite the importance of cocoa cultivation in Indonesia’s economy, productivity, bean quality and farmprofitability have declined. This declining trend is being reversed the last few years with on-farm investments intree rejuvenation, replanting and sustainable farming practices. Such investment did not happen earlier due to thelimited access to credit, to knowledge on sustainable farming practices and due to poor transmission of qualityprice signals to farmers. This latter failure is due to the fragmentation in Indonesia’s cocoa supply chain, withover 90% of the cocoa production on smallholder farms that sell into poorly regulated and highly competitivemarketing chains.The population of Flores is growing and farmers are owning increasingly smaller plots of farmland, incomes aresteady while costs are increasing. There is hardly local knowledge about cocoa farming, because cocoa is notendemic to this region. The farmers of the districts Ende and Flores Timur have organized themselves in smallfarmer organizations. They were informal groups of farmers, setting up credit systems for their members. Thefarmer organizations function as facilitators, helping their members gain access to information and to providesmall amounts of working capital.VECO Indonesia is the Indonesian branch of the Belgian NGO Vredeseilanden working on Sustainable AgricultureChain Development. Its mission is to enhance the position of the organized family farmers. VECO Indonesiastarted in 2009 with the funding and strengthening of the organizational capacity of JANTAN and in 2010 with thepartnership with PT Mars. PT Mars is one of the biggest companies in the global cocoa industry and results of theVECO-PT Mars partnership illustrate how working together with the private sector can create new opportunitiesand resources for farmers.JANTAN is a business-oriented farmer organization in Eastern Flores. They focus their activities on the cocoa andcopra commodities. The overall aim of the organization is the realization of good (economical) quality of life forthe communities of East Flores district, through the development of collective marketing of potentialcommodities, backed by a strong and independent organization.SIKAP is a newly established farmer organization founded by 9 village in Ende district. The overall aim of SIKAP isthe achievement of a fair and sustainable welfare of cocoa farmers by strengthening the bargaining position offarmers receiving a fair price. From the start they had good relations with the local government and were able tosecure support from the government in the form of a warehouse and a drying facility of Cocoa managed by thenew Processing Unit (UPH).Main bottlenecks/problems faced by the cocoa farmers in the chain.8
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Appendix 1: Overview chain actorsPr
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Collection of Case Studies 2. - Seas of Change Initiative

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