ITC’s ‘Phygital’ model to optimise procurement cost and benefit farmers

ITC’s ‘phygital’ model that involves the engagement of FPOs (farmer producer organisations) and the use of digital technology for providing personalised solutions to farmers, coupled with its mantra of giving farmers “the freedom of choice” to sell their produce through market linkages, is likely to augur well for the company as it is set to optimise procurement cost by ensuring extensive backward linkages while helping farmers in better price discovery.

According to S Sivakumar, group head of agri and IT businesses, ITC, nearly 100 per cent of the company’s sourcing (of raw materials) across various value chains and geographies would be routed through the system in the next four-to-five years.

While on the one hand, it will help benefit the diversified conglomerate by ensuring raw material security, traceability and cost efficiencies, on the other hand, the comprehensive solution offered through the ITCMAARS-FPO enabled phygital channel is likely to benefit farmers by way of access to better products and services at their doorsteps.

• Read: ITC enhances direct reach, expands stockists’ network to tap into rural growth story

“Today, it is supercritical to transform the agri-ecosystem from the conventional production centric supply chains to demand responsive value chains leading to enhanced competitiveness of farmers. Therefore, ITC has crafted a targeted collaborative model that focuses on aggregating small farmers through FPOs. In this model, ITCMAARS acts as a solution integrator, delivering a range of functionalities such as digital hyperlocal services, free of cost AI-based personalised advisories, online marketplace, financial linkages and access to technology-enabled agri services at the farmers’ doorsteps, while providing us traceable and identity preserved agri produce. Going forward, we envisage this model to be a key differentiator for ITC and most of our agri value chain across geographies will be operating under this future-ready ecosystem,” Sivakumar told BusinessLine.

The company’s confidence in stepping up sourcing stems from an underlying trust that gives farmers the freedom to sell their produce to any buyer willing to offer the right value. Barring a few organic and specialty crops such as potatoes, ITC hardly enters a contract or purchase agreement with the farmers. However, going by the economies of scale, the company’s natural ability to deliver value to farmers is much stronger as its diverse agri value chains are anchored by various powerful brands across categories.

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“Even though the farmers in our FPO model are not bound by any contract to sell to us, in most cases they find value in partnering with ITC for two key reasons – one is our natural ability to deliver value to the farmers by enhancing the competitiveness of demand-driven agri value chains anchored by our strong food brands and on the other, because of the freedom of choice, our relationship with farmers is built on the foundation of enormous trust, which truly is the differentiator in our model,” he said.

According to him, it all boils down to whether the demand anchor is positioned to deliver higher value to the farmers, and that is where the brands come in. However, there is a need to improve productivity, cost and quality optimisation to ensure no unhindered price increase, which could impact consumer demand, highlighting the need to continuously engage with the farmers.

Industry experts and analysts feel that ITC is uniquely placed in terms of its strong backward linkages compared to some of its peers in the FMCG industry, as it puts it in better stead regarding control over costs.

ITC’s FPO model a success story?

Empowered with the knowledge and experience of its two-decade-long e-Choupal programme, which has helped create one of the largest rural digital infrastructures empowering over four million farmers to make sustainable gains in crop yield, crop quality, crop income, and market access, ITC has been able to leverage the ITCMAARS-FPO phygital platform to provide an end-to-end solution to farmers.   

ITCMAARS currently covers 1105 FPOs across nine states, including Uttar Pradesh, Rajasthan, Madhya Pradesh, Maharashtra, Bihar, Karnataka, Andhra Pradesh, Telangana, (West Bengal next year) with 5.1 lakh farmer registrations. Within the existing catchments, the aim is to expand reach to 10 million farmers and take the total number of FPOs to 4000 in the next four-to-five years.

Highlighting the key value that ITC has brought to the FPO model, he said, the company has been able to bring together all four components, including governance, compliance, market linkage and operations management, to ensure capacity building for the FPOs and provide the necessary handholding support.

“As a result of all of this within one season of this capacity building, more than 50 per cent of farmers in ITC’s FPO ecosystem are able to transact as opposed to less than 10 per cent in normal course. Typically, it is perceived that FPOs need a lot of time to build. While it is true that they take time to mature and evolve, the success of the model depends on creating an ecosystem that ensures viability of the FPOs through handholding, whilst motivating farmers to actively participate in the system by demonstrating value through 360 degree, comprehensive and well-structured services,” he pointed out.

The company expects almost 100 per cent of all output and input transactions to happen through the platform in the four-to-five years.