A third way to move forward—and which can coincide with financial innovation—is to make full use of the power of information and communications technology to retail price risk management to the farmers. A choice of options could be added, for example, to the marketing choices given through a village-level Internet system such as India’s e-choupals. There are many other ways in which Internet and mobile phone technology, smart cards and other technologies could be used to overcome the “last mile” problem in distributing financial services, and including price risk management is no exception. Work on several such ideas (although not in the coffee sector) is ongoing in various countries, including India and Kenya.
Box 3: India’s e-choupals: how technology can help cross the “last mile”
Agricultural marketing in India has for a long time been rather disorganized, with a long chain of intermediaries making it difficult for agricultural processors or supermarkets to procure the quality of goods that they desire, and reducing the share of the final consumer price that is received by the Indian farmer to a percentage considerably below that of other countries.
To change this situation, one of India’s largest agro-corporates, ITC Ltd., started in June 2000 setting up a network of rural internet kiosks, known as e-choupals. Five years later, these kiosks already reached well over a million farmers. The e-choupals are managed by local farmers, selected from among the community. They act not only as a procurement platform for ITC, but also allow farmers to order inputs and obtain information on specific topics, including through a number of crop-specific Web sites in local languages (and also Web sites on issues such as aquaculture).
The e-choupal initiative has been very successful, and is starting to be replicated not only in India, but also other parts of the world. The empowerment that the technology provides to farmers helps them to make better decisions, and from ITC’s perspective, the system allows it to procure the high-quality product that it needs for its operations. The trained farmers who maintain the system earn a good living, and in terms of recurrent costs, the system is already sustainable.
A platform of this nature is well-suited to act as a vehicle for the provision of financial services—something that, indeed, ITC is now looking at. Price risk management may then follow soon.
A fourth way to move forward is to make risk transfer a more common part of physical marketing contracts—in other words, build further on the strength of existing supply chains. For international traders, and even for many of the larger exporters, managing price risk is no problem as they have easy access to futures and over-the-counter markets So why could they not absorb more systematically all price risks through the contracts that they sign with suppliers for whom such access is much more problematic? After all, they already do so in many of their contracts, so why not make this a general practice? The obstacles are twofold.
accounted to a few hundred thousand dollars from the World Bank for work in India, and to a few tens of thousands for all the work in other countries. Some donors, such as the European Community, have supported initiatives that went under the commodity exchange banner, but these initiatives were largely donor driven and show little potential for commercial uptake—at best, they have become subsidized price information schemes.