This story originally appeared in our April 7, 2011 e-magazine. Click here to subscribe.
Getting products and services into the hands of rural villagers has been a challenge. We look at two models with promising solutions.
The sender, the Multi Commodity Exchange of India Limited (MCX), is the sixth largest commodity exchange in the world, and with 80% marketshare, the largest in the country. In addition to the exchange, MCX also distributes information on futures—to the very last mile.
As part of their Corporate Social Opportunity (CSO) Group, in 2006 MCX started Gramin Suvidha Kendra (GSK), a private-public partnership with India Post—the national postal service—that brings futures information to Indian farmers in six states. A year after the program started, MCX realized it could do more. In 2007, the company expanded its offerings and now sells seeds, water purifiers, micronutrients and solar lanterns to farmers.
The program is one answer to the rural distribution challenge that constantly stymies entrepreneurs aiming to get their products and services to rural villagers.
While the GSK program has obvious social value for the farmers, it also is “very clearly a business model,” says CSO Group’s Vice President Sarita Bahl. While the program is yet to break even, Amol Bhalerao, Manager in the CSO group, expects that some centers in operation since 2006 will do so by the end of 2012. Nonetheless, GSK announced last year that it would mobilize US$950,000 (INR 42 million) to set up 50 centers across India.
“In the end, we want to create a silent revolution,” Bahl says. “We want the farmer to go from being a producer to a marketer. Change will not happen unless it comes from the bottom level, from the farmer himself.”
Like many other organizations trying to cover the last mile, GSK operates on a hub-and-spoke model. MCX approached India Post in 2006 to use their extensive network—155,516 post offices including 125,148 rural branches that reach 594,000 villages—to distribute information.
The program uses the tiered system of head post offices at the city level, sub-post offices at sub-city level and branch-post offices at the village level. Local youths staff the sub-post offices branches that are equipped with a computer, fax-copier-printer-scanner, webcam and internet connection. At the village level—because of the lack of internet connectivity as well as the aim to create a low-cost model—branch postmasters use simple blackboards to display the price information.
In villages, where the postmaster has a lot of credibility, Bahl says many villagers opt to keep their money with the postmaster rather than a bank.
“The whole model rides on trust and credibility,” says Bahl.
But more than trust, the ability to make a profit drives the program, and the postal service is not excluded from the gains. MCX pays a small rent to the postal service for using the space at the sub-post office level. In addition, India Post shares the profits, while MCX makes money from the registration and the value added products it offers.
The costs are low, too. Annual membership is just INR 30 (US$.67), half of which goes to India Post. For its inputs, MCX charges a 7-8% distribution margin to the 11 seed companies on board, 3% of which goes to the postal service.
Outreach and Impact
Last Month, GSK opened its 26th hub in Bhatia, Gujarat. The current network reaches 2,500 villages and 12,600 registered farmers. GSK works with partners to increase their outreach, a system that works both ways. Anish Thakkarm, Director at Greenlight Planet, a GSK partner that uses a unique distribution system involving village-level entrepreneurs, sees the value in a partnership.
“We realize that India is huge, and our channel alone cannot reach every villager,” he says.
To measure impact, Pondicherry University carried out an impact study in December 2010 using 150 samples from both a control group (non-GSK village) and a focus group (registered GSK farmers).
The results showed that, as an awareness-raising platform, GSK has been successful. While only 10% of the farmers in the non-GSK group were aware that a futures market exists, 95% in the focus group knew about it—although there certainly is room for improvement. This is important because many other programs reaching out to farmers do not talk about futures prices.
Going deeper, almost 6 in 10 GSK registered farmers stored their crop to sell at strategic times post-harvest rather than selling the entire crop right after harvest.
In the control group, only 10% did so.
What this means is that by waiting, farmers are using their knowledge of futures markets to sell for a better price.
The Promise of Partnerships
While MCX is using the postal service to reach rural farmers in India, ColaLife hopes to bring social goods such as oral rehydration salts, high-dose vitamin A and water purification tablets to rural villages.
The distribution plan is simple: ColaLife has developed a wedge-shaped container, called an AidPod, that fits between the Coca Cola bottles in their crates. Coca Cola already has a distribution system in place that far outreaches most products—even in the remote regions of developing countries.
By not adding any additional strain to the Coca Cola distributors, the non-profit hopes to sell “mother’s kits” to rural women to reduce the incidence of diarrhea in children. The program is new and untested—they’re currently running a pilot in Zambia—but the potential is there.
These two programs piggyback off the successful outreach of established organizations—the Indian Post and Coca Cola—to provide rural villagers with information, in the case of GSK, and social goods, in the case of ColaLife. In the game of rural distribution, trust is key and using an existing network can help companies gain credibility for their services and products that much faster.
Photo credits: GSK and Tim Dench