Electronic commerce and

opportunities for
agribusiness in India
N.H. Rao

Abstract: Electronic commerce (or e-commerce) using Internet technologies helps

businesses to cut costs and cycle times, raise efficiency and provide more
information, choice and value to consumers. Agribusinesses in India will need to
deploy Internet technologies to gain competitive advantage and avoid isolation from
mainstream businesses. Some challenges to becoming e-commerce-enabled are
technical (limited infrastructure for Internet access), some are government policy-
related (bandwidth, free movement of goods across states, market and trade policies),
and some are legal. Many of these challenges are being addressed through both
public and private initiatives. Some are specific to agribusiness: for example,
relating to scope, regional specificity, the multidisciplinary nature of agricultural
services, and trade restrictions on agro-products. Low levels of computer literacy
and innumerable local languages compound these challenges. A two-stage strategy
is suggested for agribusiness, one for improving operational efficiencies within
businesses by using Internet technologies in back office business operations, and the
other for delivering both knowledge and products to farmers. The first requires
deploying new, generic and cost-effective Internet technologies with open standards
and protocols. The second requires using Internet technologies for strategic
positioning of products and services to gain long-term competitive advantage. The
latter would mean persisting with conventional business strategy while using the
Internet as an effective front end.

Keywords: e-commerce; strategy; agribusiness; Internet

The author is with the National Academy of Agricultural Research Management, Rajendranagar,
Hyderabad 500 030, India. E-mail: [email protected].

Electronic commerce (or e-commerce) is doing business and cycle times, raise efficiencies, and provide more
over interconnected networks using Web-based or information, choice and value to consumers. This is why
Internet technologies (O’Brien, 1999). The Internet has business use of the Internet is expanding from simple
fundamentally changed the ways in which people learn, electronic information exchange to strategic applications.
work, communicate, consume and transact business, as it The main advantage of the Internet is its ability to link
enables the flow of digital information across the globe, activities within and outside the business, and with
between businesse s, and into individu al homes (Gates, customers, through a standardized information infrastruc-
1999). All businesse s can benefit by using the Internet, as ture and common and open protocols. Such
it is perhaps the most powerful tool available today to standardization has meant that companies have been able
increase operational effectiveness (Porter, 2001). This is to adopt information and communication technologies
because every activity involves the processing and com- based on the Internet at much lower costs than earlier
munication of information. By making real-time generations of these technologies. Agribusiness too can
exchanges of information quick and easy throughout the benefit from the adoption of Internet technologies.
value chain (from the creation of a product or service to The business opportunities presente d by globalization,
its delivery) , the Internet allows businesses to cut costs the opening of markets and emerging concerns for the

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E-commerce and opportunities for agribusiness in India

long-term sustainability of agricultural production physical infrastructure component operates broadly at

systems substantially enlarge the stakeholder base for the two levels. The first level is within the organization in the
agriculture of the future. Agriculture will no longer be form of a local area network (LAN) or intranet. The
simply a set of farming practices carried out in fields, it second level is outside the physical limits of the organiza-
will involve a diversity of economic activities that affect tion and connects the intranet to a wider regional,
consumers, farmers, governm ent, industry, the environ- national or global level network (wide area network, or
ment and society at large. Farming will therefore have to WAN). This level is concerned with providing high
be integrated with information and communication bandwidths through Internet gateways and a national
technologies. This implies that agriculture will become fibre-optic backbone, etc. The functioning of the WAN is
more knowledge-intensive and that the delivery of genera lly controlled by Internet service providers, compa-
agricultural products and services will increasingly need nies whose operating limits are governe d by national
to be controlled by real-time processing and communica- policy and public and private investme nts. The creation of
tion of information and knowledge, that is by the digital LAN, and development of software for applications and
flow of information through Internet technologies. services are largely governe d by investment and by the
Thus, the need for agribusinesses to become human resource capabilities of individu al businesse s.
‘e-commerce-enabled’ is driven both by the changing Unless all three levels operate efficiently and in an inte-
requirements of future agriculture and by the requireme nt grated fashion, it is not possible to make effective use of
to be operationally effective, efficient, sustainable and Internet technologies in business.
competitive. The key question for agribusinesses therefore
is not whether to use Internet-based technologies in
conducting business, but how to use them. They will have
Information infrastructure in India
to develop strategies for deploying these technologies and At the national level, information infrastructure includes
for the delivery of products and services to farmers to computers and computer networks, telephone and satel-
gain competitive advantage. This paper develops a frame- lite communication systems, and broadcast and print
work for such a strategy for agribusinesses in India based on: media. A communication infrastructure based on tele-
phones, satellites, radio and television has existed in India
• the status of the information technology infrastructure
for a long time and has evolved with advances in commu-
for e-commerce in India,
nication technologies. An information technology policy
• the barriers that limit investme nts by agribusiness in e-
has been adopted by the governme nt of India, which
commerce, and
envisa ges combining all the independent infrastructures
• how agribusinesses can position themselv es strategi-
and systems in an integrated fashion to inform, communi-
cally to deliver products and services to farmers via the
cate and transact business (Ministry of Information
Internet.
Technology, 2000).
The development of the Internet infrastructure in India
The information technology infrastructure of was pioneered by the Department of Electronics and
e-commerce academic institutions such as the Indian Institutes of
E-commerce is not just buying and selling products Technology through the Educational Research Network
online. It encompasses the automation of all business (ERNET) project in the early 1980s. Its model was the
processes such as purchasing and sales operations ARPANET project of the United States Department of
between companies, dealers, suppliers, wholesa lers, Defense, which linked four US university nodes. Subse-
retailers, customer service and maintenance organiza- quently, the National Informatics Centre created NICNET,
tions; as well as dealing directly with the company’s final which established these facilities in central governm ent
customers. It includes interactive ordering, marketing and departments and in several district centres. NICNET now
payment processes on the Internet, accessing of databases covers nearly all districts in India.
by customers and suppliers, accessing of records by sales By the mid-1990s, the Department of Telecommunica-
and service personne l and involvement in business and tions (BSNL/VSNL) had extended Internet access to
product development. individu al homes and businesses via the telephone
E-commerce thus automates the whole process from networks . By 1998, India had about 24 million telephones
order-taking to delivery and the flow of information and (of which eight million were home connections), one
decisions associated with it, across organizations and to million Internet connections and about six million
the end customer. One advantage of Internet technologies Internet users. The fibre-optic backbone consisted of
is that because of their open platform and common 75,000 route kilometers and was expanding rapidly. A
standards, investme nts in information infrastructure to number of very small aperture terminals (VSATs) dot the
automate the above processes are far lower than for past countryside providing access to Internet services through
genera tions of information technologies. the national satellites. At present the Internet reaches only
The information technology infrastructure for e- about 100 towns and cities, but corporate houses are
commerce must therefore comprise three components: the setting up cyber retail outlets connected through a VSAT
physical infrastructure for networking and connectivity network. There are over 10 million home PCs in India that
(computers and networks, optic fibre, etc and associated can tap into this network. A number of Indian companies
operating software and protocols), applications (software in the private and public sector have set up Websites to
for end use within organizations and by customers), and provide information about products and services. But
services (two-way transactions between businesses/ effective use of these facilities is limited by the inter-
clients/customers for order placement, payments etc). The national bandwidth availability of only 325 mbps.

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 E-commerce and opportunities for agribusiness in India

A national information infrastructure initiative was location, season and market. The simultaneous delivery of
launched after the creation of the Ministry of Information goods, information and services to meet diverse indi-
Technology in 1999. The initiative aims to create a seam- vidual needs is characteristic of an e-commerce-enabled
less Web of interconnected information networks , business, and so agribusiness too would benefit from
computers and databases that will link homes, becoming e-commerce-enabled.
workplaces, businesses and public institutions. It will The barriers to investments in e-commerce by
embrace virtually all modes of information generation, agribusinesses are commonly:
transmission and use. In addition to electronic commerce,
• external to the business;
the information infrastructure is expected to be employed
• lack of reach (as even telephone penetration is at a very
primarily in education, health and electronic governa nce.
low level in rural areas), narrow Internet bandwidth,
The initiative is aiming for a 30% annual growth rate in
restrictions on agricultural goods movement between
the levels of fibre-optic backbone route length, VSAT
states, non-uniform tax structures between states,
capacity and international bandwidth availability (Vittal
inadequ ate legal protection for Web transactions, lack
and Mahalingam, 2001). A total of 100 million Internet
of matching investme nts by business partners internal
connections are planned by 2008. Access to the common
to the organization;
man, including farmers, will be provided through IT
• costs of networking infrastructure, inadequate skilled
kiosks in public places. About one million such kiosks
manpower to develop applications and services related
will be in place by 2005. The bandwidth made available to
to end users; and
service this infrastructure will rise to about 300 gbps by
• knowledg e only of local language, low computer usage
2005. Private sector initiatives will be encouraged in all
and literacy, low credit card usage affecting trans-
components of the Internet infrastructure. Policy initia-
actions, and lack of trust.
tives are being taken to minimize regulation, to extend the
fibre-optic backbone to all villages by encouraging private However, attempts are being made to remove or mitigate
investment in infrastructure, and to facilitate business these barriers at various levels. For example, changes in
transactions using the Internet (Ministry of Information policy regulations are being introduced that will help
Technology, 2000). overcome bandwidth, infrastructure and goods move-
Clearly, the present Internet infrastructure in India is ment-related barriers. Many state governm ents are
grossly inadequate for e-commerce, but it is poised for committing themselv es to providing computers and
significant growth in the next five years as a result of the Internet connections to individu al villages within the next
information infrastructure initiatives of the governm ent three years. Corporate houses with strong retail infra-
and private sectors. It is therefore reasonable to expect structure are installing VSAT-based networks in remote
that farmers will routinely be accessing the Internet in towns and villages. Computer literacy is growing, and so
their villages and public places. They are already doing so is local language computing. Technologies such as graphi-
in a few villages where pilot projects have been set up. cal user interface (GUI) can be used to deal with poor
Agricultural products and services delivery systems will levels of literacy.
have to integrate with the national infrastructure and
adapt quickly to these changes by developing appli-
cations if they are to remain effective and releva nt in
Strategic use of Internet technologies in
future. It is critically important for agribusinesses to plan
agribusiness
to make themselv es ‘e-commerce-enabled’. It is of note that, wherever access has been made avail-
able, farmers, rural entrep reneurs and rural women have
been quick to use market, technical or health-related
Current use and barriers to effective use of information provided through computer networks
Internet technologies in agribusiness (Arunachalam, 1999). This implies that, despite doubts
In India at present, e-commerce constitutes only a neglig- about levels of education and skills, the capacity to use
ible portion of the economy. But its advantages and Internet-based services does exist and can be exploited in
convenience are now being realized. In 1999–2000 total e- rural India, provided the services are delivered with a
commerce transactions in India amounted to about basic understanding of local needs and culture. The seeds
Rs3,000,000,000. By the end of 2002, the e-commerce of e-commerce in agribusiness have already been sown in
market could be of the order of Rs30,000,000,000, and India, as a few companies (for example, iKisan.com) have
even this forecast is expected by many to be overshot. set up portals and have begun operations on a pilot scale.
Banks and financial institutions were among the first to The changes in investment policy and the infrastructure
set up e-commerce sites and tap into both the global and initiatives taken will ensure that the physical infrastruc-
local markets, but there is much change under way in the ture to deliver information efficiently (bandwidth,
agribusiness world too. The Indian Government, fibre-optic backbone, etc) will be available in a few years.
agribusiness and farmers are all responding to the chang- It is for agribusinesses to develop and implement strate-
ing demands of globalization, intellectual property gies that can lead to rapid exploitation of the emerging
protection, food security and sustainability obligations. information infrastructure and the receptivity of farmers
All of these will mean ensuring not only delivery of to provide relevant applications and services. The need to
inputs to farmers, but also providing quality services and do this quickly is even more essential as globalization
knowled ge that add value to agricultural products and exposes both Indian agribusinesses and farmers to world-
the natural resource base of agriculture. Farmers are wide competition.
widesp read and their needs vary according to crop, Any strategy to deploy Internet technologies in

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E-commerce and opportunities for agribusiness in India

agribusiness must aim at deriving long-term competitive designed to be compatible with local cultures. Educating
advantage. It must recognize that Internet technologies farmers in computer use can be effective in ensuring
can lead to improving competitive advantage in at least customer loyalty. Local computer centres attract and
two ways: retain farmer loyalty by functioning not only for the
purposes of agribusiness, but also to provide farmers with
• improving operational efficiency by reducing costs and
services such as e-mail and information on various issues
cycle times; and
of interest.
• adding value to products and services delivered to
farmers via the Internet.
(ii) Products. Farmers need to be supplied with prod-
The first of these may be obvious to many, and it is ucts, services and information/knowledg e that add value
common to accept this as perhaps the main or only to inputs and services. These products include:
advantage of deploying Internet technologies. The sec-
• seed (by crop, variety/hybrid, location, company);
ond, however, is closer to conventional business strategy,
• fertilizers (by crop, soil, irriga tion method, company);
and its importance will become greater as Internet tech-
• pesticides (by crop, company, weather, location, envi-
nologies take deeper root in agribusiness.
ronment regulations); and
Improving operational efficiency • implements (by farm size, soil, crop).
Compared with previous genera tions of information There is considerable scope for business-to-business
technologies, Internet technologies are more cost-effective transactions with different product manufacturers,
for automating business process operations. This is dealers, etc and business-to-consumer (with farmers)
because of the open standards and protocols of Internet transactions when dealing with the manufacture and
technologies. These make it relatively easy for all busi- supply of products. Transactions are also possible
nesses, including competitors, to gain strategic advantage between farmers, particularly for hiring implements,
by cutting operational costs and cycle times. Sooner or buying water from neighbours (groundwater markets),
later all agribusinesses will have to deploy Internet etc. All these can be handled by the business portal using
technologies in back office operations to survive as a Internet technologies. Since access to the Internet expands
business and avoid the risk of isolation, as their partners farmers’ power to source products from other businesses,
and competitors will be doing the same. Access to quali- it is not enough to limit the strategy to delivery of prod-
fied manpower and proximity to the national ucts. It is necessary to add value to the products by
infrastructure backbone may give some companies initial deliverin g appropriate knowledg e and services. The
advantages, but in the longer term the gains in general Internet can be used effectively to provide such services.
will be evenly spread among competing businesses. The
key to maintaining a sustained advantage over competi- (iii) Internet-based services. Internet-based services are
tion in the long run lies therefore in careful strategic mainly business-to-customer transactions with farmers
positioning for delivery of products and services. and can include:

Determinants of the strategy for delivery of products and • providing information about weather forecasts;
services • providing information about products and their
availability;
• providing information on market prices;
(i) Scope. In Indian conditions, where scope is limited
• credit services (by farm size, location, governm ent or
by resources at user level, access to information technol-
other programmes);
ogy resources need not mean a computer in each farmer
• storage (by product, location, export);
household. These resources can be treated as community
• transport (by product, location);
resources in the same fashion as telephones and television
• extension/advisory support in crop management;
were when they were initially introduced in villages. On
• insurance services;
this principle, bio-information villages have been set up
• news (agriculture, policy, markets, other information);
in Pondicherry, where value-added location-specific
• chatting with other farmers;
information on markets, subsidies, crop managemen t, etc,
• discussion forums; and
is provided to farmers at low cost through a system of
• e-mail.
networke d computers in 20 villages. Similar experiments
at the village level are being conducted in many locations. The Internet provides a convenient and cost-effective
The agribusiness portal, iKisan.com, also operates on a medium to source and provide all the above types of
simila r basis: one computer and one telephone provide information from the agribusiness portal. It will be
Internet access in the company’s local village farm infor- necessa ry to invest continually in updating the informa-
mation centre. Thus, a village-level information centre tion, as information needs to be provided in near
with the basic infrastructure, a computer and connectivity real-time to be effective.
(dial-up connectivity would be adequate in most cases) is
a prerequisite for Internet-based delivery of products and (iv) Location specificity of information and
services. A village school, primary health centre or any services. Most agribusiness services, know ledge and
other such common property resource can be the nucleus information need to be local or, at best, regional in scope,
of such a centre. although farmers can source inputs (products) from
Another issue related to scope is language and literacy. anywhere in the world. For effective and efficient use of
Information must be in local languages and the GUI products, product information must be supplemented

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 E-commerce and opportunities for agribusiness in India

with crop management information. But, crop manage- with the Internet providing an effective front end to the
ment information is location-specific and largely business (Porter, 2001).
situational. It would vary with crops, weather, pest
attacks, input use, etc. Expert advice must necessa rily be
local, in consultation with farmers and based on actual
Conclusion
diagnosis of crop symptoms. It is possible, however, to This paper focuses on the challenges and opportunities
capture high quality knowled ge, information and advice the emerging digital economy holds for agribusiness in
from the best agricultural experts and make it available in India. Some challenges are technical (creation of appro-
digital form at the local village computer centre or priate intranet and extranet architecture for Internet
through extension agents with notebook PCs for inter- access), some are governm ent policy-related (bandwidth,
active use in contact sessions with farmers. Because of free movement of goods across states, market and trade
limitations of bandwidth and also for strategic reasons, it policies), some are legal. Many of these challenges are
would not be possible to deliver such content via the being addresse d through both public and private initia-
Internet. Companies could invest in developing high tives. Some are specific to agribusiness: for example
quality multimedia content through CDs, or store it in providing access to Web-based services to farmers/
local village computer centres for intera ctive use by communities of farmers in villages; the regiona l-
farmers and their extension agents. In the case of (agroecozone)-specific nature of the use of agricultural
agribusinesses therefore, the Internet cannot entirely products and services; the variations in demand over time
substitute for face-to-face interactions with farmers. (seasonal and intraseasonal); the multidisciplinary
Provision of some agricultural products and services will knowledge base of services; and trade restrictions on
always require intervent ion by company personne l. But agro-products. In addition, low levels of computer lit-
the Internet can effectively complement local advice and eracy and innumerable local languages add a new
knowled ge stored in local computers by providing near dimensio n to the problems of making agribusiness in
real-time information on weather, markets and other India e-commerce-enabled.
servic es mentione d in (iii). This will build farmer trust, But agribusinesses in India will need to deploy Internet
and lead to more efficient, cost-effective and sustained technologies to gain competitive advantage and avoid
use of the company’s products and the farmer ’s resources. isolation from mainstream businesses. A two-stage
strategy is suggested: one for introducing Internet tech-
(v) Networking effects. E-mail, chats, frequently asked nology to make internal business operations cost-effective
questions (FAQs), discussion forums, etc can have signifi- and efficient, and the other for delivering value-added
cant networking effects through which the company’s knowledge, products and services to farmers. The first
products and services can become more attractive and can be based more or less on generic and cost-effective
brand loyalty can be built up. Internet technologies with open standards and protocols.
The second requires agribusinesses to deploy Internet
(vi) Threat of increased competition. Access to the technologies to position themselv es strategically to gain
Internet widens farmers’ choice of suppliers of products long-term competitive advantage, and to complement
and servic es. It expands their range of access from local Internet-based services with local, personal interactions
or regional to a global scale. Therefore , the power of with farmers. The latter is, in many ways, similar to
farmers to bargain on cost and quality of services and conventional business strategy for gaining sustained
products will also rise. To survive in the long run, competitive advantage, with the Internet providing an
agribusinesses will have to deliver more value and effective front end to the business.
benefits that are different from the competition. This will
mean that agribusinesses cannot plan to develop generic References
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