Scaling-up Sustainability Solutions

This blog-post is built around my talk at the WBCSD Annual Meeting held in Chennai last month.

The Background:

2015 was a year of ambition that saw the adoption of the historic Paris Agreement and the Sustainable Development Goals (SDGs). World leaders committed to building an inclusive and thriving low carbon economy, and the SDGs provide us with an all-encompassing agenda for developing our societies while addressing the critical issues of poverty, inequality and environmental degradation. This unprecedented framework for action calls upon each of us to contribute, and forward-looking companies are translating ambition to implementation at scale.

Among other things, the event showcased how companies can capitalize on the new opportunities and economic incentives while contributing to the SDGs, thanks to WBCSD business solutions that align to their strategy and operations. The session in which I spoke zoomed in on how corporate leadership has scaled up solutions in India, and how this can be applied around the world. I shared ITC’s experiences in this regard.

Scale at which ITC operates:

Over the years, ITC has designed and implemented several large-scale programmes to create sustainable livelihoods, enrich the environment and address the challenges of climate change. I illustrate the scale using a couple of examples…

ITC’s soil & moisture conservation programme promotes local management of water resources by facilitating community-based participation in planning and executing watershed projects. Nearly 8,000 water harvesting structures have been constructed under this initiative, covering a total area of about 650,000 acres. It’s difficult to visualise that scale, and for a lay-person anything beyond the sight of a naked eye is big! It may be easier, if I use the analogy of Geneva Lake, a large water body most of the audience present must’ve seen; then imagine the whole city of Geneva of which this large lake is a small part. The area covered by ITC through the soil & moisture conservation intervention is 160 times the size of Geneva city! Yes, a hundred and sixty times.

ITC’s Farm & Social Forestry programmes have greened more than 560,000 acres through tree plantations by enabling financial, technical and marketing support to small and marginal farmers. Again, this acreage by itself may not make sense, other than appearing as some large number. Let me add, that those trees have sequestered more than 5,000 kilo tonnes of CO2, which is equivalent to keeping as many as one million diesel cars off the road, based on specific emission factors! Yes, a million cars.

The ITC e-Choupal initiative is a powerful example of a development model that delivers large-scale societal value by co-creating rural markets with local communities. With a judicious blend of click & mortar capabilities, ITC e-Choupal has triggered a virtuous cycle of higher productivity, higher incomes, and enhanced capacity of farmer risk management, larger investments and higher quality and productivity. These services reach out to some four million farmers. Again, just to visualise the scale, may I say that every Indian farmer could be brought into such a network, with not more than thirty companies operating at this scale.

All these, while ITC’s revenue has grown tenfold over the last twenty years! Profits grew 33 times and the Total Shareholder Returns grew at a CAGR of over 23%

For more details do read the GRI - G4 compliant, comprehensive, Sustainability Report of ITC.

The How of This Scale:

Essentially a three-dimensional approach. Focus. Outcome Orientation. Innovation.

Focus:

Imagine a Venn Diagram. The focus of our efforts is on those areas that converge from three angles. First, the development challenges that matter to the nation. Second, those interventions that create enduring value for our stakeholder communities. As many as 250,000 people participated directly in a “Needs & Priorities Assessment” exercise in the PRA format, earlier this year. Third, those initiatives where our interventions can multiply the impact significantly by virtue of their touch-points with our value chains or their geographical vicinities.

The resultant key focus areas, viz. livelihoods for the poor, sanitation, gender equality, vocational skills, education, and climate action mirror the important global SDGs too.

For a deeper understanding, you can browse through ITC’s CSR Policy and Sustainability Policies.

Outcome Orientation:

Often, sustainability interventions are designed as point solutions. They do make a difference, but not at scale. For example, provision of information or knowledge to small holder farmers. This is certainly one component of the services provided by ITC e-Choupal. While this is a necessary condition, this won’t, by itself, raise their incomes. The information and knowledge need to be often translated to investments on the farm. But, given the inherent risk associated with farming, farmers hesitate to make those investments. This is where our livestock and such other interventions that bring supplementary incomes come into play, which enhance the risk bearing ability of the farmers. Once the intent to invest is there, the next challenge is gaining access to the recommended inputs, credit, crop insurance, farm machinery etc. The intensity of agriculture has a bearing on natural resources like water and top soil. Without a community effort, individual farmers get trapped in the tragedy of commons and exhaust these resources, and face an unsustainable future. This is where our soil & moisture conservation interventions come into play. And so on…

Thus, commitment to the eventual outcomes - and doing whatever is necessary as well as sufficient - only can demonstrate the impact and involve the communities on larger scale.

This integrated approach of ITC and the impact is well documented in a report published by APAARI.

Outcome is not a static target but a dynamic goal as the communities evolve. New goals get set on an ongoing basis to make the programmes contemporary and strengthen their enduring relevance. For example, in the sixteen years since the first e-Choupal was rolled out, the model is in its fourth version now!

Innovation:

Investment in sustainability initiatives at this scale cannot be sustained by merely keeping a portion of the profits aside. With our Chairman, Mr Deveshwar articulating the paradigm of “responsible competitiveness” for growth, the entrepreneurial energies of the whole organisation are harnessed to innovate business models that improve business competitiveness while creating sustainable livelihoods and enriching environment.

“Making Markets Work for Green GDP and Sustainable Livelihoods” is the theme of one of his speeches at ITC’s Annual Shareholders Meeting.

More importantly, co-creating solutions together with the participating communities makes the innovations relevant. This approach also synergises the complementary strengths of the multiple stakeholders, and helps execute the programmes at scale. Call it a PPPP – Public Private People Partnership – approach, if you will…

Nuances of the Agricultural Value Chains in India

Earlier this week, I gave a talk on the subject in a Workshop of Development Professionals. One of the participants prepared this summary:

Drawing upon his extensive experience of setting up and managing businesses based on value chains in agricultural commodities, Sivakumar took off from where the previous speaker left.  He said that he would reconcile the two seemingly conflicting points of views brought up in the previous session. On one hand, farmers as well as consumers feel that the intermediaries in the value chain are getting all the cream at their expense. The other was the large body of research which says that there is no evidence to conclude that middlemen in any specific commodity sector are making any more returns than justified by the value they add through capital they invest, the costs they incur and the risks they take. Once he had done that, he said, he would propose a sort of “tool kit” that the participants could use to address the inefficiencies in the value chains.

He said that the situation in India was characterized by small ticket size, large geographic dispersion, and lack of homogeneity on both the producer and the consumer end. To reach the agri produce to appropriate buyers located elsewhere, seeking products at different times, and in different form, required the middlemen to discover mechanisms such as larger than required risk cover, substituting skills for instruments and local knowledge for things like credit rating or quality testing or bank reach. They then instituted less than "global optimal" solutions. The research on market efficiency in whichever commodity focussed on "local" connections between two subsequent legs of a value chain and these were competitively shaped leading to the conclusion about market efficiency. Yet, from the point of view of global marketplace, Indian value chains were very inefficient since the summation of local optimal efficiencies did not add up to a global optimum for the whole value chain because of the non-value adding costs and unwarranted risks. This explained the simultaneous existence of "efficient markets" as tested by economists at micro level with gross inefficiencies in aggregate.

The adverse impact of the inefficiency – in terms of higher costs and risks – have been pushed to the weakest link in the chain, namely, the small farmer! As a result, the producer’s share of a consumer rupee remained low. Also, neither the full market opportunity from the evolving consumer preferences, nor the full production potential of India’s rich agro-climatic conditions have been realised.   

He therefore suggested that any work to improve the lot of small farmers cannot be a “point” solution; interventions are needed to improve efficiencies of the value chains as a whole, by transferring the costs and the risks to the most capable players along the chain.

Citing his own experience in setting up ITC e-Choupals, he laid out an approach to build the "tool kit". He then talked of two points that move along the value chain: the first is related to how much a producer would be willing to go down the value chain to reach out to the consumer and the other as to how much a consumer would be willing to go up towards production side. For the former, he talked of producers willing to push their “value offer points” by reaching out to the consumers in terms of vendor managed inventory. For the latter, he talked of contract farming as an illustration of consumer extending the “order penetration point” up the stream in the value chain.

By studying what he called the “transaction velocity” metrics, he said it would be possible to identify the non-value adding transactions in a value chain and then eliminate them through suitable interventions. ITC e-Choupals, for example, eliminated the physical movement of goods from farmers to APMC and then from there to the factories through competitive price discovery at farmer’s doorstep. Through different business models, ITC reaches out to 70000 villages in 220 districts across 16 states of the country giving them a competitive edge in sourcing.

Next he talked of “identity preservation” of the product along the value chain to mix & match the heterogeneity of production to cater to the heterogeneity in demand. Giving an example, he said there were 16 major wheat types grown in the country and 7 major atta types preferred by the consumers in different regions of the country. By setting up suitable sourcing, storage, and movement systems – both physical and information flow – to ensure that right wheat went to right mills and the right atta to market, ITC could capture and retain a huge market share in the Rs 5000 cr branded atta market.

Third he talked of “intensity of information” embedded in the products and using it for the purpose of deriving extra value for the producers. This comprised things like organic produce, responsible produce, IPM produced stuff etc. for which some segments of consumers are willing to pay more if there is evidence of the claim of the produce being what it claims to be.

Fourth he talked about moving from backyard production to collective production systems, wherever “mass production to production by masses” ratios are favourable. He gave the example of small animal holders coming together for collective dairy farming.

He strongly recommended that it would be more productive for new entrants as well – irrespective of their size of operations – to start thinking in terms of steps to move towards a “global optimum” in their value chains rather than either engaging in a zero sum game of deriving more value by reducing someone else's earning or by competing within the existing system alone.