Analysis of Cold Chain in India

A Cold Chain is a temperature controlled supply chain cold storage and distribution in which agricultural produce are preserved afresh and shelf-life is extended for a longer period of time. With increasing food demand and changing lifestyle, Cold Chain has become the focal point for the government and investors. This industry facilitates long distance transport of various products and makes seasonal products available for the entire year. It’s a kind of linkage between the farmers and consumers. This integrated system helps in maintaining quality in terms of nutritive value, crispness, freshness, taste and appearance.
The major industries covered under cold chain are:
1. Agriculture, Horticulture & Floriculture
2. Dairy
3. Confectionary
4. Pharmaceutical
5. Industrial Chemicals
6. Poultry and Meat Processing

There are two main elements in a cold chain logistics system:
1. Surface Storage: It is a refrigerated warehouse for storage of perishable products.
2. Refrigerated Transportation: Transportation of perishable goods by reefer containers, trucks, ships etc.
1. Production Zone: Fields where fruits and vegetables are grown are procured by cold chain agency or retailers.
2. Pre-cooling centers: Produce is brought and pre-cooled for a short period and prepared for long distances transport.
3. Refrigerated Transport: Reefer trucks are used to transport food products at controlled temperature from the pre-cooling center to the cold storages. The size of these trucks could vary from one ton to more than 15 tons.
4. Cold Storage: These are centrally located warehouses built to store perishable fruits and vegetables for a longer duration. It depends on factors like product type, how long the product needs to be stored and what use it is going to be put to. The product is stored at a sub-zero temperature using methods like chilled storage, deep freezer storage, controlled atmosphere storage, gas controlled cold storage etc. All these methods slow down the ripening process of the food product and enhance its shelf life.
5. Processing Plant: Food products are taken to a processing plant, where it can be converted into jams, jellies, pickles or juices.
6. Wholesalers/Retailers: Food products are transferred to a wholesaler or retailer. This transportation is again done in reefer trucks. At the retail store, these food products are again stored at low temperatures in large refrigeration units, to delay the process of decay.
7. Export: Finally export of food products is typically done in refrigerated containers in ships.
Different Stakeholders in a Cold Chain business are:
1. Farmers
2. Logistic Providers
3. Wholesalers
4. Other Interested Groups
1. Better Product Quality in terms of nutritional value, color, texture.
2. No Bacterial formation takes place due to proper cold storage conditions.
3. Maintenance of hygiene
4. Maintained Humidity
5. Longer Storage of product/extension of Shelf life
6. Value for Money
7. Development of packaging industry
8. Address the issue of traceability
9. Better handling and Hygiene practices
10. Inventory management and automation
11. Palletized handling and racking
12. The growth of refrigerated transport industry
The major business opportunities related to cold chain industry are:
1. Cold Storages
2. Refrigerated Transport
3. Training Institutes for refrigeration technicians, logistics professionals and quality inspectors
4. Material Handling Solutions
5. Logistics Management software
6. Dock Management equipment
7. Vehicle Monitoring equipment
8. Consulting and commissioning professionals
9. Equipment service and maintenance
10. Temperature controlled display cabinets
The Government of India has recognized the need to nurture the cold chain industry and has introduced several incentives to achieve its objectives. Some of the incentives are:
1. Budget 2011-2012 provided infrastructure status to the cold chain sector. This opens up the sector for perks like viability gap funding. The Budget also exempted air-conditioning equipments and refrigeration panels used in cold chain infrastructure, including conveyor belts, from excise duty. It also extended excise duty exemption to conveyor belts and equipment used in cold storages, mandis and warehouses.
2. Budget 2010-2011 proposed a concessional import duty of five per cent with full exemption from service tax to set up and expand cold chains to preserve farm produce as well as milk, meat and poultry products. The proposal also included duty-free import of refrigeration unit, which is required to make refrigerated vans or trucks. It also exempted trailers and semi-trailers used in agriculture from excise duty.
3. Budget 2009-2010, Government of India introduced tax benefits for companies making investments in setting up cold chain facilities.
4. Access to external commercial borrowings, 100 per cent FDI and provision of up to 25 per cent project costs involved in setting up cold storage facilities provided by the Government under the Capital Investment Subsidy Scheme.
These initiatives from the Government have been very encouraging for the industry as a whole and have complemented the efforts of the private sector in strengthening India’s cold chain infrastructure.
The key drivers in growth of cold chain sector in India are:
1. Rise in Organized Retail: With growing demand of fruits and vegetables and rising income levels of people, organized retailing is going to be the strongest driver for cold chain sector in future. Many players like Bharti-Walmart and Aditya Birla are investing heavily in building a strong infrastructure for preservation of produce for long period of time.
2. Growth in Food Processing sector: Several Mega Food Parks have been established by the government in order to develop cold chain sector in the country.
3. Government Initiatives: Several Initiatives discussed above will attract investors into the development of cold chain sector.
4. Shift towards Horticulture crops: Farmers are moving towards cultivation of horticultural crops which require refrigerated storage.
5. Demand of Pharmaceutical Industry: Indian vaccine market is growing at a rate of 25-30 per cent per annum. Vaccines require temperature controlled storage right from manufacturing stage till usage point which makes cold chain management imperative.
1. Close to two-third of India’s population is dependent on agriculture for its livelihood.
2. India has a total of around 6,000 cold storages with a capacity of 24.45 million metric tons. The Indian food market is estimated at over $182 billion, and accounts for about 20 per cent of the total Indian retail market.
3. According to a 2005 report by the US Department of Agriculture, the Indian food market is set to almost double by 2025, to reach $344 billion at a CAGR of over four per cent.
4. India is the second largest producer of fruits and vegetables in the world, with annual vegetable produce of around 85 million tons (9.1 per cent of global production) and annual fruit produce of around 45 million tons (8.4 per cent of global production).
5. Despite the high production, our contribution to the world market is under one per cent, in contrast to China, which accounts for over 20 per cent of the exports to the world market.
6. Out of approximately 130 million tons of fruit and vegetable produce, nearly 40 per cent gets wasted.
7. India is the largest producer of milk in the world, producing close to 100 million tons, and accounting for nearly 17 per cent of the global production. About 35 per cent of this produced milk is processed. More than 10 per cent of the annual milk production is lost because of inadequate storage facilities.
8. Over 80 per cent of cold storages are used for storing potatoes and potato seeds. Potatoes are generally stored for 6 months and cold stores remain idle for remaining period.
9. Erratic power supply permits only 8 to 10 hours operation per day.
10. Absence of Government Regulations on Technical Standards & Protocols.
11. Ignorance on maintaining appropriate commodity storage conditions due to lack of trained manpower.
The key challenges to the growth of this sector are:
1. High Energy Consumption cost: Operating costs for the cold storage business in India are approximately Rs 80-90 per cubic ft. per year as compared to Rs 40 per cubic ft. per year in the West. Energy expenses alone make up about 30 per cent of the total expenses for the cold storage industry in India compared to 10 per cent in the West. These factors make the business of setting up of cold storages a high entry barrier.
2. Rising real estate costs: A fully integrated cold storage facility with one million cubic ft. of storage space will require an area of an acre to build, which could cost between Rs 1 crore and 1.5 crore, constituting 10-12 per cent of the project cost. Cooling units are not mobile units, and so location becomes a key factor, and with India’s small land holdings, getting a sufficiently large tract of land to build a cold storage unit becomes a major additional constraint.
3. Lack of Logistical Support: Cold chain industry in India is fragmented and it will require heavy investment in building technology enabled cold storage facilities to cover entire value chain from procurement to transportation in refrigerated trucks to retail outlets in cities.
4. Large and unpredictable variations in quality
5. Uneven distribution of capacity: A majority of investment in setting up cold storages in India has been in states like Uttar Pradesh, Uttaranchal, Maharashtra, Gujarat, Punjab and West Bengal. Secondly, cold storages that have been set up can cater to single commodities only which are a big bottleneck.
Private ventures need to jump in and tap this sector to its full potential. Major players are part of larger logistics outfits like Gateway Distriparks, TCI, Container Corporation of India and Gati, and have been steadily growing in scale. With the average capacity utilization in the industry ranging between a dismal 30 per cent, to a profitable 75 per cent, the unit revenue potential of a cold storage facility is governed largely by its investment in technology and overall service standards. There is a scope of public private partnerships in the sector as well as greater involvement of railways and airports in strengthening the cold chain infrastructure.
Additional measures that the government should take to help the sector are:
1. Aid in acquisition of land to set up facilities for cold storage, food processing, etc.
2. Examine reducing FDI restrictions in retail
3. Speed up the introduction of GST, which will generally help the development of large centrally-located warehouses
The industry will grow leaps and bounds in the coming years but that will depend upon the quantum of investment flowing into it. Eyes are on big business houses and corporates who are willing to get into retail sector to create a backup for them and willingness of the customers to pay premium on higher quality products will ultimately lead to the growth of cold chain industry in India.
[The article has been written by Rohit Ranjan. He has completed his MBA in Agri-business from Symbiosis Institute of International Business and is presently working with an export trading group in Africa.] 

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Analysis of Cold Chain in India

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