India is one among the top 10 countries in the world that wastes a large part of its agricultural produce. And one of the glaring reasons for this is the lack of storage infrastructure, especially in the cold chain sector. Ironically, India is also the second largest producer of vegetables worldwide. However, its share in global export of vegetables is around a negligible 1.3 per cent. Several reports attribute the reason for wastage to shortage of cold storage chains. Food wastage due to poor cold chain infrastructure causes the country a loss of over Rs 92,000 crore worth of crops annually according to Central Institute of Post-Harvest Engineering & Technology (Ciphet). The losses are estimated based on crop production of 2012-13 and wholesale prices of 2014.
Further, most equipment in use in the cold chain segment is outdated and is single commodity based. So, on an average, about 30-40 per cent of horticultural produce and 20-30 per cent of fisheries production gets wasted annually in India due to the lack of proper storage facilities.
India’s cold chain sector is a combination of surface storage and refrigerated transport. Currently, India has upwards of 6,500 cold storage facilities spread across the country, with an installed capacity of 35 million metric tonnes (MT) with storing potatoes and pharmaceuticals accounting for the lion’s share. However, the market is gradually getting organised and focus towards multi-purpose cold storages is rising.
At present, Uttar Pradesh, West Bengal, Gujarat and Punjab account for 65 per cent of the cold storage facilities in India. Being one of the largest agro and also pharma producing countries, less than 12-13 per cent of what is produced is stored, thereby leading to loss due to wastage.
India’s cold chain industry is evolving and poised to grow despite the fact that the sector is not organised and is operating below capacity. With an estimated GDP of $2 trillion — according to ITA Cold Chain Report 2016 — the industry in India is growing annually at 28 per cent today and the total value of cold chain industry in India is expected to reach a whopping $13 billion by end 2017.
Ground Report
All the numbers clearly point to tremendous scope for further growth in the sector. However, the industry needs to cross several hurdles before things start to look up. Sridar Narayanswami, VP and MD, Emerson Climate Technologies, a technology provider for the cold storage industry, says, “Over 70 per cent of the perishables are properly processed in the US and Malaysia where as we stand much behind and need to walk an extra mile to catch up with them.” Prabhakar Nagaraj, Managing Partner, Culinary Development, Elior India, echoes Narayanswami’s thoughts. “Techniques such as centralised production, cook-chill and cook-freeze are common in the West, These are yet to be implemented in a big way in India,” says Nagaraj.
Wastage of food is not limited to vegetables, fruits and sea foods. In 2011-12, 127 million tonnes of milk was produced every day. However, cold storage capacity was and still is only available for 70,000-80,000 tonnes of milk. Brahmani Nara, ED, Heritage Foods, says, “India is the largest producer of milk and the second largest producer of fruits and vegetables. Preserving the produce both upstream and downstream has been a challenge.”
Dairy requires an uninterrupted cold chain. Milk collected from individual farmers is transported to chilling centre and refrigerated. The milk is then transported to a processing facility for packing and then distributed in the cities. The entire operation involves keeping the milk at temperatures of 0-4 degree celsius to ensure freshness.
Brahmani has a three-pronged approach to improving cold chain in milk supply business. First, increase the cold chain capacity. In the second phase, improve the ability to process and store milk/ milk products at the processing facility with large cold rooms and finally, deploy last mile cold chain with visi-coolers and bottle coolers at the retail level. “Our strategy is to ensure a steady supply of fresh milk,” says Heritage’s Nara.
Meaty MattersRecent observations done by various agencies including Assocham, US Commercial Service, Reed Analysis, E&Y, Techsci Research point out there are over 25,000 unregistered slaughter houses in India, which makes the country the second largest exporter of beef (read, water buffalo meat mostly) in the world. This segment itself is lacking huge chilling facilities across the meat produced areas in the country mainly from Uttar Pradesh, Bengal, Telangana and Andhra Pradesh.
Even if one has to ignore this segment in the backdrop of the recent ban of illegal slaughter houses, the gap between the existing capacity and the requirement for cold storage facility for other produce such as fruits, vegetables, fisheries and processed food is huge.
However, cold chain capacity in India is expected to grow at 13 per cent per annum on a sustained basis over the next four years, with the organised market growing at a faster pace of 20 per cent, reveals a recent study by Assocham and Reed Analysis.
Talking TechWith a large number of global food and retail chains targeting the Indian markets, FDI is also likely to be implemented soon. According to Narayanswami, “Ownership, safety and responsibility of the food we consume is lacking in India vis-à-vis developed countries.”
To add to this, the government is promoting the food safety and security bill. This means further demand for storage and cold chain facilities to reduce food wastage. Some like ValueShipr are equipping themselves with advanced facilities to maintain food quality and avoiding wastage. Co-founder and CEO of ValueShipr, Jyotheesh Kumar, says, “We will extend the temperature monitoring system to warehouse partners, which practically will cover the throughput from the source to the consumer.”
Cold chain transportation is also one of the important vertical activities in the sector. High quality cold chain transportation players have enabled with tracking technology to reefer containers to ensure that the consumer’s expectations on the temperature requirements are matched during transportation. This enables tracking, monitoring, controlling, ensure quality and also get records for decision making real time.
Jose George, Co-founder, Air Freight Bazaar, says, “We facilitate more information to the factories and buyers about availability of airlines rate, space, routing and will be investing more to upgrade our technology to provide more market intelligence to the industry so that the end user can capitalise the same to plan business accordingly and gain more profit.”
To address various concerns of the sector the government is looking to support private participation in the sector through subsidy schemes and grants. Investment in cold chain in India has also seen an uptake due to the automatic route for 100 per cent FDI participation. Currently, the private sector participation is just 10 per cent of the installed capacity.
During a recent interaction with the media, Union Cabinet Minister of Food Processing Harsimrat Kaur Badal said that companies in the UAE want to make India a sourcing destination. Food accounts for a major chunk of India’s retail sector. Already, $695 million has been committed by Amazon, BigBasket and Grofers in food retail, and certainly more players are interested. Big Basket, Amul, Haldiram and Falcon Marine Exports are among the dozens of companies that will be awarded grants to build cold chain facilities. According to her, it is for the first time that the government has awarded many cold chain projects at one go.
Roughly, an investment of Rs 3,100 crore is expected from this initiative by the government, with a grant of Rs 838 crore provided by the central government and Rs 2,200 crore expected to be invested by the companies. These cold chains and 42 mega parks are expected to help 15 lakh farmers and create employment for 3.5 lakh people.
Manish Saigal, MD, Alvarez & Marsal, sees an increasing substitution of frozen and chilled food over fresh foods in metros. “Cold chain spends in India for non-agri related needs amount to around $550 million today. This is expected to double in the next three years,” he says. Regulations in pharma and food products will be a key driver for the growth in the sector, he says.
Increased disposable income in emerging markets has allowed consumers to spend more on higher quality, organic or fresh products. As a result, regions like the Asia-Pacific have seen a boom in cold chain investments and opportunities.
According to Kumar, “Increase in disposable income and customer aspiration, demand as well as increase in expenditure for luxury items, growing preference for branded products and higher aspirations, growing liberalisation of the FDI policy in the past decade increasing urbanisation and rising affluence amid consumers, will further give a push to the retail industry sector and this will demand an efficient cold chain industry.
Moreover, cold chain operators must support manufacturers to gain customers who seek high quality. Five separate temperature zones must be served in order to maintain highest standards. If the produce is subject to temperature changes, it must be tested for damage or deterioration.
Emerson Technologies made Pune its manufacturing hub for the Asian region for compressors, a vital component of chilling facility. Other major players operating in India include Danfoss (Danish), Frascold (Italian) and Guntner (German).
Interestingly between 2012 and 2014 global cold chain capacity grew by 20 per cent, ultimately reaching 600 million cubic meters by 2016. The US leads the world in cold chain storage. Its top 25 warehousing companies account for 15 per cent (86 million cubic meters) of the world’s cold-storage capacity.
With AT Kearney ranking India as the fourth most attractive nation for retail investment among 30 flourishing markets, the retail sector is poised to undergo several positive changes including the development of the cold chain sector.
Chilling TalesHurdles faced by India's Cold Chain Industry
* Infrastructure woes: Severe shortage of cold chain warehousing capacity; only 25% of the capacity is available for fruits, vegetables, processed foods and pharma, whereas 75% of the capacity is dedicated to potatoes
* Lack of standards and protocols in construction and operation of facilities: Technical standards followed in India unsuitable for Indian conditions resulting in lower performance of standard refrigerated systems
* Low awareness of labour in handling temperature-sensitive products: Supply chain of most products is long and fragmented. A product changes many hands from source to delivery point. Most workers are not trained in handling temperature-sensitive products resulting in deterioration of product quality
* High fuel cost and power cuts: Fuel costs in India constitute around 30% of operating expenses of cold storage as compared to 10% in the West. Further, cold storages are dependent on steady supply of power. Most Indian regions face power cuts. Hence, companies invest in power back-ups, which push up the capital investment requirement
Cold CutsGovernment initiatives in India's cold chain industry
* 100% FDI through government route
* Infrastructure status given from 2011-12
* Viability gap funding up to 40% of the cost
* 5% concession on import duty, service tax exemption, excise duty exemption on several items
* Subsidy of 25-33.3% on the cold storage project cost
* Establishment of National Centre for Cold Chain Development
* Proposed financial outplay for cold chain infrastructure & food parks of $335 mn and $650 mn, respectively
* Over 50-70% capital grant on projects
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The author is associate editor at BW Businessworld
