The private players can participate in the construction of infrastructure for cold chain systems and benefit greatly. However, the experience of the few private players who have invested in the cold chain has not been satisfactory for them. The government needs to understand the reasons for the reluctance on the part of private sector to invest in this sector and create the enabling environment to get them to invest.
Purvin Patel, Business Head, Radhakrishna Foodland, a leading supply chain solution specialist
Ravi Kannan, CEO, Snowman Logistics, a subsidiary of Gateway Distriparks
Srinivasa Ramanujam, Business Head, Adani Agrifresh,an Adani group company with a special focus on horticulture sector
Vineet Agarwal, Joint Managing Director, TCI, leading transport and logistics service provider
Does India have a quality infrastructure to develop cold chain system in the country?
Although the combined capacity of the cold storage facilities is 23.66 million metric tonne, India can store less than 11 per cent of what is produced. Most of the infrastructure used in the cold chain sector is outdated technology and is single commodity-based. Many are designed for storing potatoes. Industry experts believe that controlled atmosphere storage facilities and other cold storage facilities with the technology for storing and handling different types of fruits and vegetables at variant temperatures would have a very good potential market in India.
Warehousing in India faces a lot of challenges in terms of infrastructure development. Firstly, erratic power supply increases the cost of operation. Majority of cold storages in India lack power back up facility. Secondly, use of high-tech quality equipment is minimal. Most of the cold stores do not have proper racking system. Thirdly, absence of proper inventory management system and use of traditional manual system increases complexity of operation.
In case of Transportation and Distribution, the main hurdle is absence of quality road infrastructure. Lack of quality reefer trucks leads to temperature abuse and hence wastage. Real time tracking and tracing is very essential but is absent in the actual scenario.
The need of the hour is an economically viable cold chain solution that will create total integration of the food supply linkages from production centres to consumption centres, thereby reducing physical wastages and loss of value of perishable commodities which in turn leads to the develop ment of the processed food industry. The chain needs to start at the farm level and cover up to the consumer level or at least the retail level.
Whenever cold chain system is talked about in India, the context is always fruits and vegetables. As far as dairying, pharmaceuticals and meat industry (particularly for export), there exists a reasonably good cold chain system in the country. In the case of dairying, the credit should go to the National Dairy Development Board which implemented the ‘Operation Flood’ programme by setting up the entire dairy infrastructure in the country through milk cooperatives. In the case of others, it was the business imperative that led them to embrace cold chain.
In the case of fruits and vegetables, the cold chain is virtually non-existent as the industry is highly unorganised and there is no single or group of stakeholders who have the wherewithal to bring about transformation to this industry. In the developed countries, the domination of organised retail played a crucial role in the development of cold chain by ensuring quality standards, food safety and other attendant standards which are equally important.
Our country is one of the world’s largest producers as well as consumer of food products and the sector plays an important role in contributing to the development of the economy. Despite the growing production, availability of the products is insufficient due to various bottlenecks. Around 40 per cent of India’s fruit and vegetable production goes waste due to the lack of storage, cold chain and transport infrastructure, figures shows wastages in the range of Rs 30,000 crore annually. Lack of proper infrastructure is the biggest bottleneck in expanding the food processing sector and includes: long and fragmented supply chain, inadequate cold storage and warehousing facilities, road, rail and port infrastructure, lack of modern logistics infrastructure such as logistics parks, integrated cold chain solutions, last mile connectivity, dependence on road over rail, customised transportation, technology adoption and government support via incentivising public-private partnerships are some of the lacunae that exists.
Which are the areas do you think private players can also participate in quality infrastructure?
There are only four major manufacturers of reefer truck bodies in India and it takes between 90-120 days to get a complete reefer truck on road. So, there is a huge scope of improvement. Private players can participate in this segment and also they can participate in developing cold storage facility, warehouse for fresh vegetables, milk, fruits, meat and poultry and also training for skilled manpower.
The Indian cold chain industry has witnessed many positive changes since last few years. Private sector participation has increased in cold chain logistics. Majority of new cold storages built are multipurpose cold storages which cater to the cold storage needs of a variety of product segment like fruits and vegetables, seafood, meat and poultry, and dairy etc.
Private players can participate in single-window solution, development of ‘integrators’, food parks, and greenfield projects for new foreign players.Private players can help developing quality infrastructure by providing single-window solutions. This would include services like storage, transportation and distribution under the same roof.
Nowadays, people prefer more and more processed foods than freshly available foodstuffs. New firms can act as integrators in food value chain by providing full range of activities to bring the product right from its conception to its end-use. As seen in the developed countries, integrators play a vital role in chicken value chain. They integrate various activities right from the initial stages of breeding where they motivate use of R&D to increase the efficiency of chicken processing to the end stages of distribution. Similarly in India these integrators can thus play a significant role in perishable value chain like for dairy, fruits and vegetables and thereby reduce the amount of wastages.
There are a large number of food parks which facilitate efficient food processing along with backward and forward linkages. The private players bring in new technology and government funds for the required resources. Private players can provide facilities for sorting, grading, packaging, pre-cooling, warehousing, value added services, transportation and distribution. With the grant in FDI in retail any foreign player who wants to establish a complete retail chain in India can tie up with a private player and cater to all the services. This is an opportunity for foreign players establish a complete chain from “source to store” and carry out greenfield projects in India for various foods processing and logistics activities.
Private players will participate in the development of the industry if there is reasonable return on their investment. The experience of the few private players who put in investment in the cold chain has not been satisfactory for them to either continue in the business or further invest. The government needs to engage with the private sector to understand why there is reluctance on the part of private sector to invest in this sector and create the enabling environment to get them to invest.
The private players can participate in the construction of infrastructure for cold chain systems and benefit greatly. The general type of construction followed in Indian cold storage industry are buildings with single floor structure designed for mechanised loading and unloading of products and others like pre-engineered building structures designed with cold chambers. The recent trend is to have cold chambers in single floor construction with mechanised loading/unloading facilities. There is also a need to invest into the right transport infrastructure that will connect the entire cold chain.
Are we at par with global standard in terms with technology/management/quality?
Presently, India needs a big infrastructure framework in the field of cold storage and cold chain, but growth in this sector is not hampered because of non-availability of technology or funds. The problem is that the industry has become non-remunerative on account of issues like power supply, storage, rent, land cost, subsidy etc. We are not at par with the global standard with technology/management/quality. We need more investment and improvement to match the global standards.
In India, most of the cold storages are single-commodity storages with refrigeration through an air conditioner or ammonia as refrigerant. But developed countries have gone far beyond these and now advance technologies like liquid nitrogen, eutectic plate technology and CO2 environment-friendly refrigeration systems are used. Here the market is dominated by unorganised logistics service providers. But more and more organised players are entering this lucrative market.
Cold storage warehouse facilities are operated by stand-alone companies providing basic facilities and lack usage of appropriate equipment and technology to operate a modern warehouse facility.
Technology plays a vital role to improve logistics performance. To improve handling, movement of goods, warehousing, tracking and tracing, flow of information etc require the most advance technologies. At Snowman, we have GPS and data loggers installed in all our vehicles to track and trace real time temperature of the products that we carry. For improved management of cold chain industry, new institutes pertaining to logistics studies should be encouraged. A formal curriculum should be incorporated in the management study regarding efficient operation management.
As far as the quality of warehouses is concerned most of the Indian cold storage are confined either to chilled, frozen or ambient, they cannot be converted. Product quality and safety is also an issue with many cold storages.
We are nowhere near the global standards. Standards will follow after strong players make significant the investment in the business. Currently, because of the multitude of players with none of them having a significant market share or hold in the industry, the ubiquitous market practices which vary as per the market or production area continues.
There is also the presence of transport unions which has monopoly in some states. Clients located in these areas have no other option but to use their services on the terms dictated by the transport unions. By virtue of assured business with no competition, the transport unions have no incentive to change their work practices to suit the clients’ needs. Rather the clients change their practices to suit the dictates of the unions.
When it comes to quality standards, some small improvement is taking place due to presence of players like Adani Agrifresh which has set up world class controlled atmosphere storage facilities for apple in Himachal. Since Adani Agrifresh stores it for 6-8 months, it buys only the fruit that meets its quality standards and that too directly from farmers.
When it comes to management, the availability of quality manpower is limited. However, this problem is not insurmountable. Once the investment takes place, the players will ensure adequate training to their staff to ensure quality.
As compared to what the global standards are, India is still to reach those levels. India still lags behind on various aspects, like unskilled labour, involvement of high capital investment, high operational costs, and problems of optimisation in reefer transport. The impacts of lack of infrastructure like unavailability of land for cold storages or dependable and uninterrupted electricity are some basic hurdles that keep operating efficiency low.
Even after various initiatives by the government the sector is still not developed yet. What are the reasons behind this? What more we need?
One of the major constraints is the lack of refrigerated vehicles for movement of perishables produce (with the exception of milk). According to industry estimates, approximately 104 million metric tonne of perishable produce is transported between cities each year.
Another most critical constraint in the growth of the food processing industry is the lack of integrated cold chain facilities. According to the government’s estimates, India has 5,400 cold storage facilities of which 4,875 are in the private sector, 400 in the cooperative sector and 125 in the public sector.
Cold chain faces blanket generic restriction to its area of operation, and this raises the cost of the utility. Reefer trucks are subjected to national permit to travel between states. This permit is applied annually and is typically not issued after eighth year; thereafter the vehicles are allowed to move intra-state only. Problems of optimisation in reefer transport – non availability of two-way cargo investment/back haulage. Inter-state barriers, octroi check-posts, and bad roads are the main drawbacks.
To overcome this situation, roads need to be improved, reefer trucks must get specifically licensed on record, and be assigned long term permits and not be limited to age. No permit licence needs to be charged from food carriers.
The three important issues crucial for the development of cold chain infrastructure in India are lack of indigenous technology, erratic power supply and soaring fuel prices, and last mile distribution.
Most of the refrigerated containers and units are imported and hence increase the cost of setting up cold chain infrastructure in India. There is a need of innovative indigenous technology for operating cold chain.
As refrigerated units run on electricity, products require reefer storage 24x7. But due to frequent power cuts, operational costs of running cold warehouse increases. So we need to keep generator on which eventually is run by diesel which is soaring high these days.
As the product moves across the supply chain, the product quality and temperature needs to be same from post-harvest to end-retailer. Thus due many intermediates product shelf life decreases and sometimes damages due to improper handling.
There needs to be massive infrastructural developments at grassroot level. Large firms can act as an integrator by connecting the complete supply chain process right from the step of harvesting to distribution to retail stores. Integrators can bring farmers, different logistics service providers, modern trade outlets on one platform to ease the process of delivery from “farm to fork.”
The Ministry of Agriculture through the National Horticulture Board and the Ministry of Food Processing Industries have some incentive schemes to promote cold chain projects. However, most of the schemes are designed for small entrepreneurs and farmers.
The government needs to design schemes which require big investment with suitable incentives for the large private sector players to enter into this field. It will be impossible for small players to bring about changes in the existing system.
The development of cold chain is now being recognised as an essential way forward in upgrading India’s food processing industry. In the year 2011-12, the government announced a series of measures to reduce the production and supply chain bottlenecks in the agricultural sector. But, for various reasons, the sector still doesn’t see any major development.
Cold chain in itself is not a complete solution to address quality issues concerned with perishable products.
How do you see the future of the industry in India five years down the line?
The need for cold chain is growing rapidly. With the entry of FDI and India wishing to bring in more stringent food traceability and norms to lead the way, better quality of food, use of data loggers and operational monitors should be supported through specific policy intervention by discounting toll charges to those using traceability and this monitoring will also allow implementation of long standing need for a fast track corridor to cold chain transport. So, it can be foreseen that cold chain industry has a great future ahead.
The demand for cold chain logistics in going to boost in the coming years because of various government initiatives, growing organised retail, growing pharmaceutical industry, increase in horticultural produce and food processing.
There is a flurry of meetings between foreign retailers and the commerce ministry relating to the conditions attached to the FDI investment in multi-brand retail. When they come and invest, we may see them taking the lead in bringing about changes in the way fruits and vegetables are handled from farm to retail.
India’s retail market is estimated at $425 billion (in 2010) and that it would be the third largest retail market in the world in the next decade. The market value too of Indian cold chain industry is expected to reach Rs 64,000 crore by the end of 2017, says an ASSOCHAM reports. Though, the reports also state that factors like uneven distribution of storage capacity and high capital investment may deter the growth of the industry. It also states that during the period 2009-2017, the cold chain industry is also expected to register a splendid CAGR of around 25.8 per cent, which will make the value of Indian cold chain industry to reach an astonishing figure of around Rs 640 billion by 2017.