India’s greatest need is for an effective and economically viable cold chain solution that will totally integrate the supply chains for all commodities from the production centres to the consumption centres, thereby reducing physical waste and loss of value of perishable commodities, writes Rai Umraopati Ray.
India has the potential to become one of the world’s major food suppliers, yet, the country’s inefficient cold chain network results in spoilage of almost 40 per cent of its total agricultural production. The total value of the cold chain industry is estimated to be as high as $3 billion and growing at 20-25 per cent a year. The total value is expected to reach $8 billion by 2015 through increased investments, modernisation of existing facilities, and establishment of new ventures via private and government partnerships.
The rising demand
The Indian agricultural sector is witnessing a major shift from traditional farming to horticulture, meat and poultry and dairy products, all of which are perishables. The demand for fresh and processed fruits and vegetables is increasing as urban population rises and consumption habits change. Due to this increase in demand, diversification and value addition are the key words in the Indian agriculture today. These changes along with the emergence of an organised retail food sector spurred by changes to Foreign Direct Investment (FDI) laws are creating opportunities in the domestic food industry, which includes the cold chain sector. As a result of the Government of India’s new focus on food preservation, the cold storage sector is undergoing a major metamorphosis. The government has introduced various incentives and policy changes in order to curtail production wastage and control inflation; increase public private participation and improve the country’s rural infrastructure.
According to an ASSOCHAM report, the total market value of Indian cold chain industry is expected to reach Rs 64,000 crore by end by 2017. The, report, however, said that factors like uneven distribution of storage capacity and high capital investment may be deterrent for the growth of the industry. The report noted, “During the period 2009-2017, the cold chain industry of India is expected to register a magnificent CAGR of around 25.8 per cent, which will make the value of Indian cold chain industry to reach at an astonishing figure of around Rs 640 billion by 2017”. The location of cold storages in India is highly concentrated to a few states. Uttar Pradesh, West Bengal, Punjab, Gujarat etc, are the hub of cold storages in India, according to the report. “Over 65 per cent of the cold storage capacity is confined to UP and West Bengal only. On the other hand, majority of Indian states lack investments from government as well as private players. This has made presence of modern cold chain technology minimal in such parts of the country,” it said.
India’s cold chain industry is still evolving, not well organised and operating below capacity. Most equipment in use is outdated and single commodity based. According to government estimates, India has 5,400 cold storage facilities, with a combined capacity of 23.66 million metric tonne that can store less than 11 per cent of what is produced. The majority of cold storage facilities are utilised for a single commodity, such as potatoes. Most of these facilities are located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra, and West Bengal. In addition, India has about 250 reefer transport operators (this includes independent firms) that transport perishable products. Of the estimated 25,000 vehicles in use, 80 per cent transport dairy products (wet milk); only 5,000 refrigerated transport vehicles are available for the other remaining commodities. India’s greatest need is for an effective and economically viable cold chain solution that will totally integrate the supply chains for all commodities from the production centres to the consumption centres, thereby reducing physical waste and loss of value of perishable commodities.
Says Suman Jyoti Khaitan, President, PHD Chamber, “There is an urgent need to identify an economically viable solution that would create total integration of food supply linkages from production centres to the consumption centres, thereby reducing physical wastages and loss of value of agricultural and perishable commodities. He added that the Government of India has already declared storage as an infrastructure sub-sector and extended certain financial benefits. However, it was felt that full-fledged infrastructure status has to be accorded to the warehousing sector. This will help in the creation of warehousing and cold storage infrastructure to fill in the current gap between the requirement and the availability.
According to the Chamber, the Indian agricultural sector is witnessing a major shift from traditional farming to horticulture, meat and poultry and dairy products, all of which are perishables. The demand for fresh and processed fruit and vegetables is increasing. Due to this increase in demand, diversification and value addition are the key words in the Indian agriculture today, PHD Chamber suggested that cold chain capacity be diversified. It should no longer be focussed on single product types.
Experts believe the agri-supply chain is poorly integrated, posing challenges at each step. There are huge gaps in the system, both in terms of capacity and integration. Critical linkages like reefer transport and on farm infrastructure are almost non-existent. Despite the obvious need for improvement and new government initiatives to stimulate growth, private investment is in short supply.
Recent government initiatives
Not long ago, Sharad Pawar, Union Minister for Agriculture said that the ministry has set an ambitious target of 15 million tonne of additional cold storage capacity during the 12th Five Year Plan against 8.75 million tonne during the 11th Five Year plan. There is no doubt that cold chain infrastructure will require government support in a big way to make it commercially viable. Existing subsidies for stand-alone cold stores are inadequate and do not lead to an integrated cold chain across the value chain. Well designed and large-scale PPP projects need to be launched on a viability-gap funding basis to modernise the country’s food chain. Some of the recent government initiatives to boost the cold chain infrastructure are:
Enhanced Pattern of Assistance: Subsidy has been enhanced from 25 per cent to 40 per cent in general area and from 33.33 per cent to 55 per cent in hilly and scheduled area, to attract more entrepreneurs and private investment in cold chain infrastructure sector since April 2010.
Rural Infrastructure Development Fund (RIDF) for warehousing: Finance Minister in his budget speech for 2012-13 has proposed to earmark Rs 5,000 crore for creating warehousing facilities (including cold storages) from the allocation under RIDF. During 2011-12, there was provision of Rs 2,000 crore under RIDF VII for the first time.
Exemption on Excise and Custom Duty: The projects of cold storages, cold room (including farm level pre-cooling) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat have been granted project import status with concessional Basic Customs Duty (BCD) of 5 per cent. The truck refrigeration units and refrigeration motor vehicle have been fully exempted from BCD. The Central Excise duty has been fully exempted for installation of a cold storage, cold room or refrigerated vehicle, for the preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat, air conditioning equipment and refrigeration panels for cold chain infrastructure and including conveyor belts used in cold storages, mandis and warehouse. The Central Board of Excise and Customs have clarified that sub-clause (v) of Section 66D of the Finance Act, which specifies the negative list of services and where the services by way of storage and warehousing of agricultural produce are covered. Thus storage and warehousing of agricultural produce is not liable to service tax.
External Commercial Borrowing: ECB can be raised for investments in new projects, modernisation/expansion of existing production units in real sector – industrial sector including infrastructure sector for creating cold storages or cold room facility, including farm level pre-cooling, for preservation or storage of agricultural/horticultural and allied produce.
Foreign Direct Investment: Hundred per cent FDI is allowed under automatic route in storage and warehousing including warehousing of agriculture products with refrigeration, ie, cold storages.
National Mission on Food Processing: In order to have a better outreach and to provide more flexibility to suit local needs of fruits and vegetables, it has been decided that a new centrally sponsored scheme titled “National Mission on Food Processing” would be started, in cooperation with the state governments in 2012-13 under which cold storage for processing purposes will also be developed. This mission will be implemented by MoFPI as a centrally sponsored scheme.
Introduction of Horti Train: Introduction of dedicated train and reefer van is also expected to bridge the gap between the producers and consumers thereby ensuring remunerative prices to the farmers.
Realising the significance of the cold chain industry, it is heartening to note that the government has taken initiatives, through bodies like NHB, to establish standards for all the arms of the cold chain. However, much needs to be done, to encourage cold chain infrastructure at strategic locations across the country. Says Arvind Surange of ACR Project Consultant, “Efforts are being made to evolve a new concept – ‘Green Cold Chain’. The cold storage sector is undergoing a major metamorphosis, with the government focusing on food preservation. A lot of stress is being laid on energy efficiency as the cold stores are energy intensive. With the advent of newer materials/equipment, every part of a cold chain renders itself amenable for improvement. As a result type of construction, insulation, refrigeration equipment, type of controls – all of them are witnessing changes. In short the Cold Chain Industry is in the eye of a revolution.”
Reasons for lack of private investment
• Lack of knowhow and trained manpower – Despite the increasing number of infrastructure projects, there is a severe lack of manpower with appropriate skill sets to handle modern technology;
• Lack of backward and forward linkages to supplement cold chain – Cold chain in itself is not a complete solution to address quality and marketability issues concerning perishable products. The commodities which are transported and stored in the cold chain should have enough market value to absorb the added cost;
• Lack of trust concerning viability of cold chain projects – Cold chain projects are still seen by investors as high on capital, low on volume and requiring a long payback period for the investment. Cold chain projects also involve aggressive marketing and investment on backward and forward linkages. This, coupled with a dearth of successful demonstration projects in the sector is keeping potential investors away;
• High capital investment – As noted above, a high level of capital is required at the initial stage of building a high-end cold chain facility, thus reducing the attractiveness of this type of investment. The lack of institutional investors has not helped to improve the sector. The result, to date, has been a disorganised approach to establishment of a truly efficient cold chain network of facilities and transportation companies;
• High operational costs due to high cost of power – Unlike the agricultural sector which is offered highly subsidised power tariffs by the Government of India, the cold chain industry does not enjoy this status and is instead subjected to industrial power tariffs. This significantly increases the operational cost for cold chain operators and act as a major deterrent for growth;
• Problems of optimisation in reefer transport – Lack of two-way cargo movement/back haulage, interstate barriers, intercity/state taxes, and bad roads are some of the issues which increase operating costs, delay timely deliveries and reduce the efficient utilisation of fleets.