Cold chains need cluster development

Ravichandran Purushothaman cites a success story in Tamil Nadu to explain why there is a need for cluster-based models in India to conserve food wastage and improve farmer profitability.

Banana cultivators in Theni, Tamil Nadu, are a happy a lot these days. Over the past few years, empowered with technology know-how, knowledge on good cultivation practices and supported by post-harvest technologies, they have managed to triple their profits. However, this wasn’t the case three years ago. croreIndia is the second largest producer of vegetables and fruits after China. India on an average produces 85 mt of vegetables and 45 mt of fruits annually. But India’s overall contribution in world trade is quite dismal as the country loses more than a third of its fruits and vegetables due to infrastructure bottlenecks especially in the facilities that are required from farm to fork. In a country of 1.2 billion, 40 per cent of food is wasted every year. According to a recent report, the total market value of the Indian cold chain industry is expected to reach Rs 64,000 crore by the end by 2017. Two of the biggest contributors to food losses are the lack of both refrigerated transport and high quality cold storage facilities for food manufacturers and food sellers.

A success model

Need to create a win-win situation for primary stakeholders: Replicating the Tamil Nadu model to sensitise farmers and stakeholders in other states

State governments are waking up and trying to arrive at solutions that can help arrest food wastage and control inflation. There is also the added pressure to ensure that Agriculture continues to be a viable profession for many.

Many states, including Karnataka and West Bengal, have started initiating dialogues with private enterprises, and have announced interest in seeking investments from the private sector to improve the cold chain infrastructure in the State. Given the need, stakeholders need to collaborate in order to address gaps that will benefit all in the value chain rather than tip one party favourably.

Case in point

Tamil Nadu accounts for the largest production of bananas in India with an estimated 9 million tonne (mt). Broadly 30 per cent of this is wasted due to inefficient post-harvest practices which include absence of cold chain infrastructure. Today the productivity of Banana in the southern district of Theni is amongst the highest in the world. Farmers in Theni have more than doubled their income after incorporating best pre and post-harvest practices and this has further contributed to employment generation. Danfoss, along with CII, worked closely with the stakeholders in Theni to understand their success and are working towards replicating this model. Organised pre-harvest technologies, focused supply chain and branding create higher profits for farmers and better prices and quality for consumers.

Conservative 20 per cent food loss on a production of 9 Mt is draining Tamil Nadu of Rs 2,700 crore annually. However, by appropriate use of technology, especially cold chain solutions and following the cluster approach, we can attempt reducing food loss by 10 to 12 per cent which can help save close to Rs 1,500 crore. This cluster approach would require establishing central pack houses across the state (8-10 in number) with an estimated investment of Rs 500 crore. In addition to reducing the post-harvest loss this would also lead to employment generation in these belts of 5,000 in each cluster i.e 50,000 across the state. The break even for the pack houses in itself could be around four years.

A fivefold plan

1. Need for multi-commodity cold storages

• States should look at multi-commodity central pack houses in different clusters.
• If the government looks at helping create 8-10 central pack houses in each state, it can reduce the post-harvest losses by 30 per cent. These central pack houses will be connected through collection centres.
• Each pack house will hence become a hub and spoke model. All these CPCs will become separate wheels feeding the markets as per demand.
• An aspect which does not get adequately noticed is the additional generation of jobs in these clusters through these CPC’s

2. Innovation closer to clusters and customers

• There is intervention by the government to reduce post harvest losses, and the APMC Act has also been modified now depending on which state we are operating. However, this hasn’t changed the scene significantly.
• India has a very distinctive federal structure and the Central government formulates certain national policies, but the execution is at the state level and more so in the case of Agriculture. Thus, there is a gap between what happens centrally and what execution happens locally.
• Danfoss has been working on various platforms to address this issue. I am the co-chair for the National Cold Chain Task Force at CII. I have been working since the last 6-7 years to address these issues and believe that the best way to address post-harvest losses is to get down to the clusters and innovate closer to the clusters and customers.

3. Clusters should be connected to the consumption centres

• All the clusters should be connected to the consumption centres. For instance, in Karnataka, it has clusters such as the Chitradurga cluster, the Tumkur cluster, the Malur cluster and so on for different crops. These should be tied to consumption centres in Mysore, Hubli, Bangalore and Belgaum.
• Cluster development will create a good network, and thus a good integrated system which will be viable for investments.

4. Government should be an enabler

• Governments should encourage investment from private players in this sector as the opportunity for private entrepreneurs is huge. Investments will flow into the sector only when the models are made viable and transparent.
• Given the initial cost of setting up a cold chain unit and the subsequent operational costs government can continue to provide subsidies to entrepreneurs through the different schemes
• government could evaluate to further enhance the allocation for projects for such investments. They could take the lead in identifying specific fruits/crops/vegetables/commodities for different clusters and enable development of the cold chain infrastructure
• Cold chain has the potential to be a lucrative sunrise industry and government should put more effort in improving field skill requirements and also educate primary users like farmers in the need for post-harvest technology investment.

5. Right branding required for fruits and vegetables

• All fruits are now branded in retail stores, so the perception in the buyer’s mind is that a branded commodity has the right price, quality and the right value proposition and this is when you have a satisfied customer.
• India should work towards getting different fruits/vegetables/crops and commodities branded as Shimla Apple, Banganapalli Mango, Tamil Nadu Banana, etc. Based on reports from the Department of Agriculture, India has an estimated capacity of 30.11 mt in the existing cold storage facilities. However, not many of these warehouses are equipped with the right cooling technologies. Only 8-9 per cent of fruits and vegetables in India today are flowing through cold chain. Even within commodities there is disparity in distribution of warehousing facility with onions and potatoes accounting for the largest share–70 per cent or even more of the cold storages in India are meant only for potato and 20 per cent for onions.

Power-efficient: Independent research reports suggest India’s high energy costs as a deterrent for private players from investing in cold storage units given its power consumption.

A typical cold storage of 5,000 tonne capacity costs around Rs 12 crore which uses dated technology, especially the systems which can be automated. An automated cold storage with best global technologies will cost 30 per cent more. It is important to note that 60 per cent of the operating cost of a cold storage is due to electricity and this cost could be anywhere close to 1.5 crore per annum. However, technology to reduce electricity costs by up to 50 per cent is available-Danfoss has developed customised products for the Indian environment that enhance shelf life at lower costs.

Challenges specific to fruits and vegetables in India

• Land availability is low
• Farm mechanisation is the need of the hour
• Huge skill shortage in farms
• Farmers do not have enough awareness and knowledge on handling fruits and vegetables. (Example: In India, banana bunches are still cut with sickles; the ideal way to chop bananas is with rope conveyor technology)
• India does not have even a single perishable corridor, i.e., good quality cold chain infrastructure to store these fruits and vegetables

The author is President at Danfoss Industries (India), a global refrigeration & air conditioning, heating & water, and motion controls major, servicing food processing and infrastructure industries in India.