Cold chain logistics industry in India (para)
Cold chain logistics in India has traditionally been focused on a single commodity with a high presence of fragmented unorganised players in both warehousing and transportation. Despite the urgent need for a well-developed cold chain infrastructure, the system lacks in capacity building, market information, research and intelligence. India is short by 10 million tonnes of cold storage capacity and over 50,000 refrigerated trucks due to which over 30 per cent of agricultural produce goes waste every year apart from the fact that more than 20 per cent of produce from fields that gets lost due to poor post harvesting facilities and lack of cold chain infrastructure. A major chunk of the cold stores is located in West Bengal and Uttar Pradesh and 80 per cent of their capacities is used for stocking potato and potato seeds. With increasing exports of seafood and pharmaceutical products, there is a constant demand for refrigerated storage and transportation system which needs to be urgently addressed. “Despite the stark gap in available infrastructure, convincing the stakeholders about returns on investment is a tricky proposition since there is limited premium for temperaturecontrolled services on the supply side,” PV Sheshadri, CEO, Future Supply Chain Solutions Ltd points out.
However, Atul Khanna, India Representative, Global Cold Chain Alliance (GCCA) believes, “Indian cold chain industry, once limited only to a few produce types till as late as first decade of this century, is transforming from traditional quantity stores for standalone commodities to quality cold chain – integrating various missing links. Thus, various business models utilising cold chain logistic services at different stages have been recognised and well established on commercial lines. Few worth mention are bulk stores in the areas of concentrated centers of production, multi-commodity multi-chambers cold stores around areas of consumption, controlled and modified atmosphere cold stores, fruit ripening chambers, IQF and blast freezing, freeze stores etc. More important is the trend towards complete refrigerated supply chain for the fresh and processed items like, milk and dairy, meat, confectionary and pharma, and of course, the fresh produce.”
Though there are sectors, especially in rural sector where cold chain is hampered by its fledgling and nascent introduction, which results in supply chain losses of food and other resources. The losses in agricultural sector alone are estimated at $14 billion annually due to inadequate infrastructure. The Government of India is cognizant of this reality and is taking steps through various public sector schemes to develop cold chain infrastructure in the country. “The future of cold-chain will tend towards systems that function as a speedy conduit to markets,” states Khanna.
According to Sheshadri, “Initiatives such as ‘Operation Green’ and allocation for Pradhan Mantri Kisan Sampada Yojana (PMKSY) are bound to attract investors to develop cold chain facilities in the country especially in remote areas near the source of produce.”
Giving an overview of the cold chain logistics industry in India, Mahendra Swarup, President, Federation of Cold Storage Associations of India (FCAOI) observes that the cold chain industry should be divided into two parts: One is which the goods are handled at above zero-degree centigrade and the other below zero-degree centigrade. He adds, “As far as both the classifications are concerned cold chain logistics industry is under developing stage. For the first part i.e. dealing with above zero-degree centigrade goods, there are few players.”
Take the case of potato, spices, carrots or other such type of products, normal trucks are hired by local stores and taken to the nearby mandis or far off consuming centers, while for goods below zero, where refrigerated vans are needed, there are few firms which are dealing, but their presence is much low, further they are available mainly in metropolitan cities. Smaller cities have to work hard and pay more to get their services, opines Swarup.
The key growth drivers
The cold chain industry in India remains underserved and presents huge potential in terms of expansion. According to CRISIL Research, the industry is expected to log a CAGR of 13-15 per cent in the five fiscals through 2022, compared with 11-13 per cent in the previous five. Commenting on the key growth drivers, Khanna said, “The Indian market is on the cusp of a revolutionary change with the expansion of middle-class and affluence coming into the middle-classes. The increase in demand for fresh produce, meat and perishable packaged foods is leading to significant growth in this sector, which is increasingly relying on sustainable cold chain network. The increasing shift to modern retail and a greater push for food safety are also key growth drivers.”
Increasing awareness about agri-logistics
India is one of the largest producers of agricultural produce and has abundant supply base of different produce. There is an increasing awareness that agri-logistics require to develop with a delivery bias, to link with demand across regions, and not merely as a buffer against local demand. Distance and time assume importance as the disparity of prices also induces movement. Efficient transportation has an immediate effect on the factor of time, which is an element in the price factor. Thus, in Khanna’s opinion, delivery system of perishables – always fighting against time, has become another important driver of its growth.
Organised players preferred
Sheshadri of Future Supply Chain Solutions believes that the key growth drivers include growth in the organised retail market, increasing demand for processed foods led by increase in disposable income and shortage of time available for cooking. He said, “With increasing consumer awareness on the need to maintain high quality, pharmaceutical companies and quick service restaurants are increasingly giving preference to the organised players that are compliant with regulatory requirements.”
Growth in exports to drive demand
Exports is also a key focus area for cold chain services. Indian exports include processed foods, including fresh and processed fruits and vegetables, meat products and cereals, which are the main users of cold storage facilities. Growth in exports of these sectors will further drive the demand of cold chain services, Sheshadri said.
Fiscal stimulus is on
According to Sheshadri, subsidy schemes provided by the government are facilitating investments in cold chain facilities. Khanna adds, “Stimulus provided by the public sector schemes, through technical and financial assistance is another growth driver providing leverage.”
Fast food storage on rise
Swarup from Federation of Cold Storage Associations of India (FCAOI) informs that more cold storages are coming up to store products below zero degree centigrade, especially there is a rapid growth for the storage of fast food (ready to eat).
Produce aggregation – the big challenge
Highlighting the market challenges, Atul Khanna, India Representative, Global Cold Chain Alliance (GCCA) said, “The most important challenge for integrated cold chain supplies to various markets is the produce aggregation, either as raw material for processed food industry or for fresh supplies through cold chain, as most of the farm holdings are small. It requires a bigger role for aggregators and establishment of primary processing centers in the clusters of production for minimal processing to preserve the initial quality.”
Lack of modern infrastructure
The other key challenge is the lack of modern warehousing, especially nearer to markets and that too with produce specific storage conditions. “General market effecting challenge is the lack of standards in construction and operation of facilities, low awareness of handling temperature-sensitive products,” Khanna added.
The development of refrigerated warehousing has been lopsided in the past as there was more emphasis on stand-alone commodity storages in the absence of alternate business models due to less progress on processing front owing to many reasons like poor availability of raw material, cold chain facilitates in the nascent stage, less consumer awareness even if government financial support was available. However, now different business models and chains have been developed, irrespective of the subsidies which certainly have contributed towards viability gap funding.
Likewise, number of large and modern pack houses is also not much but related more to the revenue earning business models. These are mere collection centers in the villages like vegetables on one extreme to modern pack houses for the exports of grapes, mangoes, tropical vegetables and flowers etc. through various intermediary levels collection-packing facilities linking production belts with the markets – terminal or middle level facilitating seasonal operations.
In the refrigerated transport segment, although there looks like imbalance in the data on the production volumes and number of reefer vehicles for distribution to link markets and production belts, but Khanna observes there are trends on the practical front that indicate availability of one sided load as another constraint as viability goes down while coming back empty or with non-refer materials.
Dealing with energy issues
The cold-chain is energy intensive, because temperatures need to be regulated at desired levels. 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 Western countries, and the unreliability of power in many areas of the country hold the sector back. The government subsidies have led to a large increase, but they are often still single commodity, observes Khanna.
Reluctance in consuming stored eatables
The growth of cold storages below zero-degree centigrade is not coming up as fast as it should. This is because of the lack of demand. Still people are reluctant in consuming stored eatables. The basic feeling remains in their mind that stored product is not as good as fresh and has to be very costly, which is not a fact. According to Mahendra Swarup, President, Federation of Cold Storage Associations of India (FCAOI), “As the public taste would grow for stored eatables, there has to be a rapid demand for the storage of such goods and thus the need for the cold chain logistics would increase.”
Further, PV Sheshadri, CEO, Future Supply Chain Solutions Ltd summarises the key market challenges as:
Retention of services: Temperature controlled services, especially transportation, have the dual challenge of being time-bound and temperature-sensitive. The customers thus expect service levels at par with express delivery with zero deviation in temperature. Much of the desired service levels and temperature adherence depends on the drivers and it thus vital that this community is treated with the respect they deserve. Ensuring their retention is one of the key challenges this industry faces. Driver cost in India is at a meagre 4-5 per cent of the transportation cost against 30-40 per cent in the developed world.
Skewed demand for temperature-controlled vehicles in the long-haul sector (loads concentrated in west and north) results in reduced utilisation of vehicles since reverse haul movement becomes a challenge.
Lack of standards and protocols in construction and operation of facilities: The technical standards are quite unsuitable for Indian conditions resulting in failure of achieving optimum performance of standard refrigerating systems. Inadequate training in handling temperature sensitive products is also a concerning factor which results in product damage due to temperature abuse.
Availability of power is a major factor of concern in India. India currently faces about 9 per cent of peak power deficit, which enforces the use of fuel-based operations leading to a marked increase in operating costs.
Uneven distribution of cold storage: Storage facility throughout the supply chain is another major challenge. Majority of cold storage facilities are located at the point of production, creating a lack of efficient supply chain to the downstream operations or markets.
Key trends impacting the cold chain industry in India
Fund flow from investing activities
A combination of increase in disposable income and the focus on increasing the longevity of agricultural produce to make them available across the country all year round is resulting in high investments in the cold chain industry. It is estimated that more than US$ 150 million has been invested in cold chain companies by PR firms, which is expected to improve the farm level infrastructure through the development of pack houses, ripening chambers and other allied transportation services, reveals Sheshadri.
Shift towards multi-commodity facilities
The clearance of FDI in multi brand retail, which mandates procurement from local markets is expected to double the food processing levels and hence contribute to an increase in the use of cold chain facilities. “Focus of the industry will thus shift from single commodity storages to modern multi-commodity facilities with the scope of consolidation and introduction of better technology thus optimising the entire supply chain,” Sheshadri added.
Increased production of perishable quality foods
Commenting on the trend impacting the cold chain industry in India, Khanna said, “Nevertheless, the increased production of perishable quality foods like fruits, vegetables, milk and dairy, meat and its products, poultry etc vis-à-vis general demand rise in middle-class affluence has importantly resulted in increased demand for foods in their fresh format as well processed form. This is also due to the prevalent awareness that perceives health benefits from consuming fresh fruits, vegetables and other products. This has in turn, generated greater need for temperaturecontrolled logistics.”
Without the appropriate cold-chain, perishable produce cannot reach across the expanse of the country to meet such demand. To accelerate the cold-chain for such perishables, there is need to develop modern pack-houses, as well as refrigerated transport. The demand for frozen vegetables has also picked up.
Cold chain initiatives
FSC integrates technology into the core
Technology: IoT is a key component of the temperaturecontrolled supply chain and Future Supply Chain Solutions Ltd (FSC) has integrated its transport management systems with the remote temperature and location monitoring services. This provides a real time feedback of the goods in transit thus ensuring that quality is maintained throughout the transit period.
Manpower training: To ensure high level of quality standards in the warehouse, FSC ensures that all its support staff are trained on the hygiene standards required while handling products in the warehouse. A strict training calendar is followed to ensure that the personnel are clear on the standard processes for quality management.
Alternate reefer technology: Traditionally, reefer technology for both storage and transportation is fuel driven. FSC is experimenting with a number of alternate technologies that use gel packs and eutectic plates to maintain the desired temperature. This not only reduces dependency on fossil fuels, but also helps use the existing dry assets for cold chain without compromising on quality.
24×7 monitoring of operational aspects, such as the door opening at the warehouse, loading and unloading time, transit time, etc. to ensure that there is no impact on the quality of the product.
Remote temperature management: To eliminate the dependence on drivers for temperature management in transit, Sheshadri informs that FSC is in talks with OEM manufacturers of refrigerated units to develop remote temperature management technologies. This will help FSC monitor in-transit temperature from the control tower and reduce dependence on the driver for the same.
Real time data monitoring and incident alerts: Customers are provided with access to FSC’s tracking systems thus ensuring high levels of transparency for goods in transit. This helps in taking immediate action in case of temperature excursions thus preventing loss of quality.
FCAOI brings industry knowledge
FCAOI is trying to provide knowledge regarding latest technology and how to work on it. The industry-body also provides knowledge about the machines and equipment and from where and how to procure it. About the latest imitative, FCAOI asking cold storage owners to take the help of solar energy to solve their electric problems, which is most essential component of cold storage industry. For this, they are holding seminars and exhibitions on regular basis where the advancement in technology is discussed with experts. Machines and various equipment are also put on display.
GCCA serving as central pillar
Besides human resource development initiatives and making technical literature, GCCA has been facilitating initiatives in order to enhance and develop cold chain facilities and make warehouses meet modern standards.
A GCCA delegation also travelled to India as part of a USDAfunded project to discuss the current cold chain logistics industry in India with importers, retailers, cold storage owners, transporters, and logistics companies. Indian stakeholders shared information with great willingness and discussed the challenges in the current Indian cold chain. The delegation focused on understanding handling practices, efficiencies, education and training, and specific transport challenges. This is expected to help GCCA to develop strategies for intervention to support additional growth while enhancing knowledge of best practices. “The assessment results will be presented and discussed with Indian stakeholders in November, with follow-up activities for additional training and networking activities to support cold chain development. Thus, GCCA is serving as central pillar in cold chain development across the globe, including India in a bigger way,” informs Khanna.
by Subhajit Roy