Cold Chain Industry in India - The Way Forward
The cold chain business all round is expected to grow at a CAGR of around 28% and to touch a market size of around Rs 750 billion in the current year. As a business opportunity therefore, this sector presents immense prospects for existing players to cash on the emerging opportunities as well as new entrepreneurs to develop new solutions…
India is one of the largest producers of agricultural products and one of the global leaders in the pharmaceutical sector. Inspite of this, the country still has a fledgling cold chain, which results in supply chain losses of food and other resources. These losses have been stated to be as high as USD 8 to 15 billion per annum from the agriculture sector alone.According to industry estimates, approximately 104 million metric tons of perishable produce is transported in India between cities each year. About 100 million metric tons moves via non-refrigerated (referred to as reefer) mode and only four million metric tons is transported by reefer. Even though, India has about 250 reefer transport operators (mostly small & non-integrated firms) who transport perishable products and less than 30,000 refrigerated vehicles currently ply in India. It has been observed that majority of the refrigerated vehicles (80%) are utilized for milk and milk products transportation. It is very clear that the high cost of transportation is a major challenge for refrigerated vehicles market.In India, at present, only 3.5% of perishable goods are transported in reefer trucks. As compared to this, the comparable figures are 75% for China and 85% in the US.
The cold chain business all round is expected to grow at a CAGR of around 28% and to touch a market size of around Rs 750 billion in the current year. As a business opportunity therefore, this sector presents immense prospects for existing players to cash on the emerging opportunities as well as new entrepreneurs to develop new solutions.
While there are no two opinions on the need for developing a cold chain, the actual design of the cold chain depends on a number of specific factors viz, location, temperature, logistics infrastructure, warehousing etc. Fresh foods, like fruits, vegetables, meat, poultry and dairy, require an uninterrupted cold chain due to their perishable nature. By controlling parameters of temperature, humidity and atmospheric composition, along with utilizing proper handling procedures, cold chain service providers can increase the product life of fresh foods for days, weeks or even months. These services allow fresh products to hold their value longer, increasing their transportability and providing opportunities that expand their market reach.
Therefore, ideally, the cold chain for agricultural products should begin at the farm. In a modern cold chain, the produce at the harvest location is loaded onto a truck or other transportation unit designed to keep the produce protected from the sun and held within a desirable temperature range, as it travels to a processor facility or a temperature controlled warehouse. In less developed locations, transportation may be carried out on covered trucks or smaller carts; in more developed locations, these transportation solutions can include insulated reefer trucks. The exact structure of each cold chain varies significantly depending on product and customer requirements; however, the underlying objective of an efficient cold chain system is to safely transport temperature-sensitive products in such a way that it minimises wastage, maintains the quality and characteristics of the product and limits external or internal contamination. A complete cold chain system may include post-harvest pre-cooling or freezing, processing, temperature controlled warehouse or storage, retail or distribution and refrigerated transport between locations.
As mentioned above, requirements for cold chain facilities vary based on the size, type and amount of product, along with the particular requirements of the customer. Fruits and vegetables often require cool facilities and are stored around 55°F. Most dairy products require temperatures just above freezing around 35°F. Meat and poultry products are typically stored just below freezing at approximately 28°F. Ice cream and other frozen products may require deep freezing at temperatures that can range from -10°F to -150°F.
The cold chain sector does face a number of challenges. If the need of the hour is to cut down on wastages of precious perishable products and ensure efficiencies in distribution, it is imperative to have an undisrupted, seamless and smooth functioning supply chain as the backbone. Today, the major challenges are typically both micro level (at the operational level) as well as macro level (policy level).
• India’s supply chain today is still highly fragmented and there are numerous small time transport operators without the proper infrastructure for efficient logistics. A low level of organized 3PLsector means that as much as 75 percent of truck owners have a fleet of less than 5 vehicles. Most of these trucks are more poorly maintained and are more than a decade old.
• State-of-the-art cold chain infrastructure calls for capital investment which only the organised players and pan-India operators are presently willing to commit. At present, organised players contribute only around 8%–10% of the cold chain sector
• Sixty percent of freight moves on a road network with less than 5 percent of those roads national highways.
• Experts have estimated that India has less than half the cold chain capacity necessary to meet its current needs and will require as much as USD 100 billion of infrastructure investment in the coming years
• Lack of good roads and highways and poor infrastructure, particularly in rural areas
• Awareness, knowledge dissemination and training are important for the correct handling of cold chain products – to maintain the quality and as well ensure economy of operations. The customers and operators should know that reefer is meant to maintain the product temperature within a range by taking away the incremental heat gain and not cool it down. This means pre-cooling is essential for the products getting loaded and also loading and unloading have to be done in the correct sequence to minimise the heat gain during the operations.
Addressing the Challenges
The importance of developing a robust cold chain has caught the attention of the policy makers. Industry too has always been upfront in investing and innovating in solutions that lead to lesser wastage, shortening the supply chain delivery period and value addition to the product. At the policy level, the government has taken initiatives in setting up cold storages and distribution centres. The Government of India is one of the driving forces in developing the cold-chain industry and supports private participation through various subsidy schemes and grants. Investment in cold-chain in India was also opened under the automatic route for 100% FDI participation.
Cold-chain is promoted by Ministry of Agriculture and Farmers Welfare as a thrust area to empower producers through modern logistics. Cold-chain is also supported by Ministry of Food Processing Industries to support the needs of food manufacturing projects as well as farmer producers. The National Centre for Cold-chain Development (NCCD) has been set up by the Ministry of Agriculture with the overall mandate of promoting the cold chain sector in India.
There has been significant growth in the cold storage capacity in India and as per the Global Cold Chain Alliance figures, India had a total cold storage capacity of 131 million cubic meters in 2016. In terms of incremental growth of refrigerated warehouse capacity also, India has demonstrated a very high growth as compared to other countries.
Food and agro-based processing unit and cold chain infrastructure have been classified under agriculture activities for Priority Sector Lending. This has led to availability of additional credit for food processing activities and development of infrastructure.
Cold-chain, is a modern agri-logistics service, and provides a safe mode to transfer value from producer to consumer. Strictly speaking, there is no value addition to the produce in the cold chain and the various activities undertaken – preconditioning the produce for travel, the transport, buffer storage and retail – the cold-chain merely manages or safe-guards the value in its custody in its passage to markets. This fact is recognised by the Finance Ministry and under the Finance Act, there is no value added tax or service tax on activities for handling, transporting, storage and marketing of agricultural produce. This is a big relief in terms of tax exemption to the cold chain operators as this facility was only available to the farmers at farm gate but not to the cold chain operators. This enhanced the viability of cold chain projects, encouraging more investment in the sector.
Following are the specific fiscal incentives given to the cold chain sector by the government:
• 100 % Income Tax Deductions on capital expenditure for cold chain or warehouse.
• Service Tax exemptions on construction, erection, commissioning or installation of post-harvest storage infrastructure or cold storages
• Excise duty reduced from12.5 % to 6% on refrigerated containersBasic Custom Duty reduced on refrigerated containers from 10% to 5%
Just as the need for an efficient cold chain logistics sector cannot be overemphasised, the drivers to its growth are clearly visible.
• Growth of retail market in India and the entry of multinational retail giants will be a major driving force
• Increasing production of horticultural products that require cold storage facilities
• The growing demand for processed foods as a result of higher disposable incomes would lead to a requirement of robust cold chain distribution system
• Establishment of new and modern cold storage facility will necessarily push up demand for refrigerated vehicles.
AUTHORS CREDIT & PHOTOGRAPH
Corporate Catalyst India