The future of cold chains lies in organised integration, value addition, and diversified user base. That is why CRISIL Research expects Rs 15,000-20,000 crore to be pumped into the cold chain industry through fiscal 2022. What more, about 90 per cent of this will go into multi-purpose cold storages. These offer higher rentals compared with single-commodity cold storages, and also early payback. However, that would still fall short to meet demand. The industry is seen riding on 13-15 per cent annual growth up to fiscal 2022 to a size of Rs 47,200 crore.
Integrated cold chains that package temperature controlled warehouse (TCW) and temperature controlled vehicle (TCV) services to diversified end-users will lead the way. As of now, the TCW segment alone accounts for 90 per cent of the industry’s revenue and that’s where the bulk of growth will emanate. Within this segment, multi-purpose cold storages dominate. Their revenue share of the segment is estimated to rise from 77-79 per cent in fiscal 2017 to 84-86 per cent by fiscal 2022. Within the multi-purpose segment, we estimate organised players, which comprise less than 10 per cent of the overall cold-storage market, to grow faster than unorganised ones. Organised players that provide integrated and valueadded services, have pan-India presence, and a diversified end-user base, charge premium and earn better margins. They are strategically clubbing warehouse and reefer services to tap demand and investment.
However, the medium-term may not be as bright for the TCVs or reefers-only segment. Accounting for around 10 per cent of industry revenue, it is expected to log a relatively sedate growth of 6-8 per cent annually to Rs 2,400 crore in fiscal 2022 from Rs 1,800 crore in fiscal 2018. The main reason for subdued growth in TCVs, which provide first and last-mile connectivity to cold storages, is that all end user industries may not be willing to pay high rentals. Also, unavailability of return load leads to inefficient utilisation of vehicles, which acts as a major inhibitor. In a catch-22, investments in cold chains and reefers themselves suffer owing to lack of first and last mile connectivity.
Besides, stiff competition and reluctance of end-user industries to transport via reefers because of higher cost restricts private players from investing in the segment. This is why it makes sense for a player providing both TCW and TCV services to offer an integrated package to clients willing to pay, rather than as standalone services. That would help improve utilisation, and thereby, draw investments in the industry. Although only a few big players offer integrated services today, the number is expected to rise in years to come. On the exports front, growth in the cold-chain industry will be driven by meat (mainly carabeef, or buffalo meat), seafood (predominantly shrimps), bio-pharmaceuticals, and exotic fruits and vegetables. These segments cater mainly to the export markets, where again, organised players are preferred owing to stringent quality requirements and regulations.
What does the industry have?
The industry suffers from various constraints: weak energy infrastructure in the country in terms of modern technology and proper supply of power, low awareness among players that limits the adoption of new technology, low availability of skilled workers to handle modernised technology, dependence on manual labour owing to low investment, and operational challenges in maintaining sensitivity and consistency in the quality of pharmaceutical products. Organised multi-purpose cold-storage players also have to contend with realisation pressure because of intense competition and unwillingness of end-user industries to pay higher charges that makes it difficult to charge higher rentals. All these act as deterrents limiting investments in the industry.
What does the industry need?
• Investment in cold storages situated at 50-150 km from the farm gates,
production centres and TCVs or reefers, for building an efficient cold chain grid across India • Timely support from government policies and schemes in the form of capital subsidies to boost growth
Penetration of cold chains in India is low at 0.1 cubic metre cold storage space per capita, compared with 0.35 cubic metre in the US. Less than 4 per cent of India’s fresh produce is transported by cold chain, compared to more than 90 per cent in the UK, according to a study by the University of Birmingham.
This suggests there is only one way for the industry to move. Upwards and forwards.