26 May 2013

Food Production & market opportunity

From a talk at Thaifex 2013 - World of Cold-chain Conference

No one can deny that India’s food industry is undergoing massive transition and its intention of being a major player in the global supply of food.  In order to achieve this goal, policy makers are looking across the board at the daunting task at hand whilst recognising the need to also bring the agriculture sector in to the 21st century.

at world of cold chain, 2013
Yet it does not matter how good a product is, or how sophisticated or productive an agricultural area is, if a farmer or manufacturer cannot get their product to market or on the retail shelf… all their efforts turn out in vain.

Currently the progress in the food industry is quite uneven. The ever growing middle class with their specific demands, local and international food companies all wishing to meet those aspirational needs, the regulatory agencies making massive strides towards a complete overhaul of the food industry is all inextricably coupled to the struggling logistics infrastructure already pushed to the limits.

The potential in India is simply enormous. India is one of the largest agricultural producers in the world. Horticulture, as a subset of agriculture, takes up 23 million hectares of land or about 15% of total area under agriculture. In the last five years, the horticultural sector has registered an annual growth rate of 6% in production against the annual population growth rate of 1.3%. Food security seems assured yet remains a daunting task.

Although only using 15% of land area, horticulture accounts for over 35% of agriculture’s contribution to GDP. Horticulture alone provided over 260 million MT to the food basket in 2012-13, up from 257 million MT in the previous year. The top ranking products are mangos, bananas, papayas, sapota, pomegranates, amla (Indian gooseberry), areca nut (betel nut), okra, peas and potatoes.

Other statics are equally impressive. India is the world’s largest beef exporter, and has 17% of global milk production (currently worth US$60 billion with confectionery and ice-cream valued at $2.5 billion). Add to this the Indian pharmaceutical sector which, by global standards, is the third largest in terms of volume and stands 14th in terms of value, as of 2010.

Despite all the growth, reports indicate (accurate statistics are awaited) that between 20-40% of all produce grown in India spoils before reaching consumers.

And those very consumers are cause for the most talked about and deeply debated topic – retail. The middle class with their higher incomes and access to easy credit are not only looking for quality products but also are more hygiene and health conscious, more open to new tastes, getting more global in their demands.

Servicing the retail sector, and including food outlets in this scenario, has put logistics under pressure, and stretched the specialised cold chain sector far beyond current capabilities. As of last recorded national data, India has 6,488 cold storage units with an installed capacity of approximately 30 million metric tons. Majority is for potato storage and the ageing statistics and numbers in actual operations are not fully ascertained.

Cold chain storage is just a minor aspect of the need. Currently there are only 8,000 reefer trucks that deliver all the products requiring cold chain around the entire country. Conversely, the success of the milk sector can be attributed to the presence of almost 25000 insulated milk carrying vehicles that service the collection centres and fresh milk delivery logistics. The per annum domestic movement of chilled and frozen product is around 50,000 tons of frozen potatoes (french fries), 3.4 million tons of meat, 110,000 tons of frozen vegetables, 300,000 tons of fresh product, and all this excludes the 235,000 tons of imports and 47,000 tons of exports.

Presentation at Thaifex

If only the lack of reefer trucks was the problem. Consider the route between Delhi to Bangalore, a distance of 2,140 kilometres (1,330 miles), which takes up to 9 days. The implications are that an inter-city haulage needs to be handled with protocols much like the sea shipment between Singapore and Dubai… there are solutions of course!

Progress is being made and, to repeat the obvious, demand will outpace development for some time. Whilst the earlier development focus was on cold storage, that focus has now changed to the actual distribution requirement. Besides distribution hubs, if India’s fresh produce sector is to gain from a cold supply chain, the basic ‘production units’ also need to be developed. The large cold storage capacity is in reality a middle link in the cold-chain; they service goods that already originate in the cold-chain.

The slower development of associated production units like pack-houses with pre-coolers and also the food processing units, leaves the cold storages to largely service ice-creams, meats and imported fresh produce (since they all arrive from within the cold-chain). Our own domestic produce does not originate in the cold-chain and hence are not catered to in the existing storage infrastructure. This cannot continue as this is the root of all the wastage that we need to curtail.

It is relatively easy to identify the shortcomings of the logistic industry, and in particular the cold chain sector. The real question is what does that mean to companies wishing to enter the Indian market and who need cold chain? Some practical steps are...
  • Clear identification of source and market, the user base and the consumer base.
  • Understanding capacity utilisation and reverse haulage options.
  • Allocating infrastructure and other resources to strategically develop identified lanes.
  • Ensuring that focus is not just on market capture but also maintaining presence in new developments and the expanding consumer base. Rural India is vastly spread and fast becoming the new middle class consumer base.
  • Innovation in service models and technology applications. Like all developing nations, the dynamism is high and the opportunity exists to create futuristic brands.
  • The back end or farm-gate development is where the vacuum is the most. This presents the greatest scope to launch food labels, both in the fresh and processed segments.
  • Since integrated cold chains are still nascent, sustained training of operational staff and the selection of leadership that can apply themselves to strategic targets is also important.
  • This lack of integration stems from single bodied entrepreneurs having set up individual activities in the cold-chain. This too is an opportunity, to consolidate existing infrastructure into a single chain of custody. Some signs of consolidation are already evidenced in this sector.
India obviously presents an awfully immense opportunity, not just because of its large and growing consumer base, but also because it can be a source for many developed markets with a well-established demand. To add to this opportunity, are the various fiscal and facilitating schemes by the Indian government. All factors tend to point to a hastening in the cold-chain in India – continue to observe this space for exciting developments.
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