24 Dec 2015

Perspective on India's Cold-chain

India has developed an enviable capacity in the cold storage format across the country. As per the 2014 report of IARW (International Association of Refrigerated Warehouses), India had 131 million cubic metres in cold storage capacity, overtaking USA which has 115 million cubic metres. China has the third largest capacity globally with about 76 million cubic metres in cold storage space. The worldwide capacity in refrigerated warehouses was reported as 552 million cubic metres in this report by IARW. Between May 2014 and July of 2015, India added another 200 units or a little more than one million tons to its cold storage space. Though about 5% of the facilities may have become obsolete over the years, India can now lay claim to having created almost 7200 cold stores equivalent to about 33 million tons in holding size, most of these over the past decade.

The distribution of these refrigerated stores is mainly in producing areas, focused on bulk storage of long term holding farm produce. This development has helped single season harvests of crops like potatoes and apples to be traded all across the year. A major success story is the case of potatoes, which though native to Peru, have become a staple food item in India, thanks to cold stores. In case of dried chillies too, the opportunity to trade across seasons opened up as their holding life extended in cold-stores.

India’s current capacity in cold stores is also used to service market demand for the “cannot-do-without” segment like ice-creams and frozen or processed products. These products cannot exist, without cold stores, refrigerated vehicles and deep freeze cabinets at point of sales.

However, there is another set of farm produce that the markets increasingly demand, the “must-do” segment of fresh fruits, vegetables and floriculture. This segment remains under serviced by the Indian cold-chain. These set of produce types can manage without the cold-chain, if the consumption base is close to production sites. Yet, these are emphasised as a “must-do” segment, as without recourse to the cold-chain, they cannot be supplied long distance in fresh form, and therefore the market or consumer base remains limited. These crop types have an even greater import as they are mainly cultivated by a large number of small and marginal farmers. 

For the economic inclusion of our small holding base, their overall development and to fulfill domestic demand shifts for higher nutritional value foods, a different format of cold chain development is needed.

In case of fruits and vegetables, the importance of cold-chain is more critical, as they are subject to highest damage and loss in their ‘to-market transit’ from farms. This physical loss, effectively has a negative impact on our environmentally friendly agendas. Every kilo lost has a multiplier effect on the loss incurred to input resources, such as water, fertilizer, electricity, fuel and effort, thereby negating its economic value. Today, it is estimated that horticulture alone contributes to almost 30% of the total agricultural GDP (a remarkable feat considering that only about 15% of cultivated land is under horticulture). Each percent of produce saved, will only add to the economic development of our nation.

So, despite the largest capacity in cold storage, where does our cold-chain fail our fresh produce supply system? For starters, the concept of cold-chain needs to be understood properly, at the conceptual level.

The majority of our fresh whole produce does not have long term holding ability, and a more dynamic, time sensitive and market linked, approach to cold-chain development is required. The time bought though the application of cooling and other scientific handling, needs to be utilised to carry the produce to consumption end. To serve as an effective market conduit, the cold-chain requires more development in form of farm-gate pack-houses (at the back-end), reefer transport (connectivity links) and distribution hubs. Such a chain of infrastructure components alone, will help set up meaningful supply chains, making Indian agriculture more relevant and future ready.
For too long has “cold-chain” been held synonymous with cold stores. Just because we have had success with long term storage of potatoes and dried chillies, one cannot assume the same mechanisms will hold true in case of other perishable produce.
"Cold-chain will pioneer the revitalising of our agriculture, and make India the food basket of the world." A tomato, spinach, okra, mango, papaya or banana will not remain edible across months, like say, potato can. These more sensitive food types manage to buy a short time in the cold-chain, a life extension of a couple of weeks or so only. In such cases, much like with milk, the cold-chain needs to operate to serve as a quick conduit to markets. Therefore, mere storage facilities will not serve the purpose - held in cold stores, these food items will still perish and we will eventually still incur a loss. 

The alternative would be to process all our fresh produce into canned, frozen or preservative based products. Consumer demand for fresh whole produce continues to grow as more countries are recommending fresh foods to their citizens. One cannot visualise consumer preference for preserved flowers, mangoes, spinach or apples to exceed that for the fresh stuff, as produced by nature.

"Strengthening the cold-chain offers clear advantages."
Keeping in mind that India’s agricultural mainstay is rapidly moving towards high value produce (fruits, vegetables & livestock), cold-chain logistics has been directly linked as part of the second green revolution.

The policy makers have put in place appropriate support mechanisms to develop the missing links in cold-chain and thereby realise a hitherto untapped potential. In the 2015 budget, preconditioning of fresh produce has been exempt from service taxThis preconditioning (sorting, packing, precooling, etc.) activity is undertaken at modern pack-houses and critical to initiating the flow of fresh farm produce to distant markets. Modern pack-houses with pre-coolers are provided a minimum 35% capital subsidy (50% in scheduled areas). Refrigerated transport, a much ignored, yet key missing link, is also subsidised for promoters.

In addition, to boost multi-modal transport (railways, waterways, roadways), reefer containers for domestic use are also subsidised. The erstwhile subsidy for cold stores has been rationalised and minimum system standards have been published to help the users. To ensure that subsidy is utilised for physical creation of infrastructure, the assistance is directly linked to bank credit and is disbursed after completion and commissioning of the asset base.

There are added fiscal benefits in form of tax deductions (150%) on the capital invested in cold-chain infrastructure (vehicles, pack-houses, storage). Additionally, income tax exemption is offered for the first ten years. Besides the fiscal and financial support from government of India, foreign direct investment into cold-chain logistics is open up to 100% through the automatic route. A low interest credit window for private entrepreneurs was also opened in the previous year through NABARD, with a corpus of Rs. 5000 crores. All these facilities are available to promoters for developing the components that comprise holistic cold-chain logistics.
The whole world eyes India as a burgeoning market, including for food. Whereas demand for other consumer goods will see large variations for various reasons, demand for food is eternal.
India will remain one of the largest demand centres for vegetarian foods (fresh fruits and vegetables) in the foreseeable future, and this demand for fresh can primarily be met only through deploying cold-chain logistics. India actually produces enough to meet its domestic demand and with appropriate logistics networks, will have greater reason to produce more and meet external demand. Having recognised the current and future importance of cold-chain, the policy makers have laid grounds for an enabling environment for greater and more relevant development of cold-chains.
These initiatives now require to be met by the private sector, with equal cognisance of the opportunity and the prospect to create legacies.
With ever growing consumer demand for fresh foods, increasing purchasing parity and lower cost of inducting technologies, India’s cold-chain is poised to scale up momentously. I can visualise our rural landscape dotted with pack-houses, crisscrossed with transport linkages, knitting India’s landscape to bridge urban with rural. Cold-chain can do all this… pioneer the revitalising of our agriculture, and make India the food basket of the world.
[Author: Pawanexh Kohli, CEO of the National Centre for Cold-chain Development, cum Chief Advisor to Ministry of Agriculture in India]

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