Cold Supply Chain Market In India

Published Date: 02 Nov 2017

This report provides the findings from a research project on cold supply chain market in

India. The information contained in this report is primarily based upon the secondary

research. Secondary research included an exhaustive search of relevant publications like

newspapers, website white papers, industry journals, magazines and proprietary databases.

Apart from that some primary data is also collected through questionnaire filled in the online

surveys by some professionals working in cold chain industry.

The cold chain market, which is primarily dominated by the private sector, has got a boost

from the government in the last two budgets. Growing demand in retail and pharmaceutical

sectors drives the cold chain market and it has huge potential to grow in the near future,

especially since now it has strong government backing. The cold chain market was valued at

INR 89 Billion and is expected to grow at a CAGR of 28.7%. Government backing will help

boost the capacity creation for cold storages while new players are gradually venturing into

the more profitable refrigerated transport services.

The cold chain market in India is anticipated to grow at a CAGR of 28.7% in the next 5

years, which will make the market reach INR 660 Billion by 2017. The Indian cold chain

market is highly fragmented in which about 3500+ players are present. There are a large

numbers of small players present in the Indian cold chain industry; some of the well-known

organized companies are Snowman, FHEL, RK Foodland Pvt. Ltd., MJ Logistic Services

Ltd. etc. It is anticipated that cold chain market in India will get more organized with the

entry of large private players in this arena.

The factors for growth of the industry largely depends on the growth in organized retail, shift

towards horticultural crops, growth in processed food sector, demand from pharmaceutical

sector and changing consumption pattern. The key challenges of the market include lack of

logistical support, uneven distribution of cold chains, cost structure and power supply. The

key trends in the market have also been analyzed which includes entry of foreign players, rail

based reefers, cold chains facilities at airports and backward integration.

The competition section will cover the competitive landscape in the industry and includes a

brief profile of the major players in the market.

INTRODUCTION

Cold chain is now recognized as a sunrise sector in India. It is true that in a country which

ranks first in milk production in the world, is number 2 in fruits & vegetables production and

has substantial production of marine, meat & poultry products, the country needed a fully

developed cold chain sector. However the current scenario reveals that there is a tremendous

scope for the development of cold chain facilities.

Cold stores form the heart of the cold chain. An overview of the cold storage industry in India

indicates that the cold stores have been established initially right from the beginning of

twentieth century but the further development was fairly slow. These units were mostly

designed for storage of potato and were located in areas like UP, West Bengal, Punjab, Bihar

etc. It was only in Sixties that the idea of multi product, multi chamber cold stores was

introduced with Maharashtra taking the lead.

The cold storage sector is undergoing a major metamorphosis, with the Govt focusing on

food reservation. A lot of stress is being laid on energy efficiency as the cold stores are

energy intensive.

With the advent of newer materials / equipments, every part of a cold chain renders itself

amenable for improvement. As a result type of construction, insulation, refrigeration

equipment, type of controls – all of them are witnessing changes.

India is an agricultural-based economy. More than 52 percent of India’s land is cultivable,

compared to the global average of 11 percent. Each year, India produces 63.5 million tons of

fruits and 125.89 million tons of vegetables. India is also the largest producer of milk (105

million metric tons per year). India produces 6.5 million tons of meat and poultry, as well as

6.1 million tons of fish a year. The perishable products transaction volume is estimated to be

around 230 million metric tons. Although India has the potential to become one of the

world’s major food suppliers, the country’s inefficient cold chain network results in spoilage

of almost 40 percent of its total agricultural production. The total value of the cold chain

industry is estimated to be as high as USD 3 billion and growing at 20-25 per cent a year. The

total value is expected to reach USD 8 billion by 2015 through increased investments,

modernization of existing facilities, and establishment of new ventures via private and

government partnerships.

The Indian agricultural sector is witnessing a major shift from traditional farming to

horticulture, meat and poultry and dairy products, all of which are perishables. The demand

for fresh and processed fruits and vegetables is increasing as urban populations rise and

consumption habits change. Due to this increase in demand, diversification and value

addition are the key words in the Indian agriculture today. These changes along with the

emergence of an organized retail food sector spurred by changes to Foreign Direct

Investment laws, are creating opportunities in the domestic food industry, which includes the

cold chain sector.

As a result of the Government of India’s new focus on food preservation, the cold storage

sector is undergoing a major metamorphosis. The Government has introduced various

incentives and policy changes in order to curtail production wastage and control inflation;

increase public private participation and improve the country’s rural infrastructure.

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India’s greatest need is for an effective and economically viable cold chain solution that will

totally integrate the supply chains for all commodities from the production centers to the

consumption centers, thereby reducing physical waste and loss of value of perishable

commodities. For this reason, the Government of India has prioritized the development of the

cold chain industry. The government has laid out elaborate plans and incentives to support

large scale investments essential for developing an effective and integrated cold chain

infrastructure.

One of the most critical constraints in the growth of the food processing industry in India is

the lack of integrated cold chain facilities. According to the government’s estimates India has

5,400 cold storage facilities of which 4,875 are in the private sector, 400 in the cooperative

sector and 125 in the public sector. Although the combined capacity of the cold storage

facilities is 23.66 million metric tons, India can store less than 11% of what is produced.

Most of the infrastructure used in the cold chain sector is outdated technology and is single

commodity based. The India’s controlled atmosphere storage facilities and other cold storage

facilities with the technology for storing and handling different types of fruits and vegetables

at variant temperatures would have a very good potential market in India.

Objectives of this Research

The specific objectives are as follows:-

To do the detailed study on the cold chain markets in India.

Finding out the drivers and challenges of cold chain industry in India

Finding out the key trends in cold chain industry in India

Finding out the scope, opportunities and future of cold supply chain in India.

Providing Strategic Recommendations to improve the cold chain markets in India.

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METHODOLOGY

The information contained in this report is primarily based upon the secondary research.

Secondary research included an exhaustive search of relevant publications like newspapers,

website white papers, industry journals, magazines and proprietary databases. Apart from

that some primary data is also collected through questionnaire filled in the online surveys by

some professionals working in cold chain industry. The data collected from the primary and

secondary research were pooled together and the conclusion were drawn.

Tools for Data collection

Primary Data:

The information is collected through questionnaire filled in the online surveys by some

professionals working in cold chain industry.

Secondary Data:

The information will be collected from Internet, White papers & Industry Journals –

Magazines.

Secondary research included an exhaustive search of relevant publications like newspapers,

website white papers, industry journals, magazines and proprietary databases.

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Literature Review

As a part of research process, it is necessary for researcher to undertake a literature review which

represents the previous researches in related to cold supply chain industry.

Sources of literature being review in this paper involves book, journals and conference proceedings,

which is access through library, electronics database such as Business source premium, Emerald etc.,

together with internet search engine .

Article No.1:

Cold Chain Infrastructure for Frozen Food: A Weak Link in Indian Retail Sector by Jitendra Rathore,

Anamika Sharma and Karunesh Saxena

Abstract:

The retail sector, particularly organized retail has shown enormous growth. Categories in

retail, like food and grocery have a lot of potential owing to changing lifestyles,

demographics and various other growth drivers. India is a country of geographic

diversities—varied soil-types, habitats, climates and vegetation’s. Congenial agricultural

conditions make India the second largest producer of food and fruit in the world.

Interestingly, food and grocery constitute the largest segment of retail of all categories and

organized retail views this category as a big opportunity. However, on the other side, there

have been staggering losses in the food (frozen) sector due to ill-equipped and weak cold

chain infrastructure of the country ensuing post-harvest losses. The article is an attempt to

draw the attention of the reader towards the potential that exists in the frozen food

business in India. There are challenges but no dearth of opportunities; a collaborative effort

on the part of various stakeholders like public-private partnership, cartels and cooperatives

can significantly help in building a sturdy supply chain that would contribute to the Gross

Domestic Product (GDP), generate employment, help in increasing exports and benefit

stakeholders.

Article No.2:

Cold chain development in India - Modernization of the infrastructure of cold storage of perishables

by Arvind Surange

Abstract:

Cold chain is now recognized as a sunrise sector in India. It is true that in a country which ranks first

in milk production in the world, is number 2 in fruits & vegetables production and has substantial

production of marine, meat & poultry products, the country needed a fully developed cold chain

sector. However the current scenario reveals that there is a tremendous scope for the development

of cold chain facilities.

Cold stores form the heart of the cold chain. An overview of the cold storage industry in India

indicates that the cold stores have been established initially right from the beginning of twentieth

century but the further development was fairly slow. These units were mostly designed for storage

of potato and were located in areas like UP, West Bengal, Punjab, Bihar etc. It was only in Sixties that

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the idea of multi product, multi chamber cold stores was introduced with Maharashtra taking the

lead.

The cold storage sector is undergoing a major metamorphosis, with the Govt focusing on food

preservation. A lot of stress is being laid on energy efficiency as the cold stores are energy intensive.

With the advent of newer materials / equipment’s, every part of a cold chain renders itself amenable

for improvement. As a result type of construction, insulation, refrigeration equipment, type of

controls – all of them are witnessing changes.

Realising the significance of the cold chain industry, it is heartening to note that the Government has

taken initiatives, thru bodies like NHB, to establish standards for all the arms of the cold chain.

Efforts are also being made to evolve a new concept – ‘Green Cold Chain’. In short the Cold Chain

Industry is in the eye of a revolution.

Article No. 3:

Critical Review of Cold Chain in Indian Scenario by Wales Mathew, A Ramesh and R Sridharan

Abstract:

Cold chain is identified as one of the rising industries in India. A lot of opportunities are existing in

the areas of processed food, diary, fruits and vegetables, poultry, pharmaceuticals etc. But due to

inadequate capacities, lack of technologies and unorganized players, this industry is still in nascent

stage. In order to get benefitted, a lot need to happen in technological development, government

policies, infrastructure and strategies. The consumers and the farmers are the ones who will benefit

the most in cold chain. The farmers will benefit since they will have enhanced incomes as their

produce is taken care of by the cold chain operators. The consumers will benefit as these cold chains

will meet all the food safety standards. Improvement and development of the cold chain

infrastructure is crucial for the Indian economy to prosper. A strong cold chain industry ensures

improved availability of food products as well as prevents spoilage of medicines, and therefore has a

critical role to play in a country like India (Narula, 2011)

Cold chain is generally considered as the transport and storage chain between the initial production

and the final consumer of temperature-controlled perishable goods. Industries served by cold chain

are fruits and vegetables, processed food, meat and poultry, marine products, medicines and

chemicals. Definition of cold chain will vary according to the context used.

Cold chain facilities naturally consists of pre-cooling facilities, cold storages, refrigerated transports,

packaging, warehouse, traceability, information management and production facilities (Montanari,

2008). Cold chain products features with shelf life restriction, equipment for proper storage and

refrigerated transport.

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Article No. 4:

India’s Cold Chain Industry by Renie Subin

Abstract:

India is an agricultural-based economy. More than 52 percent of India’s land is cultivable,

compared to the global average of 11 percent. Each year, India produces 63.5 million tons of

fruits and 125.89 million tons of vegetables. India is also the largest producer of milk (105

million metric tons per year). India produces 6.5 million tons of meat and poultry, as well as

6.1 million tons of fish a year. The perishable products transaction volume is estimated to be

around 230 million metric tons. Although India has the potential to become one of the

world’s major food suppliers, the country’s inefficient cold chain network results in spoilage

of almost 40 percent of its total agricultural production. The total value of the cold chain

industry is estimated to be as high as USD 3 billion and growing at 20-25 per cent a year. The

total value is expected to reach USD 8 billion by 2015 through increased investments,

modernization of existing facilities, and establishment of new ventures via private and

government partnerships.

The Indian agricultural sector is witnessing a major shift from traditional farming to

horticulture, meat and poultry and dairy products, all of which are perishables. The demand

for fresh and processed fruits and vegetables is increasing as urban populations rise and

consumption habits change. Due to this increase in demand, diversification and value

addition are the key words in the Indian agriculture today. These changes along with the

emergence of an organized retail food sector spurred by changes to Foreign Direct

Investment laws, are creating opportunities in the domestic food industry, which includes the

cold chain sector.

As a result of the Government of India’s new focus on food preservation, the cold storage

sector is undergoing a major metamorphosis. The Government has introduced various

incentives and policy changes in order to curtail production wastage and control inflation;

increase public private participation and improve the country’s rural infrastructure.

Article No. 5:

Cold Storage - Organized food retailing by Anand Adhikari

Abstract:

Organized food retailing is going to be huge, but it will be nothing without a back end, and a

backbone. That’s where the logistics sector comes into play, right from state-of-the-art warehouses

to the entire gamut of cold chain infrastructure.

Spire Group Limited is a Toronto- Headquartered corporation that constructs and manages

refrigerated warehouses, and is a giant in the logistics business. Of late, Spire has been on a global

expansion spree, kicking off operations in emerging markets like Kiev and Odessa (Ukraine),

Bucharest (Romania), and Moscow (Russia). Recently, Patrick Gouveia, owner of the Spire Group,

was busy surveying the Indian and Chinese cold chain markets. This has resulted in Spire putting up

an outpost in Beijing and Tianjin, in China—and one in Mumbai. If Gouveia has been particularly

keen on India and China, it’s clearly because of the emergence of these countries as huge

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consumption centers (US President George Bush recently realized it when he attributed rising food

prices to the increasing affluence of the huge middle class in China and India, but businessmen like

Gouveia would have cottoned on to this trend much before).

The business rationale for entering a country like India is visible in the numbers. Consider: India is

the leading producer of fruits in the world—at 32 million tones (MT) annually, that translates into 8

per cent of global production; in vegetables, it is second in the world (after China), producing 71 MT

per year, which gives the country a 15 per cent share of the world market. Now for the bad news: As

high as 40 per cent of the fruits and vegetables grown in India (that’s some 40 MT—worth a

staggering $13 billion) gets wasted. In fact, India’s waste is huge enough to feed countries like Brazil

and Vietnam. The reason for this colossal wastage is the yawning gaps in the cold chain, or even the

absence of a cold chain to preserve fruits and vegetables.

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Industry Overview:

Industries which need cold chains are fruits and vegetables, ice cream, processed meat and

poultry, seafood, preventive medicines (mainly vaccines) and chemicals.

The cold chain has a critical role to play in India as two-thirds of the country’s population is

dependent on agriculture for its livelihood. The Indian food market is estimated at over $182

billions. India is the second largest producer of fruits and vegetables in the world, with an

annual vegetable produce of around 85 million tonne and an annual fruit produce of around

45 million tonne. Of the close to 130 million tonnes of fruits and vegetables that the country

produces, nearly 40 percent gets wasted.

India is the largest producer of milk in the world, producing close to 100 million tonne, and

accounting for nearly 17 percent of global production. About 35 percent of this milk is

processed. More than 10 percent of annual milk production in the country is lost due to

inadequate storage facilities.

India has roughly 5,300 cold storages with a capacity of 23 million metric tonne, over 90

percent of which are suitable just for storing potatoes only.

Inconsistent standards in different sections of the cold chain could lead to damage of food,

either by shock or by undue temperature variations. This degrades food quality due to

chemical reactions which are triggered off, which can otherwise be mitigated by low

temperatures. To maintain integrity of food and pharmaceutical products, these providers rely

on efficient and fully integrated end-to-end cold supply chain technology. Thus cold chain

companies should design a supply chain solution which maintains the required temperature

according to the physical attributes of the product.

The cold chain consists of two logistic systems:

Surface storage: Refrigerated warehouses for storage of temperature sensitive products.

Refrigerated Transportation: Reefer trucks, containers, ships and trains for transport of

temperature sensitive products.

A cold chain logistics player could either be a cold storage owner or the owner of a fleet of

reefer trucks. Also, there are 3PL firms which own the entire network, right from

procurement to the final destination of the temperature sensitive products.

Thus, the success of cold chain companies relies on how efficiently they can transport

temperature sensitive products from the place of origin to their destination with full integrity.

Different products require different temperatures. The common standard temperatures are

Chiller (-2oC), Frozen (-18oC) and Deep Frozen (-25oC).

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The system for guaranteeing vaccines quality is generally referred to as "cold chain". Cold

chain management has two categories: managing equipment and managing people.

Evaluations of existing means revealed that some countries needed to improve their systems

vaccines management. Although there were many positive aspects to the functioning of the

cold chain, the following weaknesses were observed:

Frequent breakdowns in cold chain (sometimes for a long time) because of the lack of

fuel, spare parts and back-up energy source;

Lack of planning for maintenance and cold chain rehabilitation;

Incorrect use of the Vaccines Vial Monitor (VVM) as a management tool; and

Lack of planning for emergencies resulting in organisations not having effective cold

chain systems during responses.

These problems slow down improvement in routine vaccination services and hinder efforts to

eliminate and eradicate disease. To solve these problems, it is necessary to:

Identify problems in the cold chain and their causes;

Undertake specific actions to remove these causes; and

Strengthen management systems to prevent recurrence of the same or similar problems.

Active Cold Chain (Materials for producing cold)

These include active thermal systems that do not use any phase change materials (PCM) such

as water/ice or dry ice. These systems use mechanical or electric systems powered by an

energy source, combined by thermostatic control to maintain proper product temperatures.

The equipment used in active cold chain is split into two categories as follows:

Compression refrigerators/freezers;

Absorption refrigerators/freezers.

Compression Equipment

These are the models most commonly used. They run solely on electricity (220V / 110V or

on a battery). These models use little energy, require little maintenance, produce significant

amounts of cold quickly and are easy to repair. They are equipped with a thermostat for

setting the desired temperature. Some models require only eight hours of energy per day ("ice

lined refrigerators").

Solar models are of the compression type (source of energy: solar panels, battery). They are

expensive and maintaining them requires specialized knowledge.

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These models may only be equipped with an HFC 134a coolant which is not harmful for the

environment (the ozone layer). This is valid only for compression models since absorption

models function with a water/ammonia/helium (or hydrogen) mixture.

Absorption models

The energy sources are: kerosene, gas, electricity (heating resistor). They use more energy

and require more maintenance. They produce less cold and are slower. However, they are

suitable for situations where electricity is not available or reliable.

Since the cooling circuit is closed, it is not possible to fill it with gas or repair it if there is a

leak. However, these models are very reliable.

Models used to store vaccines are particularly well insulated and equipped with a temperature

stabilizing device, except for the kerosene model which does not have a thermostat (the best

known manufacturers are Sibir and Electrolux). They are used extensively for the Extended

Vaccinations Programs (EVP).

Domestic absorption models are generally insulated less well and it is occasionally difficult

to maintain a low temperature for storing vaccines, particularly when the external

temperature is high (higher than 32°C).

The efficiency of the models that run on oil depends on the quality of the fuel. Decanting and

filtering are often required. A kit is available to modify certain burners, in order to improve

operating efficiency, despite oil of inferior quality.

Passive Cold Chain (Shipping/storage materials)

These include passive thermal systems that commonly use phase change materials (PCM)

such as water/ice or dry ice. These shipping systems are the most basic and cost effective.

Some of the basic systems in use are as follows:

Freezers for province, county and sometimes at the township level;

Refrigerators and, in some areas, the new water-jacket refrigerators for province, county

and township levels.

Some villages do not have access to a refrigerator for vaccine storage and therefore use:

C at all levels for transporting vaccines;

Vaccine carriers to store vaccines during the immunization session or round;

Isothermal packaging/control materials like paper to wrap the vaccines up when using a

vaccine carrier;

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Ice packs or ice, as a last resort, to keep the vaccines at a temperature between +2°C and

8°C;

A thermometer to measure the temperature inside the vaccine refrigerator and cold boxes;

and

A chart to record the day and time of the temperature of the vaccine refrigerator. The

chart should be used to record the temperature two times a day (morning and night).

Vaccine management

Anyone handling vaccines is responsible for their potency, at each step in transport, storage and

administration of vaccines. Vaccines are delicate biological substances that can become less effective

or destroyed if they are:

Frozen

Allowed to get too hot

Exposed to direct sunlight or fluorescent light

Vaccines should be maintained within the recommended temperature range of 35°F (2°C) to 45°F

(8°C). The loss of vaccine effectiveness is cumulative and cannot be reversed.

Equipment for Transporting and Storing Vaccines:

The essential cold chain equipment needed to transport and store vaccines within a consistent safe

temperature range include:

A refrigerator for storing vaccines

A digital, electronic or mercury/maximum thermometer and chart for recording daily

temperature reading

Cold boxes for transporting and storing vaccines

Ice packs to keep vaccines cool

Material to separate ice packs from the vaccines when using cold boxes (e.g. shredded

paper, cardboard, bubble wrap or Styrofoam)

Maintaining and Monitoring Refrigerator Temperatures

The thermometer needs to measure the refrigerator temperature close to the vaccine vials.

Choosing a thermometer to monitor the vaccine refrigerator. Digital-type thermometers or

mercury minimum-maximum thermometers are the reliable and easiest to read.

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Market Overview (size, value & capacity)

The total value of India’s cold chain industry is currently estimated at USD 3 billion and

reportedly growing at an annual rate of 20-25 per cent. The total value for the industry is

expected to reach at USD 8 billion by 2015 through increased investments, modernization of

existing facilities, and establishment of new ventures via private and government

partnerships.

India’s cold chain industry is still evolving, not well organized and operating below capacity.

Most equipment in use is outdated and single commodity based. According to government

estimates, India has 5,400 cold storage facilities, with a combined capacity of 23.66 million

metric tons that can store less than 11% of what is produced. The majority of cold storage

facilities are utilized for a single commodity, such as potatoes. Most of these facilities are

located in the states of Uttar Pradesh, Uttaranchal, Punjab, Maharashtra, and West Bengal.

In addition, India has about 250 reefer transport operators (this includes independent firms)

that transport perishable products. Of the estimated 25,000 vehicles in use, 80% transport

dairy products (wet milk); only 5,000 refrigerated transport vehicles are available for all other

commodities.

India’s greatest need is for an effective and economically viable cold chain solution that will

totally integrate the supply chains for all commodities from the production centers to the

consumption centers, thereby reducing physical waste and loss of value of perishable

commodities. For this reason, the Government of India has prioritized the development of the

cold chain industry. The government has laid out elaborate plans and incentives to support

large scale investments essential for developing an effective and integrated cold chain

infrastructure.

India’s food industry, which is currently estimated to be at approximately USD 100 billion

will grow to USD 300 billion by 2015. According to a survey conducted by Corporate

Catalyst India, another leading consulting firm, "Value addition of food products is expected

to increase from 8 percent to 35 percent and that of fruits and vegetable processing from the

current 2 percent to 25 percent by the end of 2025". The survey further reports that the dairy

sector, which currently comprises the highest share of the processed food market, will

experience marked growth.

One of the most critical constraints in the growth of the food processing industry in India is

the lack of integrated cold chain facilities. According to the government’s estimates India has

5,400 cold storage facilities of which 4,875 are in the private sector, 400 in the cooperative

sector and 125 in the public sector.

Although the combined capacity of the cold storage facilities is 23.66 million metric tons,

India can store less than 11% of what is produced. Most of the infrastructure used in the cold

chain sector is outdated technology and is single commodity based. Many are designed for

storing potatoes. Industry experts believe that controlled atmosphere storage facilities and

other cold storage facilities with the technology for storing and handling different types of

fruits and vegetables at variant temperatures would have a very good potential market in

India.

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Another major constraint is the lack of refrigerated vehicles for movement of perishables

produce (with the exception of milk). According to industry estimates, approximately 104

million metric tons of perishable produce is transported between cities each year. Of this

figure, about 100 million metric tons moves via non–reefer mode and only four million

metric tons is transported by reefer. Although there are currently more than 25,000 vehicles

and 250 operators involved in refrigerated transport, 80% of this capacity is dedicated to

transporting milk. When compared with world standards for cargo movement through cold

chain, India is still far behind. The percentage of movement of fruits and vegetables through

cold chain in U.S. is around 80 to 85 percent, Thailand is 30 to 40 percent and India is

negligible. Currently, most of the refrigerated transport in India is operated by small, nonintegrated

firms that do not make use of state–of–the–art technology or management

practices. Therefore, India offers market potential for cold chain logistic solution providers,

including refrigerated transport services.

The Government of India now recognizes that development of cold chain is an essential next

step in upgrading India’s food processing industry. In the 2011-2012 national budget, the

Indian government announced a series of measures to reduce the production and supply chain

bottlenecks in the agricultural sector in order to facilitate modernization, ease importation of

foreign equipment, and attract foreign investment in India. Some of these measures are listed

below:

• Accorded infrastructure status to post-harvest storage, including cold chain;

• Raised the corpus of Rural Infrastructure Development Fund XVII to $ 4 billion in FY 12

from $3.5 billion in FY 11 and the additional allocation would be dedicated to the creation of

warehousing facilities;

• The Viability Gap Funding Scheme is extended for public private partnership projects to set

up modern storage capacity;

• Air-conditioning equipment and refrigeration panels for setting up cold chain facilities

would be exempted from excise duty beginning in the next fiscal year. Conveyor belts for

equipment used in cold storage, wholesale markets and warehouses would be also exempted

from excise duty;

• Creation of an additional 15 million tons capacity of storage capacity through public private

partnerships put on a fast track;

• The National Horticulture Mission has sanctioned 24 cold storage projects with a capacity

of 140,000 metric tons;

• An additional 107 cold storage projects with a combined capacity of over 500,000 metric

tons have been approved by the National Horticulture Board;

• Promised full exemption from service tax for the initial set up and expansion of cold

storage, cold room (including farm pre-coolers for preservation or storage of agriculture and

related sectors produce) and processing units. In addition, full exemption from customs duty

for the manufacture of refrigerated vans or trucks have also been promised;

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• A package of measures to improve the availability of storage and warehouse facilities for

agricultural produce and to incentivize food processing;

• Announcement to set up 15 more mega food parks in the country;

• States asked to reform the Agriculture Produce Marketing Act urgently to improve the

supply chain;

• A National Food Security Bill will be introduced in the Parliament later this year;

• Credit flow in agriculture raised from USD 84 billion to USD 107 billion ensuring that

resources do not constrain growth in the sector

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Drivers for Cold Supply Chain:

These include growth in organised retail, processed food sector, FDI in retail segment,

Government initiatives, and shift towards horticultural crops and demand from

pharmaceutical sector. Large retail players are providing infrastructure that ensures

preservation of produce over a long period of time. Relaxation in FDI in retail sectors

enhances more players to come. Government of India has been cognizant of the need to

nurture the cold chain industry and introduced several incentives to achieve the aim. Some

are infrastructure status to the cold chain, concessional import duty to setup cold chain, tax

benefits for companies investing in cold chain etc. Some of major drivers in cold chain

industry are:

1. India Food Processing Market

2. Horticulture Sector

3. Organized Retail

4. Pharmaceutical Industry

5. Government Initiatives

1. India Food Processing Market

India ranks first, globally, in the production of milk and pulses and second in the production

of tea, fruits and vegetables. Despite being a major food producer, India's share in world food

trade is less than 2 per cent. At present, just 6% of the food-items produced in the country

India are processed in contrast to the developed nations where 60% to 80% of the food items

are processed. While the sector grew at an impressive 14.7% in 2008-09 despite the global

slowdown, the country’s highest authority, the Prime Minister, expects the National Food

Processing Policy to the necessary boost to the sector.

In India, most foods are consumed in the fresh form and a small quantity is processed for

value addition. In recent years, however, the market for branded processed food products has

expanded. As per a study conducted by McKinsey and the Confederation of Indian Industry,

the total food market turnover is over Rs. 2,500 billion (US$ 69.4 billion). Of this, valueadded

food market comprises Rs. 800 billion (US$ 22.2 billion). Growing at about 14%, the

processed food industry has started attracting increased investment to cater to both, the

domestic and export demand. The food processing industry contributes around 10% to India’s

manufacturing GDP and 13% of the country’s export.

Food processing involves any type of value addition to the agricultural produce starting, the

post-harvest level. The processed food industry provides safe convenience foods to

consumers, and promotes diversification and commercialisation of agriculture by providing

effective linkages between the farmer and consumers in both domestic as well as

international markets.

The extent of processing can be categorised as follows:

Primary Processing: Processing: cleaning, grading, powdering and refining of

agricultural produce, e.g., grinding wheat into flour.

Secondary Processing: basic value addition, e.g., tomato-puree, ground coffee,

cleaning and processing of meat products.

Tertiary Processing: Processing: high value addition products like jams, sauces,

biscuits and other bakery products that is ready for consumption at the point of sale.

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The industry employs over 16 million workers directly and has a wide scope covering

activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also

includes other industries that use agriculture inputs for manufacturing of edible products. The

Ministry of Food Processing, Government of India (GOI), classifies the following under

processed food industry:

Dairy, fruits and vegetables

Grains

Meat and poultry

Fisheries

Consumer foods including packaged foods, beverages and packaged drinking water

India with a population of 1.16 billion (growing at about 1.7% per annum) provides a large

and growing market for food products. India is amongst the three largest producers of

agricultural commodities in the world. In addition, food is the single largest component of

private consumption expenditure, accounting for about 37.8% of the total spending.

The land under major crops including horticulture is about 362 million hectares. India

produces 101 million tonnes of milk, annually, 185 million tonnes of fruits and vegetables,

more than 485 million livestock, 187 million tonnes food grain, 6.9 million tonnes of fish,

over 489 million poultry and 50,700 million eggs.

2. Horticulture Sector

The country's demand for horticulture products is expected to grow by over 20 per cent to

touch 360 million tonnes in 2020-21.

A study done by 'The Horticulture Society of India' revealed that rising income will create

more demand for horticultural products, which will further push the production of such crops

in India.

As the income level would grow, the demand for products such as fruits, edible oils and other

products will pick up and will provide good incentive for growing them. The horticulture

sector encompasses a wide range of commodities, including fruits, vegetables, potatoes, tuber

crops, and ornamentals, medicinal and aromatic crops.

While, the new problems are emerging, the sector has grown tremendously in terms of

increase in area, total production and introduction of new crops.

However, there is a gap in terms of skilled persons required and available for the sector.

Keeping this in mind Horticulture Society of India and National Skills Foundation of India

have come together to organise the 4th Indian Horticulture Congress.

Some of the major themes, which would be discussed include climate change, biodiversity

management, innovations in hi-tech horticulture, mechanisation and post-harvest

management.

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3. Organized Retail

Compared to power sector reforms, an infrastructure push or restructuring labour laws, the

change in rules to allow 51% FDI in multi-brand retail may seem a relatively minor economic

policy measure. However, the debate surrounding the retail decision - the government

notified the new FDI rules on September 20 - is telling. It has regurgitated many of the

shibboleths of Indian economic orthodoxy.

The fear of the foreigner; the disinclination to permit a modern market economy in Indian

agriculture; the obsession with small-scale enterprise; and the dogged refusal to recognise the

benefits of an economy of scale: all of these have been apparent in the past few days. It is

crucial to interrogate these concerns and ask what the arrival of international retail chains can

mean for India's farmers as well as consumers and for the economy generally.

As is well known some 33% of fruit and vegetables in India is wasted and perishes in the

journey from the farm to the fridge. The comparative figure for Australia, which has the

world's best record in this area, is less than 1%. There is a logistics experience here that India

needs to tap. India has only 5,300 cold storages, a figure that sits uneasily when placed

against the 12 million small and medium retail outlets in the country.

It can be argued building cold storages is not rocket science and can be done by domestic

companies and businesses as well. Well, to be fair local companies can also make cars - and

there is no real need for a Suzuki or a Nissan to be here. Where these MNCs score is not just

in the technology available to them - which can be sourced, to be fair - but in their

distribution and marketing muscle, which will take years and decades to replicate.

Why is this distribution and marketing muscle - which translates to deep supply chains in the

case of giant retail companies - important? It is necessary if the Indian farmer is to get a

better deal and ultimately become part of the global economy, and not remain a marginal

economic actor confined to his district. Today, an Indian farmer gets only a third of what the

end-consumer pays for his produce. In times of bumper harvests and distress selling, he gets

just a sixth. The windfall gains are for a series of intermediaries.

Organised retail provides the farmer greater security. As a 2008 ICRIER study of the impact

of organised (but Indian-owned) retail found, "Average price realisation for cauliflower

farmers selling directly to organised retail is about 25% higher than their proceeds from sale

to [the] regulated government mandi". Bharti Walmart's direct purchase from farmers in

Punjab is also believed to have augmented incomes by 7 to 10%.

Admittedly, there is the other side of the story. Again, take an Australian example.

Woolworths and Coles are the two biggest retail chains down under. Together, they sell 60%

of the wine consumed by Australians. Essentially, this means they determine the price and

type of wine that producers will find useful to bring to the market. Admittedly, this has wine

farmers complaining. The stranglehold of big retail will ensure farmers cannot dictate prices

and tastes. However, the certainty of purchase by the big retail chains also protects farmers

(and consumers) from shocks.

In the end, when they build their long-term relationships with farmers and set up a network of

warehouses and cold chains, international retail companies will begin to look beyond selling

to merely Indian consumers. They will have to integrate the Indian farmer with their global

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supply lines. India's comparative advantage in the world economic system is cheap labour.

This results in Indian car manufacturers making vehicles at a cost lower than that in, say,

Detroit or Turin. India's IT-enabled services industry has benefited from a similar principle.

Retail chains will have to work with agricultural scientists and farming communities and

determine the type and quality of produce that will be appropriate for their markets. There

will be a process of mutual learning. In Gujarat the sourcing of certain types of potatoes by

McCain Foods, using contract-farming arrangements, is an indicator of opportunities.

Multi-brand retail is not only about the agriculturist. Equally, it is about the consu-mer. Forty

per cent of India's GDP is made up of household consumption. An informal, empirical

assessment made by this writer suggests cheap, everyday stainless steel cutlery, imported

from Vietnam or China, is three times more expensive in Indian-owned retail chains than at

multinational retail stores in the United States and Australia. Of course, it would be

wonderful if this cutlery was made in India, but the Indian consumer cannot determine the

regulatory changes needed to make India a manufacturing power. Neither can he be blamed

for looking forward to exploiting the economies of scale that international retail chains will

bring to him.

4. Pharmaceutical Industry

Cold chain for pharmaceuticals needs to be temperature controlled as the shelf life of the

products needs to be maintained. A well organised cold chain system has the capability of

reducing the deterioration of drugs as well as retaining the quality of the product.

Today, the Indian pharmaceutical industry is valued at $ 22 billion with experts projecting the

market to grow at a Compounded Annual Growth Rate (CAGR) of eight per cent during

2010-14. Indian pharma exports are poised to grow at 30-35 per cent during 2011-2012 and

are projected to touch $ 15.8 billion in 2013-14, according to the Indian Drug Manufacturers’

Association (IDMA). With this, the exports have also grown. Hence, the cold chain segment

is of critical importance as the pharmaceutical compounds being exported have the likelihood

of getting damaged with excessive heat or freezing during shipment, resulting in reduced

efficacy.

Although common temperature range for a cold chain in pharmaceutical industries varies

from 2-8 °C, when it comes to specific temperature tolerances the levels largely depend on

the actual product being shipped. According to the GMP guidelines all processes that might

impact the safety, efficacy or quality of the drug must be validated, including storage and

distribution of the drug substance. Hence, the need for a well-established cold chain

distribution process, especially for pharma products.

Today, a number of countries import vaccines along with other forms of drugs from India.

The process of shipping drugs from one place to another requires careful consideration,

design, validation, and supervision at all levels considering various factors such as the type of

shipping containers to be used, the distribution carriers to be contracted, what humidity

control equipment is required (if any), the types of environmental conditions that the drug is

expected to maintain, the length and time of the distribution route and more. Due to the above

listed factors, the packaging must be capable of maintaining product temperature even in case

of fluctuating weather.

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Inspite of the advancements, there are a few factors that are creating a hindrance in the

development of the cold chain sector in pharma. One of the biggest hurdles is that of cost.

The reason why a number of companies do not opt for sophisticated cold chain systems is due

to its high cost. However, it is important that people evaluate this situation critically. If a

company does not follow the desired cold chain system while transporting a drug, it is likely

that a few of the drugs would get damaged. As the damaged drugs are returned by the

costumer, the company definitely experiences a situation of loss. But, if a company invests

20-30 per cent more than the usual in a state-of-the-art cold chain system the probability of a

damage in the drugs are bleak, which would in turn benefit the pharma company.

Advancement with regard to packaging and technology is another quandary faced today.

Although over the years, the state of technology in cold chain has improved, the growth is

very slow and negligible. The Indian logistics companies need to indulge in more innovation

and invent better technology and packaging solutions keeping in mind the requirements of the

Indian pharma companies.

Today a number of pharmaceutical companies export their products to countries across the

globe. For them to flourish further and create goodwill for themselves it is important that the

quality and effectiveness of the drug be maintained, which can only happen with the support

of a strong cold chain system. "I feel that the cold chain pharma sector in India is at an

extremely nascent stage today and has a long way to go in terms of getting sophisticated

solutions in the market as well as getting the companies to understand what their

requirements are and how they can meet them," concludes Agarwal.

5. Government Initiatives

The government of India has taken various initiatives for better food management which are

also encouraging factors for the Indian cold chain industry. The government of India has

decided to open various mega food parks which will require both; temperature controlled

vehicles as well as temperature controlled warehouses. By allowing the 100% FDI in the cold

chain industry, government has shown their high interest towards cold chain industry.

The National Centre for Cold-chain Development (NCCD) is an autonomous body

established by the Government of India with an agenda to positively impact and promote the

development of the cold-chain sector in the country. NCCD was registered under the Society

Registration Act, 1860 in 2011 and obtained sanction by the Union Cabinet of India on 9th

February 2012 in a session chaired by the country's Prime Minister.

Globally, about 60% of fresh foods are transported in the cold chain helping restrict loss in

value and extending reach to distant markets. In India, less than 5% of such cold-chain

shipment takes place with most of the fresh produce being subject to harsh climatic

conditions. This results in their gross loss of food items. Similar lack of cold-chain in the

pharmaceutical sector witnesses increased risk and loss of medical products. NCCD is

intended to address all segments and the developmental aspects of cold-chain.

India is one of the largest producers of agricultural products and one of the global leaders in

the pharmaceutical sector. Yet, it is known to have 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. To address this concern,

the government had earlier constituted a National Task Force on Cold-chain in 2008. This

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task force was discharged in 2010 on completing its mandate and in its report recommended

that a dedicated institute be established to promote and coordinate various cold-chain

initiatives undertaken by different government arms and the private industry. Cold chains are

common in the food and pharmaceutical industries and also some chemical shipments.

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.

The existing cold-chain in India largely comprised (in 2010) of comparatively small private

companies with a regional or local footprint. Most of the earlier infrastructure developed to

service the cold-chain needs of the country was focused on the storage of potato. While this

produce is not native to India and is harvested only once only during winter, the success of

cold-chain intervention has made potatoes available all through the year and is considered

part of the country's staple diet.

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Challenges in the Sector:

Cold chains face several roadblocks in their growth and some of the most challenging hurdles

are listed below:

• Rising Real Estate Cost: A fully integrated cold storage facility of international

standards, with one million cubic ft. of storage space, will require an area of approximately

an acre, which is a huge investment.

• Location for Cold Storage: Cooling units are not mobile units, so the location of such

units becomes a key constraint as there are very few parcels of large land spaces available in

India.

• Lack of Proper Infrastructure: The cold chain industry in India is very fragmented,

with players not having the strength to invest in the technology needed to build high quality

cold storage or to invest in reefer trucks.

• High Energy Cost: Energy expenses alone account for about 30 percent of the total

expenses of the cold chain sector in India. This is the main constraint about setting up cold

chains in India. India’s peak power deficit is around 17-18 percent. Thus the investment in

back-up systems increases capital investment costs.

• Uneven Distribution of Capacity: The majority of cold storages in India have been

established in states like Uttar Pradesh, Uttarakhand, Maharashtra, Gujarat, Punjab and West

Bengal. But the establishment of such cold storages needs to be more geographically diverse.

• The cold storages present in India can cater to single commodities only. Different

commodities require different temperature conditions, resulting in poor capacity utilization

and low financial viability.

Role of Cold Chain Service Providers

With the demand for better quality food at affordable prices by consumers, companies rely on

cold chain service providers to fulfill it. The service providers should be able to develop

systems and processes to mitigate risk associated with temperature abuse in cold chains and

thus help in business growth.

The service provider should understand the importance of capacity utilization, productivity,

inventory, cost, waste, error and theft (WET) management, along with the ability to track and

trace these parameters. This will help to reduce total system costs which in turn will improve

the bottom line.

The success of implementing cold chain solutions to serve the consumers involves proper

network optimization of warehouses, facility planning, the monitoring of product quality

throughout the cold chain and having a corrective action plan to counter any gaps.

Further, the higher cost associated with operating cold chains needs excellent operational

efficiencies and continuous improvements to maximize profits for service providers.

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Other major challenges which make cold chains more complex are inadequate logistics

infrastructure, poor road connectivity, inadequate IT systems and inefficient transport

providers.

Product Handling

To move temperature sensitive goods with full product integrity, supply chain solution

providers should have well-established processes from pre-shipment preparation to final

verification and delivery to destination.

Product handling is an inherent and important aspect which needs great attention. The

maintenance of a cold chain is the best way to maintain the quality of a product and minimize

all forms of deterioration after harvesting, including weight loss which results in wilting and

limpness, softening, bruising, unwanted ripening, colour changes, texture degradation and the

growth of fungus as well as the decay of products.

The export of fresh produce often involves long transit time and frequent handling. This

makes effective cold chain management more difficult and even more essential, to ensure that

the product finally consumed retains maximum freshness.

Importance of Efficient Cold Chains

• Increasing government regulation.

The demand from customers for continuously available high quality food products are

primary drivers of cold chain integration.

• Today’s busy and health conscious consumer is demanding fresh, wholesome and

healthy products in increasing volumes and a variety of offerings.

• Cold chain systems can be of strategic importance to companies since brand integrity,

customer confidence, market share and profit are all at risk.

Improving the Cold Chain

• The Budget 2011-2012 provided infrastructure status to the cold chain sector.

• The Budget exempted air-conditioning equipment and refrigeration panels used in

cold chain infrastructure as well as conveyer belts from excise duty.

• The Budget 2010-2011 proposed a concessional import duty of five percent with full

exemption from service tax to set up and expand cold chains to preserve farm products as

well as milk, meat and poultry products.

• The Budget 2010-2011 included duty-free import of refrigeration units, which is

required to make refrigerated vans or trucks. It also exempted trailers and semi-trailers used

in agriculture from excise duty.

• The government of India introduced tax benefits for companies investing in cold

chain facilities as part of the budget 2009-2010.

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• The government of India has also revised its scheme of food parks in the tenth Five

Year Plan and changed to the Mega Food Park Scheme (MFPS) under the 11th Five Year

Plan

• Investment from private equity funds in various cold chain projects.

• The involvement of railways and airports for transportation of cold chain products.

• The government of India has taken a decision to set up the National Centre for Cold

Chain Development (NCCD) to address the issue relating to gaps in cold chain infrastructure

in India.

Maintaining and enhancing efficiencies in the cold supply chain is the most important thing.

The best way to do this is by reducing touch points in the supply chain. By following these

practices rigorously and with passion, we can reduce the cost of the cold chain as well as

improve cold chain processes.

With average capacity utilization in the cold chain sector between 30 to 75 percent, the

profits of a cold storage facility depend largely on investment in technology, infrastructure

and service standards.

The most important factors that will decide the growth of the cold chain sector is the flow of

funds in this sector. The investment can be from large business houses. Also, the government

can help in acquisition of land to set up cold chain storage facilities. The government must

also speed up the introduction of GST, which will help in the development of centrally

located warehouses.

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Key Trends in cold Supply Chain:

Cold chain is one of the fastest growing industry in India and very rapidly moving into

organized manner. Some of the key trends in cold chain industry in India are described

below.

• Rail Based Reefers, organized distribution.

A key business area with high potential for growth is the provision of Cold Chains. This

involves providing transportation to perishable products from source to end-user, while

maintaining a certain temperature along the route. Today 85% of the cold storages are in the

private sector and not a single complete cold chain solution provider is available in the

market. Absence of Reefer container linkages and high and increasing power costs are

proving to be major impediments.

• Cold Chain Facilities at airports for exports.

The facilities for cold chain industry at the major airports are improving very fast in India.

Drugs are complex entities and many of those are temperature sensitive in nature. This entails

them requiring precise and continuous temperature conditions in transit in order to retain their

potency and resultant efficacy. Lifesaving drugs and products like vaccines are very sensitive

to proper cold chain. Any slippage in cold chain can lead to immediate denaturing or

deterioration in quality of the product. It is imperative that a careful consideration is given by

the authorities while providing storage space at the airport warehouses before drugs find their

way into the distribution channels run and controlled by the Drug companies. With a view to

take the initiative to improve the Cold Chain Management at Mumbai and New Delhi

airports, OPPI has taken up this cause with major stakeholders, particularly, Mumbai

International Airport Pvt. Ltd. (