THE FUTURE OF COLD CHAIN IN INDIA
‘We Want to make logistics simple’ DB Schenker
The importance of a cold-chain for any region, in contemporary times, cannot be stressed enough. Whether it is daily needs like fresh fruit and vegetables, medical supplies like vaccines and other temperature-sensitive items, or storing a particularly rich crop yield in a good year, the availability of a cold-storage facility can have impact from the macro aspects to the very prices of our daily needs.
“The cold-chain infrastructure can be divided into ‘static’ and ‘mobile’ infrastructure. The static infrastructure includes the cold chain facilities for storage of temperature-sensitive products. The mobile infrastructure includes transit facilities which are required to maintain the temperature-sensitivity of products during their transportation such as reefer trucks, vans etc. A proper cool-chain infrastructure should be a perfect blend between the two,” says Rajesh Goel, CEO, Çelebi.
India’s complex cold chain market is still maturing, feels Goel. With multiple players, inadequate road systems, and remote customers - the market is highly fragmented. There is also a severe shortage of
temperaturecontrolled vehicles, cold storage facilities; with the few which are located in a handful of states, making them inaccessible to some users. However, this disparity indicates a huge opportunity for those involved in the cold-chain
A large number of cold-storage projects, located in different parts of the country, are based on old and majorly inefficient technology. The user industry would expect modern plants with more automation, mechanized operations and more hygienic operating conditions at the cold chain units. There is a greater need for multi-commodity cold storages in every district in the country.
“There has been an increased focus on cold chain infrastructure in India which is evident from the rise of dedicated cold storage facilities on- and off-airport. However, the transit infrastructure is still a point of concern and there has been a lack of adequacy both city-side and air-side. Reefer trucks are typically not sold off-the-shelf as in case of other vehicles. Very limited OEM manufacturers supply fully-built refrigerated vehicles. Moreover, there is definitely an additional cost attached to it and shippers need to be more responsible towards usage of the same. Similarly, extension of cool chain till aircraft transfer is another area which needs to be looked into,” Goel says.
According to Raaja Kanwar, Founder, Apollo Logi Solutions Limited, the structural changes in food & agriculture industry, emergence of Quick Service Restaurants (QSRs) and growth in pharmaceutical industry demonstrate the dependency on cold chain
A large number of cold-storage projects, located in different parts of the country, are based on old and majorly inefficient technology. There is a greater need for multicommodity cold storages in every district in the country.” Rajesh Goel CEO, Çelebi
infrastructure. “The focus of cold chain infrastructure development has been more towards the advanced segments (Cold chain vehicles, Export-import logistics and specialised storage). The basic infrastructure for post-harvest management of crops, fisheries, and meat and dairy products still possess huge development scope. The wastage of above production in India is considerably huge and can be avoided with firm infrastructure, in terms of cold storage coverage across key production regions, adequate hub-and-spoke connectivity mechanism,” he adds.
Cyrus Katgara, Partner, Jeena & Company, says, “Various studies indicate that in 2012, 18% to 40% of 240 million metric tonnes of horticultural produce was lost due to supply chain inefficiencies. It was concluded that a focussed effort was required to promote the development of the cold-chain in the country. It’s a Catch-22 situation.”
He says, “The critical minimum volumes required to attract the investments in coldchain infrastructure are not there, and in the absence of such infrastructure, the costs and risks of transporting such perishables is prohibitive to prevent any growth in such volumes. The policy initiatives to provide selective financial relief to investors in this area can kick-start the infrastructural development and requisite growth of volumes to sustain that.”
EXISTING COLD STORAGE INFRASTRUCTURE
• There are about 6,300 cold storage facilities in India, with an installed capacity of 30.11 million metric tonnes.
• It is estimated that cold storage capacity in India needs to double, to a total of 61.13 million metric tonnes of cold storage to minimize food wastage.
• An investment of ` 550.74 billion in new cold storage capacity by 2015–16 is required to keep up with the fruit and vegetable production increase.
As of 2012, India had approximately
6,300 cold storage facilities, with a capacity of 30.11 million metric tonnes. Around 12 of the total number of facilities, about 60 per cent, are located in just four states: Uttar Pradesh, Gujarat, West Bengal and Punjab. Uttar Pradesh has the highest present capacity of 10.187 million metric tonnes with a gap of 20 per cent pegged at 2.041 million metric tonnes. The remaining 24 states and the bulk of the country remain underserved. In 2010, Tamil Nadu had only 0.0239 million metric tonnes of actual cold storage capacity, but had a need for 7.906 million metric tonnes of capacity, leaving a 97 per cent shortfall.
According to ASSOCHAM, during the period of 2009-2017, the cold chain industry in India is expected to grow at a CAGR of around 25.8 per cent to reach ` 64 billion. The National Horticulture Board ( NHB) recommends that investments worth
` 550.74 billion in new cold storage capacity are needed by 2015–16 to keep up with the increasing production of fruits and vegetables.
“The setting up of the National Centre for Cold Chain Development ( NCCD) has been an impressive initiative by the Government, but its core objective is to work as nodal agency, defining guidelines for infrastructure development and ensuing that there is standardisation of the sector. The US$ 3 billion cold-chain industry in India has been growing at a pace of around 20%25%. The movement of perishables and temperature-controlled cargo has to be first supported by basic infrastructure of storage and transportation. The policy initiatives in terms of promoting private sector participation can really help in organizing this sector, currently around 90% of cold chain industry is governed by unorganized players,” says Kanwar.
Katgara dismisses the NCCD set-up, “It is too premature to comment on the relevance and contributions of a 3-year-old baby. However, if you visit the website of NCCD, there is hardly any activity or plan reported that can be termed as a trigger to boost the infrastructure. It’s more of a technical consultative body and not a driver for change.”
Goel says that, “NCCD has been established with the main objective of the centre to recommend standards and protocols for cold-chain infrastructure, suggest guidelines for human resource development and to recommend appropriate policy frame-work for development of cold chain. Definitely, this initiative is an indicator of our Government’s focus towards promotion of temperature-sensitive products and its efforts to increase the shelf-life of perishables, so that farmers get higher incomes. The body has been created to engage all the stakeholders to achieve the
The US$ 3 billion coldchain industry in India has been growing at a pace of around 20%25%. The movement
of perishables and temperature-controlled cargo has to be first supported by basic infrastructure of storage
Founder, Apollo LogiSolutions Limited
common mission of promoting cold chain products. The initiative is definitely optimistic however, it will take some time to actually realize the benefits of the same. But, the move is definitely an indicator towards the government’s focus towards promoting cold chain infrastructure and streamlining the policies governing the same.”
In fact, one of the main aims of the creation of NCCD is to establish effective coordination among all stakeholders ranging
from growers’ associations, farmers, producer organisations and co-operatives, associations of retailers to companies engaged in manufacture and installation of refrigeration equipment, associations of cold chain owners, individual companies owning integrated cold chains, trade chambers, industry and commerce, regulatory and development agencies (WDRA, FSSAI,BIS), PSUs, academic and resource institutions and individuals who have distinguished themselves in cold chain, or any of the associated fields, advocates Goel.
Challenges faced by the Cold Storage Industry in India
The cost of real estate in India is
High energy costs in India, along with frequent power cuts, leads to a higher cost of investment and operating expenses in the cold chain.
Cold storage facilities are unevenly distributed across the country While additional financial investment is vital, the three biggest challenges India’s cold storage industry faces are high lifecycle costs, uneven distribution and low awareness.
India’s pharmaceutical sector is gradually gaining its position as a global leader. The pharmaceutical market in India is expected to touch US$ 74 billion in sales by 2020, according to a Pricewaterhouse Coopers (PwC) report.
India has been able to make its name as a quality supplier of affordable medicines across the globe, says Goel. “Traditionally, Russia, Germany, Nigeria and India’s neighbouring countries like Sri Lanka, Nepal, and the Middle East were the major markets for Indian pharmaceutical exports.” Over the years, India has shown better regulatory awareness and superior technical skills, which has enabled Indian companies to
The critical minimum volumes required to attract investments in cold-chain infrastructure aren’t there, and in absence of such infrastructure, costs and risks of transporting such perishables is prohibitive for any growth in volumes.” Cyrus Katgara Partner, Jeena & Company
penetrate the high-value markets like the US and the EU. US is the top destination for Indian pharma exports, followed by the UK. America accounts for about 25 per cent of India’s pharma exports. Demand from the exports market has been growing rapidly due to the capability of Indian players to produce cost-effective drugs with world class manufacturing facilities. In spite of some of the recent negative developments in Indian pharmaceutical industry due to quality concerns and IPR issues, India still remains one of the prominent pharma exporters to various countries across the globe, he says.
Biopharmaceuticals is another potential high-growth segment for Indian pharmaceutical market, Goel reveals. It is growing at doubledigit strength, driven by the vaccines market. A sound cold-chain infrastructure is increasingly becoming a key determinant in the global generic drugs market. With increased pressure from international regulators, pharmaceutical manufacturers are under even more scrutiny to ensure the integrity and bioequivalence of their products.
A world-class cold chain infrastructure and its efficient management within the country will help immensely to Indian pharmaceutical companies. The most critical factor for handling pharmaceutical products from airports is the availability of temperature-controlled zones for storage and processing of pharmaceutical products which remains a challenge. Further, pharmaceutical products being time-sensitive cargo, the availability of a proper supply-chain arrangement is of utmost importance.
“We have also focussed towards development of world-class infrastructure for pharmaceutical shipments,” Goel says, adding, “We would like to inform that, to facilitate the pharmaceutical shipments, we have recently launched our newly-developed state-of-the-art Pharma Logistics Centre of 1200 sqm area. With temperature-controlled chambers, it has storage capacity of 27 ULDs and loose cargo for pharmaceutical shipments. The centre has a pre-cool facility and 4 chambers from +15ºC to +25ºC, +2ºC to +80ºC, +4ºC to -20ºC and -4ºC to -20ºC. The Pharmaceutical Logistics Centre is equipped with all modern amenities for efficient handling of pharmaceutical shipments. This is in addition to our already existing state-of-the-art Centre for Perishable Cargo (CPC) with temperature-controlled chambers for temperature-sensitive export shipments, like flowers, fruits, vegetable, meat products etc.”
“Further we have brought in cool dollies to extend the cool chain till airside which is a refrigerated dolly on wheels. It can carry one complete aircraft pallet/container up till the aircraft arrival at a pre-defined temperature, adjustable to the requirements of the perishable products,” he added.
“The US$ 12 billion Indian pharma market, growing at around 10-15% over last few years is projected to be among top 10 global markets in terms of value by 2020. The government must assess the dependency of this sector on adequate
logistics infrastructure and should focus on integrating different legs of logistics. Cold chain, being one of the most important for pharma sector, has to be developed at global standards, ensuring quality and reliability of Indian pharma manufacturers in global markets,” says Kanwar.
On the issue of pharma sector’s growth, Katgara says, “Importing countries of these products, such as US and Europe, are highly sensitive to quality assurance for food and pharma products. Considering that we have had many setbacks for this industry on account of absence of good manufacturing practices, we cannot rule out another trigger for audit of the supply chain and its impact on preserving the quality of products in transit.”
High lifecycle costs
Typically, a cold storage facility with a capacity of 6,000 metric tonnes requires an initial investment of around ` 50 million, excluding land. The high real estate cost also contributes significantly to the high lifecycle cost. In a country like the USA, a similar cold storage facility requires half the investment.
The primary challenge facing the cold chain industry is rising property prices; with increases of more than 280 per cent over the last decade. To build a cold storage facility with 1 million cubic feet of space requires an acre of land.
Electric power is an equally expensive challenge. India faces a 9 per cent peak power deficit. This forces the majority of cold storage operators to run on backup power which leads to a marked increase in operating costs. Summing up the situation, he says, “Key perishable production regions should have cold chain connectivity to the end market, ensuring minimum wastage of goods. Temperature controlled long haulage rail connectivity shall be developed to connect the markets and suppliers.”
Role of Industry Stake Holders
Kanwar adds, “The role of industry stakeholders in developing cold chain is of paramount significance. Being a support infrastructure of number of industrial segments ( Retail, Healthcare, Agriculture, Floriculture, and Fisheries etc.) cold chain should be given its due importance as key leg of logistics infrastructure in India.”
On the role of the industry stakeholders in developing cold chain facilities, Katgara says, “So far, all the risks and losses, arising out of inadequacy, have been born by the stakeholders as passive sufferers. Individually, they may not be strong enough to fill the gaps, but joint efforts both in terms of creating awareness as well as a common platform not only for sharing ideas, but investing jointly in creation of such facilities and if required lobby with government to create the requisite policy and incentive environment.”
The Government’s Bit
Katgara says, “Special initiatives are required for PPP investment with suitable incentives with a time-frame to make these initiatives self sustaining. Also, a monitoring body should be set up to maintain the supply chain standards and guaranteed services.”
Goel says that India’s greatest need for an effective and economically viable cold chain solution can be achieved through increased investments, modernisation of existing facilities, and establishment of new ventures via private and government partnerships. “Our government has already identified the prerequisites to promote the sector and the above mentioned measures are a good indicator of the same,” he says.
An integrated process of supply chain for all commodities is imperative for India. This will include transfer of perishable items from the production centres to the consumption centres, thereby reducing physical waste and loss of value of perishable commodities by maintaining the cool chain, he says.
From the past few years, the Indian cold- chain industry has witnessed some
positive changes, Goel feels. The private sector participation has increased in the cold- chain industry to cater to the increasing demand for cold- chain logistics. What Goel feels is necessary for the improvement of the cold chain infrastructure is
• A creation of Task Force on development
of Cold Chain and NCCD
Cold Chain achieving Infrastructure
• 100 per cent FDI for health and medical
services under the automatic route.
GROWTH OF 3PL
Third Party Logistics (3PL) companies, like in any other logistics service provision, have an extremely important role to play, says Katgara. “Logistics services are the most perishable products. So any investment in this product, that has to fend for its sustenance in the market through cut-throat competition, is normally constrained by caution and more so when the service requirement for this sector make the investment more capital intensive and riskier. However, without the participation and assurance of the stakeholders, they may be a little shy of putting in the requisite investments which are, by all means, huge with all the uncertainties.”
3PL is gaining significance worldwide as organizations are unable to manage their logistics operations and are outsourcing them to 3rd Party Logistics service providers. The growing global consumer demand for pharmaceutical, food, and medical goods in emerging and developing markets has never been higher, making cold-chain management one of ‘coolest’ growth niches for 3PL providers that are able to specialise in broad-reaching, controlled-temperature shipping, Goel says.
He continues, “There is almost no scope of error for handling of cold chain products due to the temperature sensitivity of the products. It requires an impeccable storage and transit facility and a robust supply chain arrangement. Our expectation from a 3PL service provider is to receive the highest standard of professional service so that we can take full advantage of a 3PL’s cold-warehousing