The Indian Cold Chain Industry: A Look to the Future
2016-01-30 11:46:33   Source:   Comment:0 Click:

        Over the past 10 years, much has been made of India’s rise as a global economic powerhouse. Boasting the world’s second biggest population, a large English-speaking labor and consumer base, and dynamic technology sector, India continues to attract investment. The cold chain industry has seen rapid growth and, despite some challenges, is poised for further transformation.
Looking Back
        “The most common assumption about the cold chain industry in India is that there isn’t enough capacity. Space isn’t the problem,” explains Atul Khanna, Global Cold Chain Alliance (GCCA) India Director. “Modernization is the issue.”
        Cold chain development in India was initially focused on building storage capacity for single commodity bulk storage such as potatoes or dried chilies. The need to develop the entire temperature-controlled logistics chain in order to link producing points with consumption centers, as well as offer multi-commodity storage, was gradually realized. The government has prioritized its modernization and, in 2009, introduced technical standards for cold chain projects, as well as financial incentives for investors, which resulted in positive growth.
The Industry Today
        India has seen a dramatic increase in the production of perishable products including fruits, vegetables, meat, poultry, and dairy. It ranks first in global milk production with an annual rate of 138 million tons and hosts more than 50 percent of milk product processing. With vegetable production of 280.4 million tons, it ranks second globally and only hosts 6 percent of total processing. There has also been steady growth in the fish and meat industries due to export potential.
        Current cold storage capacity in India totals 31.8 million tons. Growth has averaged 3 to 4 percent over the past 10 years, and 10.5 mil- lion tons of space was created in the last seven years. Ownership is mainly in the private sector, with the public and cooperative sectors only comprising 10 percent of capacity. The sector’s value is estimated at $6.5 billion (USD) and market growth has averaged between 15 to 20 percent. This pace is expected to be consistent over the next five years.
What is Missing?
        Despite the sector’s growth, there is still a gap of 3.28 million tons in bulk and hub cold storage space, as well as estimated product loss of 25 percent. “Another assumption is that perishable products get discarded because of inadequate infrastructure. Instead, products are diminished in quality and value,” Khanna clarifies. Analysis of the industry has revealed that investment in modern pack houses and refrigerated transport are critical to link producers to markets, meet demand, and reduce this loss.
        It is estimated that there are less than 10,000 refrigerated transport vehicles and no domestic reefer rail options. The majority of operators are private and cannot offer end-to-end cold chain solutions – 79 percent do not own any transportation facilities. To compare, France has five million tons in cold storage space, 5 percent of India’s capacity, and 140,000 reefer vehicles. However, the prospects for improvement are promising due to the national prioritization of developing rural road infrastructure.
        Power deficits have also been an important consideration. Cold storage facilities do generally employ back-up diesel generator sets. There are also promising efforts to promote solar energy generation for cold chain projects through financial incentives and more broadly increase national power generation capacity.
The Role of the Government
        “The Indian government has played a critical role to support cold chain development and reduce post-harvest loss,” asserts Arvind Surange, Chief Consultant, ACR Project Consultants.
        In 2014, the Ministry of Agriculture introduced a “Mission for Integrated Development of Horticulture,” which prioritizes cold-chain development to enhance yields and ensure gainful end use. The Ministry of Food Processing Industries is operating an initiative on cold chain and preservation infrastructure, in addition to other programs that develop processing units. In addition, the Ministry of Commerce is operating a subsidy scheme to enhance exports that includes necessary export-oriented cold chain components.
        The government also offers financial incentives including an excise duties concession on components used in cold chain construction and a service tax exemption on construction of cold chain plants and machinery. Some states, like Maharashtra, have offered concessions on energy rates for cold storage facilities. Overall, operators can receive federal subsidies of 35 to 40 percent on project costs and even additional subsidies from certain state governments.
Retail Growth is a Key Driver
        Spurred by economic liberalization and demographic changes, the Indian market is one of the most attractive retail destinations in the world. Its overall size in 2013-2014 was estimated at $534 billion (USD) and is expected to nearly double, reaching $948 billion in 2018-2019. Food and grocery retailing is one of the key high growth categories, and while grocery retail is largely restricted to domestic players, it will still be an important driver for the cold chain industry.
        The sector’s fragmented structure is its greatest opportunity and challenge. Of the 12 to 15 million retail outlets in operation, only 4 percent are larger than 500 square feet and the majority are family-owned and operated. The number of modern trade stores is expected to increase from 11,192 in 2006 to 67,100 by 2016. The number of supermarkets is also expected to increase from 500 in 2006 to 8,500 in 2016. In August 2015, Walmart opened its first modern wholesale store since 2012, as part of a plan to expand from 20 stores to 70 stores within five years. This immense potential for growth and consolidation will certainly spur demand for products reliant on the cold chain infrastructure.
“Consumer tastes are changing. Indians used to consume what was in season but now they want things year round,” states Khanna. “So they don’t mind spending more for products that are imported or stored in the off-season.” These demographic changes reveal the need for more robust cold chain capacity to meet this demand.
---Middle Class: Estimated at 75 million households or 300 million individuals, this large and aspirational segment of the population is helping to transform national spending habits. India’s personal disposable income growth, both per capita and overall, have grown faster than other key emerging markets including Brazil, Russia, Malaysia, China, and Indonesia.
---Youth and Working Population: As reported in the 2011 census, there are 500 million Indians under the age of 25 and more than 50% of the population falls between the working age of 15 to 54 years of age. These two groups have consequential influence on consumer spending.
---Millionaires: According to the World Wealth Report 2014, the number of millionaires grew by 51 percent, the second fastest in the Asia-Pacific Region. This rise is driving the luxury market, which was worth $7.7 billion (USD) in 2012, and expected to double to $14 billion in 2015.
---Rural Consumers: Rural markets make up 70 percent of the population base yet only 40 percent of total consumption, primarily due to limited penetration of the formal retail sector. Investment in expanding the cold chain infrastructure, as well as expected annual 6.5 percent GDP growth from 2013-2019, will increase demand.
Looking Ahead
“The cold chain industry in India is considered a sunrise industry,” states Surange. “And local investment is just as poised to transform its potential as is Foreign Direct Investment.”
With large domestic and export markets, as well as a conducive operating and regulatory environment, the future looks bright.

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