INDIA'S COLD CHAIN SECTOR
INDIA'S COLD CHAIN SECTOR
TITLE India s Cold Chain Sector AUTHORS Food and Agribusiness Strategy Advisory & Research (FASAR) YEAR November, 2012 COPYRIGHT No part of this publication may be reproduced in any form by photo, photoprint, microfilm or any other means without the written permission of YES BANK Ltd. DISCLAIMER The information and opinions contained in this document have been compiled or arrived at from sources believed to be reliable, but no representation or warranty expressed is made to their accuracy, completeness or correctness. This document is for information purpose only. The information contained in this document is published for the assistance of the recipient but is not to be relied upon as authoritative or taken in substitution for the exercise of judgment by any recipient. This document is not intended to be a substitute for professional, technical or legal advice. All opinions expressed in this document are subject to change without notice Neither YES BANK Ltd. nor PHD Chamber of Commerce and Industry or any other legal entities in the group to which it belongs, accept any liability whatsoever for any direct or consequential loss howsoever arising from any use of this document or its contents or otherwise arising in connection herewith. CONTACT ADDRESS YES BANK Ltd Registered and Head Office 9th Floor, Nehru Centre, Dr. Annie Besant Road, Worli, Mumbai - 400 018 Tel: +91 22 66699000 Fax: +91 22 24900314 Website: www.yesbank.in PHD CHAMBER OF COMMERCE AND INDUSTRY PHD House, 4/2, Siri Institutional Area August Kranti Marg, New Delhi 110016 Tel: +91-11 26863801-04 Website: www.phdcci.in Northern Regional Office 48, Nyaya Marg, Chanakyapuri, New Delhi - 110021 Tel: +91 11 66569000 Fax : +91 11 41680144 Email: fasar@yesbank.in
FOREWORD The size of the cold chain market in India is currently estimated at more than USD 3 billion and is growing at a modest CAGR of 11%. However, the cold storage facilities available in India are only for about 10% of the produce, resulting in post harvest losses of up to 30% in the farm sector alone. This wastage is largely due to the non-availability of appropriate infrastructure, both static and mobile. Even though India is the second largest producer of vegetables worldwide, but its share in global export of vegetables is around only 1.3%. In the present scenario, India is able to store only 2% of its farm produce in temperature controlled environment as against 8% for the Asia-Pacific and 85% for Europe and North America. This is mainly caused by the lack of cold chain infrastructure which includes both storage and transportation facilities. The cold storage sector is now generally recognized as a sunrise sector and is expected to reach USD 8 billion by 2015. The primary thrust to this growth is envisaged through increased investments, modernization of existing facilities and establishment of new ventures via the PPP mode. These strategic interventions coupled with the recent changes in FDI norms in retail, will unlock the untapped opportunities in this sector. However, in order to capitalize these opportunities, there is a pressing need to promote a sustainable and viable cold chain, transport and logistics infrastructure. foreword In the light of the foregoing, we are pleased to present the YES BANK Knowledge Report India s Cold Chain Sector that outlines the cold chain scenario in India and provides a snapshot of the problems besetting the sector and the causes thereof. It also outlines a progressive roadmap addressing the current impediments to growth, thereby leading to an effective, efficient and sustainable development of a robust cold chain. I am confident that the contents of the knowledge report will provide important insights to policy makers, industry leaders and stakeholders in the cold chain sector, as we collectively look to script India s Ever Green Revolution. Thank you. Sincerely, Rana Kapoor Founder, MD & CEO
CONTENTS Executive Summary 7 Introduction Need for an Efficient Cold Chain 8 Overview of the Global Cold Chain Sector 12 Current Status of the Cold Chain Sector in India 14 Growth Drivers 22 Industry Challenges 27 Government Initiatives in the Cold Chain Sector 30 Key Players 34 Recent Developments in the Cold Chain Sector 36 Successful Business Models 40 Way Forward 42 contents
Executive Summary In India, there has been a phenomenal growth in production of horticulture produce, dairy products and meat products over the last decade. The demand for fresh and processed fruits and vegetables is increasing as urban population is on the rise and consumption habits are changing. Increasingly, the consumption pattern of Indian consumers is changing swiftly with more families consuming frozen food and vegetables. Annually, the perishable products transaction volume is estimated to be equivalent to 230 million MT. However, the cold storage facility available in India is only for about 10% of the produce, resulting in post harvest losses of up to 30% in the farm sector alone. In the present scenario, India is able to store only 2% of its farm produce in temperature controlled environment as against 8% for the Asia-Pacific and 85% for Europe and North America. The size of the cold chain market in India is estimated at more than USD 3 billion and is growing at a modest CAGR of 11%. 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 Public Private Partnership (PPP). These changes along with the emergence of organized retail food sector fuelled by changes in Foreign Direct Investment (FDI) norms provide immense opportunities for the cold chain sector. Owing to the tremendous pressure to bring about improvements in the present supply chain and reduction of losses during handling and movement of produce, the need for creation of an efficient cold chain network is of utmost importance. 07
Introduction Need for an Efficient Cold Chain India is the second largest producer of fruits and vegetables in the world producing 63.5 million MT of fruits and 126 million MT of vegetables on an average every year. The perishable products transaction value is estimated to be around 230 million MT. Despite such huge transaction volume, the cold storage facility is available only for about 10% of the produce resulting in losses up to 30% of farm produce after harvest. The wastage is largely due to the non-availability of appropriate infrastructure, both static and mobile. As per reports of the Task Force on Development of Cold Chain in India, set up by the Ministry of Agriculture & Planning Commission, post harvest losses continue to be in the range of 18 40% in several commodities. On an average, about 30-40% of horticultural produce gets wasted annually in India. Although India is the second largest producer of vegetables worldwide, its share in global export of vegetables is around 1.3% only. This is mainly caused by the lack of cold chain infrastructure which includes both storage and transportation facilities. This in turn calls for a robust cold chain, transport and logistics infrastructure. Cold Storage Cold storage is now considered as a sunrise sector in India. It is important that in a country which ranks first in milk production in the world, second in fruits and vegetables production and where a substantial production of marine, meat & poultry products takes place, there is a need for a fully developed cold chain sector. Cold chain is meant to preserve the color, flavor and taste of perishable commodities of food items for a longer period. However, each commodity cannot be stored for an indefinite period of time owing to limited self life and also it might not be economical to store beyond a certain period of time. Thus, different cold storage facilities are used for high value crops and those which are in demand throughout the year or for highly perishable products like meat, fish & marine products. The key growth drivers for the cold storage industry are increasing demand for food products, recent developments in processed food industry, growing export import trade in food products, organized retail industry, emergence and growth in retail and food service industry and regulatory impetus from the Government. Some of the major risks/threats involved in this industry are demand-supply mismatch, seasonal variation, competitive pressure, location risks, safety issues and supply chain management. Requirement of Cold Storage: There exists a gap of about 370 lakh MT based on peak season production and highest arrivals or harvesting of storable fruits and vegetables in a month. Among all states, the largest gap exists in Tamil Nadu followed by Maharashtra and West Bengal. 08
Exhibit 1: State-wise requirement of cold storage (2010) State Cold Storage Requirement Present Capacity Gap (in lakh MT) (in lakh MT) (in lakh MT) Tamil Nadu 79.06 2.39 76.67 Maharashtra 62.73 5.47 57.26 West Bengal 105.66 56.82 48.84 Bihar 42.41 11.47 30.94 Kerala 27.71 0.58 27.13 Uttar Pradesh & Uttaranchal 122.28 101.87 20.41 Karnataka 24.04 4.07 19.97 Odisha 18.35 2.91 15.44 Gujarat 27.48 12.67 14.81 Andhra Pradesh 23.24 9.01 14.23 Assam 9.19 0.88 8.31 Jammu & Kashmir 7.37 0.43 6.94 Jharkhand 7.96 1.70 6.26 Himachal Pradesh 4.87 0.20 4.67 Haryana 8.04 3.93 4.11 Madhya Pradesh 12.13 8.08 4.05 Meghalaya 2.39 0.03 2.36 Chhattisgarh 5.43 3.42 2.01 Tripura 1.63 0.3 1.33 Manipur 0.80 0 0.80 Mizoram 0.74 0 0.74 Rajasthan 3.91 3.24 0.67 Nagaland 0.70 0.06 0.64 Punjab 13.18 13.45-0.27 Total 611.3 242.98 368.32 Source: Directorate of Marketing and Inspection, Ministry of Agriculture, GoI 09
Classification of Cold Storage According to prevailing industry practice, cold storage can be classified as follows: Bulk cold stores: For storage of single commodity, which mostly operates on seasonal basis e.g. potatoes, chilies etc Multipurpose cold stores: Designed for variety of commodities which operate round the year like fruits, vegetables, dry fruits, spices, pulses, milk products etc Small cold stores with multi-cooling facility for fresh fruits and vegetables especially for export oriented items like grapes Frozen food stores with or without processing and freezing facility for fish, meat, poultry, dairy products and processed fruits & vegetables. However, percentage of food processed is extremely low and a great potential exists for growth in this category Mini units/walk in cold stores situated at hotels, restaurants and super markets Controlled atmosphere (CA) stores for fruits like apples, pears and cherries Ripening chambers mainly setup for bananas and mangoes Industry Overview: A cold chain is a temperature-controlled supply chain network, with storage and distribution activities carried out in a manner such that the temperature of a product is maintained in a specified range, needed to keep it fresh and edible for a much longer period than in normal ambient conditions. This system facilitates long distance transport of various products as well as makes seasonal products available over the entire year. The 3 main segments of cold chain industry are as follows: Temperature controlled warehousing (cold storage and controlled atmosphere storage; referred to as cold storage) Surface Storage Temperature controlled transportation Refrigerated Transport Integrated 3 PL (Third Party Logistics) services with presence across the value chain i.e. from procurement to delivery to end customer as illustrated in exhibit 2 A cold chain logistics player could be solely a cold storage owner or owner of a fleet of reefer trucks or, as is becoming increasingly common, an integrated 3PL firm that offers services across the entire network right from procurement to the final destination of the product. The players in this segment operate on various business models such as full ownership model (asset heavy), lease model (asset light) or a combination of two (mix of owned and leased assets) Key industries which rely on cold chain infrastructure are agri and allied processing (including fruits and vegetables, ice cream, meat, poultry and marine foods), pan-india Quick Service Restaurants (QSR), preventive medicines and chemicals. Of these, QSR and food processors constitute major share of its clientele. 10
Exhibit 2: Typical stages in a cold chain process Farmer/Processing unit Pre- cooling Reefer Transportation Cold Storage Reefer transport Domestic Consumer Farm Manufacture Procurement & Pre cooling Climate controlled Transport via reefer trucks/vans Sorting, grading, ripening etc. Value addition Refrigerated secondary transport Distribution Retail consumption End consumer Storage Source: YES BANK Analysis Impact of Cold Chain Cold Storage increases the shelf life of a commodity and also minimizes post-harvest losses. The increase in shelf life varies from one fruit/vegetable to another. Exhibit 3: Impact of cold storage on shelf life Fruit/Vegetable Post Harvest Life without Post Harvest Life with Cold Storage Cold Storage Apple 2-3 weeks 7-15 weeks Banana 1-2 week 2-3 weeks Brinjal 10 days 3-4 weeks Cabbage 18 days 9-13 weeks Cauliflower 10 days 4-6 weeks Grapes 10 days 4-6 weeks Mango 2-3 weeks 4-6 weeks Sweet Lime 2-3 weeks 4-5 weeks Okra 5 days 2-3 weeks Orange 2-3 weeks 9-13 weeks Papaya 12 days 21 days Peas 5 days 2-3 weeks Potato 12-16weeks 26-35 weeks Tomato 7 days 3-4 weeks Source: Secondary Research, National Horticulture Board 11
Overview of the Global Cold Chain Sector Temperature Controlled Warehousing - Global Scenario: The total capacity for refrigerated warehouses is estimated at 458 million cubic meters worldwide, of which 310 million cubic meters is public warehouses (for hire). During the last two years, approximately 192 million cubic meters of additional refrigerated warehouse capacity has been created. Of the additional capacity added in the last two years, 55 million cubic meters are public registered warehouse space. USA, India and China account for the largest share in cold storage industries worldwide. Exhibit 4: Distribution of cold storages in major countries Country 2008 (in million cubic metres) 2010 (in million cubic metres) USA 70.7 107.5 India 18.6 105.1 China 15.0 61.4 Japan 28.4 34.1 Germany 13.4 21.8 Russia 16.0 16.1 Netherlands 12.6 12.6 France 8.5 8.5 Spain 8.2 8.2 Bangladesh 7.8 7.8 South Korea --- 7.0 Canada 6.9 6.9 Australia 6.0 6.0 Great Britain 5.6 5.6 Brazil 4.5 4.5 Chile 0.9 4.0 Belgium 2.0 2.0 Denmark 1.9 1.9 Finland 1.8 1.8 Ireland 1.7 1.7 Italy 3.5 1.7 Norway 1.5 1.5 Mexico 1.4 1.4 Serbia --- 1.3 Switzerland 1.0 1.0 Source: Global Cold Chain Alliance, Industry Sources 12
Temperature Controlled Transportation - Reefer Vans Worldwide perishable reefer trade has seen a strong increase over the past twenty years. In 2009, the trade amount increased to 156.89 million MT (44.3 million MT more than the quantity in 2000), and it is expected to see strong growth over the coming years. Growth in the global market of cold chain products is supported by decreasing tariffs [World Trade Organization (WTO) - General Agreement on Tariffs and Trade (GATT)], a permanent improvement of transportation efficiency, the development of communication and information technology, and the development of cold chains techniques. The strong growth of international perishable trade also relates to the increase in global gross domestic product (GDP). Increasing income levels provides customers with more purchasing power which shifts the consumption pattern more towards fresh fruits & vegetables and higher value foodstuffs, such as fish and seafood. Therefore, producers and retailers have responded with an increasing trend of reefer trade from all over the world. For example, in Eastern and Central Europe, the consumption of fresh fruits rose from insignificant levels to levels of Western Europe. Sales volumes of cold chain products are subject to seasonality. The extent of the influence of seasonality on perishable export in each country is not the same because of the various reefer products each country relies on. Some reefer products have more seasonal characteristics than others, such as fresh fruits. Exhibit 5: Difference in reefer exports between peak month and slack month per country Brazil Indonesia US Atlantic Southeast Ecuador Denmark Costa Rica Philippines Belgium China Australia US Pacific Southwest France Germany Vietnam Spain Peru India Thailand Argentina Russia New Zealand Chile Israel South Africa Strong reliance on few non-seasonal reefer products Big variance in reefer goods minimize seasonality effect Strong reliance on few seasonal perishable goods Source: Industry Sources, Global Cold Chain Alliance 0% 20% 40% 60% 80% 100% 13
Current Status of the Cold Chain Sector in India A robust cold chain sector is a necessity for any country seeking to develop a strong food processing market. The upcoming Mega Food Parks (MFP) in the near future will also require a sound foundation of cold storage facilities across the country. Unfortunately, India s cold storage facilities are focused mainly on one commodity - potato. The sectors which demand cold storage facilities range from fruits and vegetables (total annual production of close to 200 million MT), dairy (121 million MT), poultry, meat and fishing (15 million MT), flowers (1 million MT) and processed foods. Salient features of the cold chain sector in India are: Indian agriculture is witnessing a major shift from traditional farming to horticulture, meat, poultry and dairy products. Also demand for fresh and processed fruits and vegetables is increasing on backdrop of rising urban population and transforming consumption habits. The Indian food market is estimated at over USD 182 billion, and accounts for about 20% of the total Indian retail market. Despite the high production, our contribution to the world market is under one percent, in sharp contrast to China, which accounts for over 20% of the exports to the world market. India has nearly 23 million MT of cold storage facilities where as it currently needs atleast 9-10 million MT of capacity over and above the existing one. Uttar Pradesh, West Bengal and Punjab account for around 70% of the total capacity. Existing cold storage facilities available in India are mostly for a single commodity and around 80% of them are utilized for potato storage resulting in skewed capacity utilization. The overall market size of the cold storage segment is expected to grow at a CAGR of 16-17% in the next 3-4 years. There is still a wide scope of improvement as majority of cold storage are under utilized in the country. Exhibit 6: Percentage distribution of cold chain sub sectors in india: 1% 1% Imported f & V 32% 36% Fresh Exports (F & V and meat) Chocolates & other confectionery Dairy Domestic Ice Cream 11% 3% 8% 2% 4% 2% Potato value chain Frozen IQF RTE & RTC food services Source: Ministry of Food Processing Industries, National Horticulture Mission, Agricultural and Processed Food Products Export Development Authority (APEDA) 14
Components of Cold Chain: Pre-cooling Facilities Cold Storages Refrigerated Carriers Sorting & Packaging Warehousing and Information Management System Procurement and Delivery Systems Market Size and Growth In 2009-10, market size of cold chain and reefer industry was around INR 10,000 crores and INR 400 crores respectively which grew to around INR 15,000 crores and INR 690 crores respectively in 2012-13. Over the next 3 years (2011-12 to 2014-15), revenues of the cold chain industry is expected to grow by 15-17% (CAGR). Exhibit 7: Market size & growth cold chain industry Cold Storage Reefer Transport 20000 15610 15000 10000 10000 5000 0 400 2009-10 2012-13 691 Source: CRISIL Research, YES BANK Analysis As per the latest estimates available with the Directorate of Marketing and Inspection (DMI) up to September 2012, India has 6,307 cold storages with a capacity of 30.1 million MT. 15
Exhibit 8: Segment-wise Break-up of Cold Chain Industry in India Temperature Controlled Transport 12% Temperature Controlled Warehouse 88% Exhibit 9: Growth of cold storages in India Year No. of Cold Storages Installed Capacity Average installed (in Lakh MT) capacity (Lakh MT) Before 2004 2,607 54.02 0.021 2004 4,748 195.52 0.041 2007 5,316 233.34 0.044 2009 5,381 244.50 0.045 2010 5,837 269.03 0.046 2012 6,156 286.82 0.047 2012 (Sept.) 6,307 301.10 0.048 Source: National Centre for Cold Chain Development, Directorate of Marketing and Inspection, Ministry of Agriculture, GoI Over the years, there has been a steady growth in the number of cold storage units as well as capacity created. The average installed capacity has also been increasing over the years and has grown by around 2% (CAGR) during 2004-09. It currently stands at 0.048 lakh MT. During 2004-09, the number and capacity of cold storages in India increased at a CAGR of 2.5% and 4.5% respectively. Out of the 301 lakh MT cold storage capacity, nearly 140 lakh MT has been created between 2000-11 on account of interventions by National Horticulture Board (NHB), National Horticulture Mission (NHM), Horticulture Mission on North East and Himalayan States (HMNEH), Agriculture and Processed Foods Export Development Authority (APEDA), Ministry of Food Processing Industries (MoFPI) Department of Animal Husbandry (DAHD). 16
Commodity and Region wise breakup of cold chain industry: Majority of the cold chain infrastructure in India was developed in 1960s which majorly supports the storage of potatoes and potato seeds. India s first cold storage unit was set up in 1968 in Meerut for storing potatoes. About 80% of the total capacity of cold storages is suitable only for potatoes. This is despite the fact that potatoes account for only about one-fifth of the total food and vegetables production in India. On the contrary, cold storage for commodities like meat, fish, milk and milk products etc. and spices like chillies are usually of smaller capacities (accounting for about 1% of total storage capacity). This is in sharp contrast to the fact that in value terms the share of potatoes is only about 17-20%. This is on account of the low value of produce and rentals being charged for the entire season (normally spanning 8-9 months) rather than on a monthly basis. Other segments like milk and milk products, fish products, fruits and vegetables etc. have comparatively much better rentals and margins. Exhibit 10: Share of different commodities in cold storage Potatoes 77.6% Multi purpose 20.8% Meat & Fish 0.8% Fruits and Vegetables 0.4% Milk & Milk Products 0.3% Others 0.1% Source: Ministry of Food Processing Industries, National Horticulture Mission Exhibit 11: Commodity-wise spread of Cold Storages in India (2008) Commodity wise Cold Storage Capacity (in "000" MTs) 20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 3023 18203 1445 5065 158 112 482 187 191 68 87 27 Potato Multipurpose Fruits and Meat & Fish Milk & Milk Vegetables Products Others Source: Indiastat Total Number Capacity (in "000" MTs) 17
According to the report of the Task Force on Development of Cold Chain in India, the all India capacity utilization is around 48% while Andhra Pradesh has the highest capacity utilization at 92% followed by Karnataka (60%), Maharashtra (55%), Rajasthan (52%), Gujarat (51%), Uttar Pradesh (46%) and Punjab (43%). Majority of states have capacity utilization lower than national average which is due to significant number of cold storages stocking potatoes only thus remaining closed during the lean season. Andhra Pradesh has higher capacity utilization because of storage of red chilies, which is stored almost throughout the year. Exhibit 12: Region-wise spread of cold storages in India (2008) 10000 9060 (in "000" MTs) 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 1591 531 5949 1440 1338 1112 876 797 260 420 377 286 192 460 564 1269 2527 U.P. and Uttaranchal W.B. Bihar Punjab Gujarat Andhra Pradesh M.P. Maharashtra Others Total Number Total Capacity (in "000" MTs) Source: Indiastat Taking into consideration the geographic spread, cold storages are mostly located in and around potato growing areas. The main reason behind majority of cold storage capacity being centered around potato is because as compared to other fruits and vegetables, potatoes have longer shelf life in cold storages. Further, being the staple diet in most of the regions in India, the demand for potato prevails all year round while production is only during five months. Reefer Vans (Refrigerated Transport) In India, unlike Western Europe or the USA, cold chain distribution or refrigerated transport is still at a nascent stage. When compared with the world standards for cargo movement through cold chain, India is way behind. The percentage of movement of fruits and vegetables through cold chain in U.S. is around 80 18
to 85%, Thailand is 30 to 40% while it is negligible in India. According to industry estimates, approximately 104 million MT of perishable produce is transported between cities each year. Of this, about 100 million MT moves via non reefer mode and only 4 million MT is transported by reefer. Currently, most of the refrigerated transport segment is fragmented with large number of small, nonintegrated private players focusing on select commodities or regions. Their key assets comprise of modified trucks with additional insulated fixed containers and air conditioning units. India has about 250 reefer transport operators (mainly private firms) that transport perishable products. Of the estimated 25,000 vehicles in use, 80% transport dairy products. Market studies have revealed that about 40% of the vehicles are for long haul movement while 60% vehicles are for short haul movement. Also, 70% of revenue in the market is from primary movement and the balance 30% is from secondary movement. Major Features of Market The industry is witnessing a growth phase in India One of the important features of the industry is that it is fragmented with large number of players focusing on selective commodities Export Import (EXIM) Reefer traffic (reefer container) constitute about 3% of the total container market Meat forms the major commodity segment Large addition in reefer van capacity by logistics players Capacity addition has happened in primary as well as secondary transportation Major customers include meat exporters, large FMCG companies (processed food), imported fruit dealers Exhibit 13: Share of commodities in refrigerated transportation space Percentage Share of Commodities Pharma 10% Others 3% Ice cream 14% Meat 57% Confectionary 6% Butter,Cheese 10% Source: CRISIL Research, YES BANK Analysis 19
Economics of Cold Storage Units Capital cost of setting up a medium sized modern temperature controlled unit is INR 10-11 crores. This cost excludes cost of land. But similar facility for Controlled Atmosphere (CA) would cost approximately INR 35-40 crores for 5,000 MT. The biggest capital cost is that of refrigeration equipment. While, operating cost of a 5,000 MT modern temperature controlled unit is INR 1.2 to 1.5 crores per year within which electricity consumption is the major cost. Exhibit 14: Capital cost break-up Handling Equipments 4% Others 6% Land 13% Civil Constraction 27% Refrigeration Equipment 50% Source: CRISIL Research, YES BANK Analysis Exhibit 15: Operational Cost Break up Others 8% Salary 29% Power 63% Source: CRISIL Research, YES BANK Analysis 20
Exhibit 16: Comparison of costs and profit between Traditional and CA storage value chain Traditional (INR) Source: Trade Sources, YES BANK Analysis (The above analysis and figures is based on the value chain of Apples from Narkanda, H.P to NCR for the year 2011-12) With CA Storage (INR) Farmer s Price 45.00 45.00 Packaging 1.10 1.10 Transportation 5.00 5.00 Fee and Taxes 3.80 3.80 Labor 0.33 0.33 Warehousing 0.10 NA Cold Storage NA 9.00 (6 months) Spoilage/ Wastage 3.00 0.50 Bank Interest 0.13 3.90 Total cost 58.40 68.60 Selling Price 65.00 85.00 (after 6 months) Profit 6.60 16.40 Advantages of Controlled Atmosphere (CA) Storage over Tradition Value Chain CA storage helps to maintain the supply continuity of a particular commodity. This is most important for perishables which display high seasonality. The price realization is higher as compared to the traditional supply chain due to extended storage and sale period The increased storage cost is offset by the higher selling price during off-season Due to controlled atmosphere spoilage is almost negligible in a CA Storage Quality degradation is next to nothing in CA storage as compared to a normal storage 21
Growth Drivers Increasing Government focus and incentives for the sector as well as investments in user segments such as Organized Retail and Distribution chains, FMCG and Agri-processing are likely to drive investments in cold chains. Investments of INR 40-50 billion are expected to be channeled towards cold chain infrastructure by 2014-15. Growth in Organized Retail Over the last 3-5 years, the organized retail and the food services industry have emerged as new user segments of the cold storage industry in India, driven mainly by the gradual shift in the consumption pattern in favor of frozen meats and fresh vegetables in malls and other retail stores, and also the emergence of leading food chains. With an increasing demand for fruits and vegetables in India increased income levels among the middle class segment and a growing acceptance of frozen food products, organized retail is one of the major drivers for the development of cold chain. The salient features of the Indian Retail Sector are: approximately 62% of the total market size th India is the 5 largest retail market worldwide with food and grocery accounting for a share of The organized retail sector is expected to grow at a faster rate than the total retail at 24% by 2016-17 as compared to 15% growth of total retail during the same period Consequently, organized retail penetration is likely to increase to 10 % in 2016-17 from 7% in 2010-11 Exhibit 17: Retail Growth in India (INR Trillion) 50 47 45 40 15.3% CAGR INR Trillion 35 30 25 13.8% CAGR 23 20 15 12 10 5 0 2006-07 2011-12(E) 2016-17(P) INR Trillion Source: CSO, NSSO; YES BANK Analysis E: Estimate, P: Projected 22
Exhibit 18: Share of different retail segments Food and Grocery 4% 5% 1% 4% 3% 1% 2% Apparel Mobile and IT 5% Home decor and furniture 10% 65% Personal and Healthcare Pharmacy Fashion accessories Footwear Book, music Others Source: Secondary Research, YES BANK Analysis Shift towards Horticulture Crops As of 2009-10, horticultural crops occupied an area of 20.8 million hectares producing 222.9 million MT of horticultural produce. Due to increasing risks and investments in grain crops, farmers are moving towards cultivation of horticultural crops. These crops need refrigerated storage and the present cold storage facilities are not sufficient to cater to the same. The main highlights of the horticulture scenario in India are: During 2005-10, the production of horticulture crops in the country grew at a CAGR of 5.1 % India is the second largest producer of fruits and vegetables only after China and is the leader in production of fruits like mango, banana, papaya, sapota, pomegranate and aonla and vegetables like peas and okra Improved returns from fruits and vegetables have led farmers to shift from cultivation of traditional foodgrains to high value crops like fruits and vegetables 23
Exhibit 19: Increasing trend under area and production of horticulture crops 250 200 182.816 191.813 211.234 214.716 223.089 150 Area (mn. Ha) 100 Production (mn tonnes) 50 18.7 19.2 20.2 20.7 20.8 0 2005-06 2006-07 2007-08 2008-09 2009-10 Source: National Horticulture Board Growth in Processed Food Sector India is the second largest producer of food in the world. The food processing industry is one of the largest in India and is ranked fifth in terms of production, consumption and exports. India's food processing sector covers fruit and vegetables; spices; meat and poultry; milk and milk products, beverages, fisheries, plantation, grain processing and other consumer product groups such as confectionery, chocolates and cocoa products, soya-based products, mineral water, high protein foods etc. The main features of the Food Processing sector are: The Food Processing sector has witnessed a high growth rate of about 14% in the recent past and is poised to retain a high growth in the near future According to MoFPI, the market size of Food Processing Industry is estimated to grow to INR 13.5 billion by 2014-15 The food processing industries attracted Foreign Direct Investments (FDI) worth USD 2,604.37 million between April 2000 to August 2011 24
Exhibit 20: Growth in Food Processing Sector Growth of Food Processing Sector (INR crores) Activity 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Meat, Fish, Fruits, Vegetables and Oils 9,236 8,682 9,548 10,349 12,043 12,224 Dairy products 3,509 4,342 4,319 4,608 5,419 4,762 Grain Mill products 13,467 12,347 11,903 12,846 15,947 17,741 Other Food Products 14,722 17,794 20,895 22,522 25,775 23,664 Beverages 3,421 4,525 5,499 6,995 7,938 7,687 Total 44,355 47,690 52,164 57,320 67,122 66,078 Source: National Accounts Statistics 2011, Central Statistical office Vision 2015 of Government of India envisages action plan to double the processed foods turnover from USD 98 billion to USD 210 billion. This requires an investment of USD 21.05 billion into Food Processing (Ministry of Food Processing Industries) In addition the changing consumption trend from conventional to processed foods is going to drive the growth Further, Government of India is setting up 30 Mega Food Parks (MFP) and has approved 15 additional food parks in Financial Year 2012-13. This is going to further propel the demand for cold storage Government Initiatives The Government has set objectives to promote the setting up of cold storages in the country for reducing post harvest losses. Additionally, the Government is also aiming to create over 1.6 million MT of new storage capacity as well as modernize the existing storages of around 0.8 million MT. The Government has several subsidy schemes, depreciation benefits, duty cuts and foreign investment policies in place to aid the development of this sector. In the last few years the Government has undertaken various schemes for setting up of cold storages and distribution centres, promotion of refrigerated transportation etc. On the supply side Government has taken steps like 100% FDI, access to External External Commercial Borrowing (ECB) for channelizing investment in the cold chain sector. The same has been dealt in detail later in the chapter on Key Government Initiatives. 25
Exhibit 21: Funds released and capacity created under various schemes for development of cold storage in India (2009-12) Name of Scheme No. of New CA/MA/Cold Capacity Created Government Subsidy Storage Infrastructure (in lakh MT) (INR crore) NHM 451 24.35 325.91 NHB 538 28.28 164.10 HMNEH 9 0.41 7.35 NCDC 5 0.22 3.19 MoFPI 49 2.32 146.71 APEDA 24 0.02 12.09 Total 1,066 55.60 659.33 Source: National Centre for Cold Chain Development, Indiastat Growth in Bio-Pharma Sector The vaccines used in Pharmaceutical sector require temperature control right from the manufacturing point to the consumption point, which makes cold-chain management imperative. The key features of the sector are: Indian Pharma Industry was valued at USD 20 billion in 2009. Out of that presently the domestic retail market for pharma products is valued at USD 10 billion (2010) and is expected to cross USD 12 billion by 2012 Indian clinical trials market sized at USD 250-275 Million in 2009 is expected to grow at a CAGR of 30 % at almost double the global average 26
Industry Challenges In India, the agri-supply chain is poorly integrated, posing challenges at each step. There are huge gaps in the system, both in terms of capacity and integration. Critical linkages like reefer transport and on farm infrastructure are almost non-existent. Despite the obvious need for improvement and new Government initiatives to stimulate growth, private investment is in short supply for some of the following reasons: High Operating Expenditure: The Cold Chain sector is highly dependent on electricity for refrigeration. The major features are as follows: About 28% of the total expenses for cold storages in India is accounted for by energy expenses compared to only 10% in the West. Operating costs for the cold storage business in India are almost double as compared to the West. About 30-35% of the losses can be reduced by transporting the freshly harvested fruits and vegetables in refrigerated containers Exhibit 22: Operating Cost for Cold Storage Operating Cost per cubic meter per year (in INR) 3,500 3,000 2,700 2,500 (in INR) 2,000 1,500 1,500 1,000 500 0 India US Source: Industry sources This is further aggravated by the present power situation where the country is facing huge power deficits. India s peak power deficit hovers around 17-18%, which makes things even more difficult for an energy intensive sector like cold-chain For example Uttar Pradesh (UP) which accounts for more than 40% of the total cold storage capacity, has the power deficit of about 15% 27
In addition investment costs in the back-up systems of cold storages further makes the setting up of cold storage difficult, unviable and uneconomical Lack of Adequate Logistic Support: Presently the cold chain industry in India is highly fragmented, with players not having the cash strength to invest in the technology needed to build high quality cold storage infrastructure or even be able to cover the entire value chain from procurement at far flung farms through transportation in reefer trucks to delivery at retail centres in cities. Although there are abundant cold storages in India, there is negligible presence of a cold chain or an integrated service provider (cold chain service provider offering warehousing and transportation). The key features of this are: Fragmented Cold Chain Industry has not encouraged the growth of cold logistics for perishable horticulture produce Currently, the most commonly followed practice in villages is - fresh produce is left near the fields till a truck-load is accumulated for drop at the local market. To add to the problem, pre-cooling in most parts of India is unheard of, and the transportation is done in open body trucks The fleet of reefer vans and containers is India is abysmally low, increasing from 431 in 2001 to 3,711 during 2010, the ownership of which is quite fragmented Technology used in refrigeration systems as well as building and insulation of cold storages is outdated and not standardized Presence of small land holdings further adds up to the logistic challenge thereby implying multiple farm gate collection centres The domestic market for fresh perishable produce is highly underdeveloped in India Uneven Distribution of Cold Storage Capacity: A majority of investment into setting up cold storages in India has been in states like Uttar Pradesh, Uttaranchal, Maharashtra, Gujarat, Punjab and West Bengal. Uttar Pradesh, West Bengal and Punjab account for more than 70% of the total storage capacity of the country. This needs to be more geographically diverse and reflective of the production levels of fruits and vegetables in various parts of the country. Secondly, the cold storages that have been traditionally set up can cater to single commodities only. In India, majority of the cold storage is skewed towards potato. Different commodities require different ambient conditions for storage and the current technology in use at most Indian cold storages prevents that, resulting in poor capacity utilization and low financial viability because of the expected seasonality of food products. These factors collectively results in poor capacity utilization and increased wastage of foods. Lack of Investments: Large investments are needed to develop cold chain infrastructure in India, and a significant part of this needs to come from the private sector. The third party logistic service providers in India do not have the bandwidth or the balance sheet to support huge investments into cold chain. The 28
other source of investments are large business groups that have a presence in the retail sector and need to set up a cold chain back-up to support their retail front that involves delivery of fresh farm products to all parts of the country. The recent spur in private investments from conglomerates like Birla Group, Reliance, Bharti Group etc. and the easing of restrictions on FDI in retail could open up the channels for further fund infusion from new foreign entrants into the retail business Capital Intensive Infrastructure: An even bigger struggle for new entrants in the present day context is the increasing real estate price. Typically, a fully integrated, international class cold storage facility with one million cu ft of storage space will require an area of an acre to build, which could cost anything between INR 1 crore and 1.5 crores, constituting 10-12% of the project cost. Cooling units are not mobile, and so location becomes a key factor, and with India s small land holdings, getting a sufficiently large tract of land to build a cold storage unit becomes a major additional constraint. Lack of knowhow and trained manpower: Despite the increasing number of infrastructure projects, there is a severe lack of manpower with appropriate skill sets to handle modern technology Financial viability of cold chain projects: Cold chain projects are still seen by investors as high on capital, low on volume and requiring a long payback period for the investment. Cold chain projects also involve aggressive marketing and investment on backward and forward linkages. This in turn creates concerns amongst the potential investors on the returns derived from investment into cold chain business. 29
Government Initiatives in the Cold Chain Sector Identifying the need for Cold Chain and food processing infrastructure, the Government of India through Ministry for Food Processing Industries (MoFPI), National Horticulture Mission (NHM) etc. has come up with several measures like investment tax incentives, subsidies for setting up food parks, etc. to encourage private participation in developing the cold chain and food processing infrastructure in India. Some of the major schemes and incentives have been listed below: A) Capital Investment Subsidy Scheme for Construction/Expansion/ Modernization of Cold Storages: Subsidy has been enhanced from 25% to 40% in general area and from 33.33% to 55% in hilly and scheduled area, to attract more entrepreneurs and private investment in Cold Chain Infrastructure Sector since April, 2010. B) Rural Infrastructure Development Fund (RIDF) for Warehousing: Union Finance Minister in his budget speech for 2012-13 has proposed to earmark INR 5,000 crores for creating warehousing facilities (including cold storages) from the allocation under Rural Infrastructure Development Fund (RIDF). During 2011-12, there was provision of INR 2,000 crores under RIDF. Achievement: As against the allocation of INR 2000 crores, NABARD has sanctioned an amount of INR 2,252.90 crores during 2011 12. Of this INR 1,493.82 crores was sanctioned to 13 state Governments and Union Territories, while the remaining amount of INR 759.08 crores was sanctioned and disbursed to banks as refinance. Assistance from NABARD is likely to create a storage capacity of 7.30 million MT. Keeping in view the shortage of warehousing infrastructure (including cold storage) for agricultural commodities, Government of India has increased the allocation for 2012-13 to INR 5,000 crores from a level of INR 2,000 crores in 2011 12. C) Exemption on Excise and Custom Duty Custom Duty - The projects of cold storages, cold room (including farm level pre-cooling) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat have been granted project import status with concessional Basic Customs Duty (BCD) of 5%. The Truck refrigeration units and Refrigeration motor vehicle have been fully exempted from BCD. Excise Duty - The Central Excise duty has been fully exempted for installation of a cold storage cold room or refrigerated vehicle, for the preservation, storage, transport or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce and meat, air conditioning equipment and refrigeration panels for cold chain. Service Tax - Storage and warehousing of agricultural produce is not liable to service tax according to the Central Board of Excise and Customs. The construction of post harvest storage infrastructure for agricultural produce, including cold storage for such purposes has also been exempted from service tax. 30
D) External Commercial Borrowing (ECB) External Commercial Borrowing (ECB) can be raised for investments in new projects, modernization/expansion of existing production units in real estate sector industrial sector including infrastructure sector for creating cold storages or cold room facility, including farm level pre-cooling, for preservation or storage of agricultural or horticultural and allied produce. E) Foreign Direct Investment (FDI) 100% FDI is allowed under automatic route in storage and warehousing including warehousing of agriculture products with refrigeration i.e. cold storages. F) National Mission on Food Processing (NMFP) In order to have a better outreach and to provide more flexibility to suit local needs of fruits and vegetables, it has been decided that a new centrally sponsored scheme titled National Mission on Food Processing would be started, in cooperation with the State Governments in 2012-13 under which cold storage for processing purposes will also be developed. This mission will be implemented by MoFPI as a centrally sponsored scheme. G) Viability Gap Funding Budget 2011-2012 provided infrastructure status to the cold chain sector. This opens up the sector for perks like viability gap funding. H) Mega Food Park scheme (MFPS) The Government of India has also revised its Scheme of Food Parks under the 10th Five Year Plan into the th Mega Food Park Scheme (MFPS) under the 11 Five Year Plan, which envisages a growth in India s share in global food trade from 1.5% to 3% by the year 2015. This would be achieved through promotion of both processing and cold storage facilities in India. Exhibit 23: Schematic of a Mega Food Park Processing Unit Domestic Distribution Centres Common Core Processing Facility Consumers Export Markets Processing Unit FARMERS PRIMARY PROCESSING CENTRE (PPC) CENTRAL PROCESSING CENTRE (CPC) DEMAND CENTRES Source: YES BANK Analysis 31
I) Negotiable Warehouse Receipt in Cold Storages Warehouse for horticulture crops The Warehousing Development and Regulatory Authority (WDRA), a statutory body, in consultation with NHM, Department of Agriculture & Cooperation has introduced, in June 2012, negotiable warehouse receipt system in cold storage warehouses for the major horticulture produce so that the farmers producing horticulture crops may also avail the benefit of loan from the banks against the deposit of their produce in the registered warehouses (cold storages). This will help in commercialization, effective postharvest management and integrated development of agriculture including horticulture in the country. The WDRA has notified 26 horticulture commodities for the issuance of NWRs by the registered warehouses (cold storages). J) National Centre for Cold Chain Development (NCCD): Recently, the Government has established the NCCD as an autonomous body. It has been registered as a society in 2011 under Society Registration Act, 1860. The mandate of NCCD is to prescribe technical standards for cold chain infrastructure for perishable food items. The NCCD has constituted six committees under NCCD: Technical Specification & Standards Committee Appraisals and Project Certification Committee Training and HRD Committee Research and Development (R&D) committee. Test Laboratory & Product Certification Committee Application of Non-Conventional Energy sources in Cold Chain Infrastructure K) Technical Standards and Protocols for Cold Storage: The Department of Agriculture and Cooperation, Ministry of Agriculture has come out with technical standards and protocols for cold storage. Exhibit 24: Existing Government Schemes/Incentives for Cold Storages in India Scheme Eligibility Component Details Pattern of Assistance NABARD All Entrepreneurs Capital Investment Subsidy Scheme through Nationalized and Scheduled Banks with refinance facility Refinance to Bank Loans 50%, Capital Investment Subsidy 25%, Promoter Share 25% NCDC For Cooperatives Provides financial assistance to State Govt. and directly to good working Cooperatives Loan Amount 50% to 65% Subsidy 20 to 25% Member Share 10 to 25% 32
MoFPI All Entrepreneurs The scope of components of Integrated Cold Chain, Value Added centres, Packaging Centres and Irradiation facilities has been broadened to allow flexibility in project planning Financial Assistance of 50% of total cost of plant and machinery and technical civil works in general areas and 75% for North East and difficult areas subjected to a maximum of INR 100 million Department of Agriculture & Cooperation (NHM/NHB/HMNEH) All Entrepreneurs Cold Storage units (Construction/Expansion/ Modernization) CA/MA Storage Units Under NHM, credit linked back ended subsidy @ 40% of capital cost of project in general areas and 55% in case of hilly and scheduled areas is provided in respect of only those units which adopt new technology. Technical Standards, parameters and protocol issued by the Department should be adopted APEDA State Govt. or Public Sector organizations like AAI or Port Trust etc. Common Infrastructure Development Assistance for establishment of perishable cargo having cold storage facilities 100% of Eligible Cost APEDA All Entrepreneurs Pack House and export Oriented Units for perishables including cold storages 25% of the eligible cost subjected to maximum ceiling of INR 2.5 million per beneficiary State Financing Corporation Source: India Development Gateway All Entrepreneurs Food Processing & Cold Storage Loan INR 50 to 150 Million as per the eligibility of the Entrepeneur/ Promoter In addition, the Government has also started dedicated trains and reefer vans, the first of its kind was introduced between Bhusawal and Azadpur (New Delhi) in January 2012. This is expected to bridge the gap between the producers and consumers thus ensuring remunerative prices to the farmers. After conducting trial run on various sectors and with different commodities, service of Horticulture Train is proposed to be formally launched on viable origin destination (OD) pairs, i.e. Agra Turbhe Tulgalabad or Azadpur Agra. Also as per the recommendation of a Task Force constituted by the Agriculture Ministry, a Special Purpose Vehicle (SPV) is under consideration to carry out promotion of development of Integrated Cold Chain and allied infrastructure in India. 33
Key Players The Cold Chain Industry is highly fragmented with small family owned conventional storage facilities. Presently, about 95% of cold storages are owned by the private sector followed by cooperatives (7%) and the public sector (3%). In terms of capacity, private sector accounts for about 96% of the total storage capacity. Exhibit 25: Distribution of cold storages on the basis of ownership (Dec 2009) Distribution of cold storages (No.of Units) Distribution of cold storages (Total Capacity) Cooperative 7% Public 2% Cooperative 4% Public 1% Private 91% Private 95% Source: Directorate of Marketing and Inspection Key players in the cold chain industry are: Fresh and Healthy Enterprise Radha Krishna Foodland Snowman Gati-Kausar The operating margins for organized players in the temperature controlled warehousing segment are currently at 20-25%. Margins are expected to improve further with the improvement in utilization levels. Operating margins of unorganized players is 18-20%. Key players in the reefer transport business are: Delhi Baroda Road Carrier Radhakrishna Foodland Snowman Sheetal Parivahan Crystal Roadways Kausar Container Corporation of India (CONCOR) also has a presence in the reefer transport largely for EXIM reefer related traffic (constitute 3% of total container market). 34
The success of cold chain players depends largely on factors such as maintaining quality and expanding their presence across the value chain. Additionally, it is imperative for players to reduce dependence on the success of the harvest and prices of the commodities and instead have a mix of rental and trading businesses and a diverse customer base. Exhibit 26: Key players in the cold chain industry S.No. Player Facilities Cold Storage Reefer Van Location/Capacity/Area of operation 1. Gati Kausar Intelligent Cold Chain Solutions N Y 148 refrigerated vehicles with annual transportation capacity of 100,000 MT Operations : Pan India 2. Snowman Logistics Lid.(Subsidiary of Gateway Logistics park) Y Y 19 cold storage and 150+ completely owned and leased reefer vehicles and transport assets Operations : Pan India 3. Adani Agri Fresh Y N 3 Controlled Atmosphere Stores at Rampur, Sainj and Rohru in Himachal Pradesh, north India (18,000 MT) Operations : Pan India 4. Fresh and Healthy Enterprise Ltd. ( WoS of CONCOR) Y N One Controlled Atmosphere storage facility in Sonepat, Haryana of 12,000 MT Operations : Pan India 5. Crystal Roadways Y Y 125 refrigerated vehicles and few cold storages (capacity details not available) Operations : Pan India 6. Delhi Baroda Road Carrier Y Y One Cold storage located in Delhi and large fleet of refer vans/trucks Operations : NCR region 7. Sheetal Parivahan N Y Fleet of 70 trucks/refer vans Operations : NCR Region 8. Bulaki Deep Freeze and Bulaki Cold Storage Y N Two cold storages in Delhi of 4,870 MT Operations : NCR Region 9. Indraprastha Ice and Cold Storage Y N One Cold Storage in Delhi of 8,293 MT Operations : NCR Region 10. MJ Logistics Y N One Cold Store in Palwal district, Haryana around 50 kms from Delhi of 5000 MT Operations : North India 11. Devbhoomi Agri Y N One Chilled storage of 3,000 MT in Delhi One CA storage of 1.000 MT in H.P. Operations : NCR Region Source: Industry Sources, YES BANK Analysis 35
Recent Development in the Cold Chain Sector Backward Integration: Many of the logistics operators are venturing into cold chain business rather than focusing on surface and transport infrastructure. The strategies of backward integration have a direct implication on companies reducing their costs as well as providing complete supply chain solution. For example, companies like Gateway Distriparks, Transport Corporation of India Ltd., Container Corporation of India Ltd. etc. have developed their own in-house third party cold chain business Future Group has integrated backward from food retailing to storage and transportation with the launch of Future Logistics which focuses on verticals like courier services, road transportation, freight forwarding and cold chain infrastructure Reliance Retail has also started cold chains for its business in India. Reliance Retail Limited (RRL) is investing for its farm to fork strategy for trading in open market as well as serving its own Reliance Fresh outlets Entry of Foreign Players: Recognizing the potential for cold chain business in India, several foreign players have expressed interest in the sector in last couple of years. Among them some of the major players include Canada based Spire Group, Malaysia based Haisen etc. FDI in Retail Sector: Though India allows 100% FDI in cold storage, this has not evoked much of a response in the absence of FDI in multi-brand retailing. Proponents of the policy claim that organised retail, facilitated by FDI, will bring capital and technology, improve quality consciousness and back-end infrastructure. It will minimize the role of intermediaries and link the farmers directly to consumers. It will strengthen rural-urban linkages, encourage agro-processing and check post-harvest losses. This will improve net realization from agriculture. Besides, it can also be an effective instrument for managing food inflation. The recent decision of the Government of India on permitting FDI up to 51% in multi-brand retail holds promise for speedy modernization of organized retail in the country through improved technology and competitiveness. Farmers, apart from other non-farm enterprises and consumers in general, would benefit significantly from the development of organized retail, especially in view of the policy requirement that at least 50% of total FDI brought in should be invested in backend infrastructure. Much of this investment could go into agriculture produce market infrastructure, storage, warehousing, cold chains, processing and so on. Since the growth of food processing industry is demand driven, experience the world over shows that its growth is highly correlated with the development of modern retailing. The slow growth of foodprocessing industry and slow growth of rural non-farm sector in India is responsible for insufficient diversification of agriculture and excessive dependence of labor force on it. Private Investor Interest: In the last few years, private sector participation in the cold chain sector has witnessed an increase provided the potential it has on offer. Adani Agrifresh, CONCOR owned Fresh and Healthy Enterprises, Bharti Field Fresh etc. are some of the key integrated cold chain players who have built cold chain infrastructure support for backward integration. 36
Exhibit 27: Recent Private Sector participation in cold chain sector Company Name Location Cold Storage Capacity (in MT) Products Adani Agri Fresh Himachal Pradesh 18,000 Apple, Citrus Fruits, Grapes, Litchi, Pomegrenate Fresh & Healthy Haryana 12,000 Apples Dev Bhoomi Himachal Pradesh 5,000 Apples, Oranges Suri Agro Fresh Haryana 2,800 Apples, Kiwi Fruits, Citrus, Peas, Grapes Field Fresh Foods Punjab 1,000 Okra, Baby Corn, Tomatoes, Grapes, Apple Source: Industry Sources, YES BANK Analysis Private Equity Investment: Cold chain has been one of the prime areas of interest for private equity funds for the last few years now. Despite this sustained interest, we have not seen too many deal announcements in the sector because there are only a handful of players with any reasonable degree of scale. Most of the other major players are part of larger logistics outfits like Gateway Distriparks, TCI, Container Corporation of India and Gati, and have been steadily growing in scale. As per report from India Infrastructure Research, Cold Chain sector have attracted private equity deals worth about INR 3 billion in last two years till 2011. Exhibit 28: Key PE Deals in cold chain sector Date Target Investor/Buyer Stake (%) Deal size Deal type (INR million) Feb-11 Milk Mantra Dairy Aavishkaar Venture NA 225 PE Management Dec-10 Swastik Roadlines India Equity Partners NA 450 PE Dec-10 RR Enterprises Kuehne +Nagel 100 100 M&A Mar-10 Global Agrisystems Nine Rivers Capital NA 315 PE Aug-09 Snowman Frozen Foods IFC NA 250 PE Jul-09 Future Supply Chain Solutions Fung Capital 26 1,350 PE Aug-07 Kausar India Gati 53 NA M&A Nov-06 Snowman Frozen Foods Gateway Distriparks 51 NA M&A Source: Secondary Research, YES BANK Analysis 37
Development of Temperature Controlled Facilities at Airports Recently, temperature controlled facilities have been established at Delhi, Mumbai, Chennai, Kolkata, Amritsar and Thiruvananthapuram airports to handle perishable cargo. In addition to that cold storage facilities have been established at Tier II and Tier III city airports of Coimbatore, Lucknow, Guwahati, Amritsar, Goa, Ahmedabad, Bagdogra, Jaipur and Bhubaneswar. Integrated cargo complexes are being planned at major airports in India (Mumbai) which will be equipped to handle all kinds of goods, including perishables, agriculture produce and pharmaceuticals. Organization of Pharmaceutical Products of India (OPPI) has tied up with Delhi International Airport Ltd. (DIAL) to overhaul and add to the existing cold chain facility in the capital New Opportunities in Rail based Reefers CONCOR provides rail based reefer services between Delhi and Mumbai APL and Gateway Distiparks are amongst the private players who are also involved in providing rail based reefer services in India Indian Railways is planning to encourage creation of facilities of setting up cold storage and temperature controlled perishable cargo centres and its transportation through Public Private Partnership (PPP) mode Cold Chains based on PPP Model: PPP model in India is likely to drive the demand in cold chain sector by providing new opportunities for private sector Karnataka State Agricultural Produce Processing and Export Corporation Ltd. involved in the promotion of exports of agriculture and horticulture produce, is planning to set up state s first cold chain project under PPP mode in Hubli for which it has partnered with Hubli based Ken Agritech Pvt. Ltd. to set up its first Individually quick frozen (IQF) freezing unit for mango and vegetables Indian Railways is planning cold chain and warehousing facilities in PPP model for farm produce at 7,000 railway stations Maharashtra State Agriculture Marketing Board is planning to establish Terminal Markets in major cities (Mumbai, Nasik etc.) via PPP model 38
Exhibit 29: Selected State or Agency-wise Project Cost and Amount released for Cold Storage by Ministry of Food Processing Industries (INR Million) State Implementing Agency Project Approved Total Cost Grant Amount Expenditure Incurred (including Pvt. Investment) Andhra Pradesh Creamline Dairy Products Ltd. 239 98 218 Bihar Ganga Dairy Ltd. 226 100 112 Gujarat Hi-Tech Frozen Facilities Pvt. Ltd. 168 72 186 Haryana Suri Agro Fresh Pvt. Ltd. 235 98 132 Karnataka Atharvass Traders Pvt. Ltd. 286 100 45 Maharashtra Freshtrop Fruits Ltd. 328 100 333 Rajasthan Jhunsons Chemicals Pvt. Ltd. 177 73 154 Tamil Nadu Farm Fresh Banana 155 61 165 Uttarakhand Bio Life Foods Pvt. Ltd. 177 98 83 West Bengal Ascon Agro Products Exporters 213 70 126 & Builders Pvt. Ltd. India 2204 869 1553 Source: Ministry of Food Processing Industries (Nov. 2010), YES BANK Analysis Shift towards Multi Products Cold Storage: Cold storages in India have been largely adopted for longterm storage of potatoes, onions and high value crops. However, most of the new cold storages in the last decade have been constructed as multipurpose facilities focusing on all fruits and vegetables, poultry, dairy and FMCG product categories. Exhibit 30: Change in Cold Storage Capacity in India (million MT) 30 25 0.4 2.5 Milk and milk products 20 0.3 1.8 0.3 2 Multipurpose 15 10 0.2 1.2 17.6 18.9 24.1 Potatoes 5 12 0 2000 2005 2010 2015(P) Source: Secondary Research, YES BANK Analysis 39
Successful Business Models in Cold Chain Sector Adani Agrifresh Ltd. Intervention in Apple Supply Chain: Adani Agrifresh Ltd. has set up three CA facilities for storing 18,000 MT of Apple with an investment of INR 180 crores in Shimla district, Himachal Pradesh. The investment is one of the largest of its kind in the fresh produce sector in India. Unlike traditional mandis where there is an opaque system of price discovery and lot of hidden costs involved, the farmers are paid basis colour, size and weight of the apple The apples stored are sold under the brand name Farm-Pik through a distribution network spread across 40 major cities in India Adani Agrifresh has opened up three farmer service centres and also tied up with major agri-input firms to source quality products The existing model of CA storage results in higher prices to farmers Average differential of INR 6-7 per kg. It has also reduced the burden on farmers of procuring packaging material. The model in addition also provides indirect benefits like improved crop management practices, transparent payment mechanism etc. Blue Star opens up State of the Art Packhouse facility at Ahmedabad, Gujarat: Blue Star under the aegis of Gujarat Agro Industries Corporation Ltd. is setting up state of the art packhouse facility featuring the latest brine chiller technology for the first time in India. The facility offers the following utilities: Fruit washing, Treatment and Grading System Pre-Cooling Rooms Ripening Rooms Cold Rooms Docking Station The farm produce is brought to the packhouse from proposed collection centres. Once the produce is brought to the packhouse, it could be pre-cooled, graded and stored in the cold storage till the same needs to be taken out for exports or to the markets. At the time of taking out, depending on the requirement the produce can be ripened and sent. The facility has been commissioned in year 2009 on a lease revenue model aimed mainly at the farmers and agro-based traders. Very Low Temperature (VLT) drives reduction in Energy Bill and Enhanced Shelf Life: Located in Kartarpur, Punjab, a cold store uses only VLT drives and soft starters for refrigeration. The area in Punjab has around 450 cold stores, more than any other district in India and is conducive for the growth of seed potato and onions. The plant was established in 1977 based on older technology but the facility was later renovated. The project has paid back in two years time with a substantial savings over energy costs. 40
The electricity bill was reduced from USD 7,500 to USD 2,200 per month as a result of installation of VLT Drives from Danfoss Better control of the internal environment gives longer storage life for the products Longer storage life enables the company to wait for higher market prices, realizing higher return on investment Ingersoll Rand Success Story of Banana Ripening: Baarath Fruits located in Theni District of Tamil Nadu is known as the pioneer company in the business of Banana ripening (similar to SAFAL Market). The district used to cater to 60% of Cavendish banana marketed in Tamil Nadu, Kerala and Karnataka. Baarath Fruits initially used to transport the banana from Theni district to SAFAL in Bangalore, after a 4 day ripening cycle at SAFAL, bring it back to Chennai market. Sensing the opportunity the owner (Mr. Palvanan) started his own ripening facility containing four ripening chambers of 10 MT capacity each. Initially the company was doing tremendously well until it faced competition from other players who ventured into banana ripening business. Ingersoll Rand got the opportunity to set up the second set of ripening chambers in 2009. The process increased the shelf life of banana thereby offering flexibility to face the demand and supply issue. The success has given Baarath fruits the strength to compete in the fast growing competitive banana ripening business. 41
Way Forward The cold storage industry's fortunes are closely linked to the food processing, organized retailing and food service industries. Growth in the industry in India will be primarily led by an increase in contract farming, changing demographic profile and urbanization, and increased exports of processed foods. The growth will be backed by various Government initiatives and increased demand from sectors such as pharmaceuticals, retail, agriculture etc. The continued support from the Government has interested many small players to establish their own cold storages and strengthen the supply chain for various perishables. These in turn have helped the producers in better price realization. Many solution providers and integrated logistic support firms like RK Foodland, Snowman, Kausar etc. are working on scaling up the efficient and cost effective logistics technologies in India. Therefore, the cold chain industry in India offers better business opportunities to the cold chain technology providers to enhance their production capabilities by adding new and advanced product lines which in turn will result in setting up of better backward linkages. Cold Chain Industry can be one of the next big waves in the country provided continued Government support and improvement in the present physical infrastructure and technology is achieved. Roadmap: With the Government going ahead with FDI in Retail in September 2012, this step is expected to open channels for further fund infusion in the cold chain segment from foreign entrants besides local companies. Some similar measures are needed to ensure support for the development of Cold Chain Infrastructure in India. Government support in acquisition of land for setting up facilities for cold storages, and food processing centres etc. Adoption of Energy Efficient Technology in Cold Chain: Developing Cold Chains in remote villages from non-conventional energy sources like biomass Promotion of PPP Model in Cold Chain: Partnering with networked Indian Logistics companies, Integrated 3 PL Service providers Adoption to Indian Conditions: Move from mass storage to Direct Access Storage Expansion of Organized Retailing in India: Expansion of organized retailing requires supporting infrastructure such as storage, assured electricity supply and transport and communication networks which can be provided mainly through public investment or through public-private partnerships. Post permitting foreign direct investment (FDI) up to 51% in multi-brand retail. These supporting infrastructure are essential even for the policy of attracting FDI into retail to succeed. 42
Bibliography 1. Directorate of Marketing and Inspection, Government of India 2. Ministry of Food Processing Industry, Government of India 3. National Horticulture Board, Government of India 4. National Centre for Cold Chain Development, Government of India 5. National Sample Survey Office, Government of India 6. Ministry of Food Processing Industries, Government of India 7. Directorate of Industrial Policy and Promotion, Government of India 8. Ministry of Agriculture, Government of India 9. Central Statistical Office, Government of India 10. Agriculture and Processed Food Products Export Development Authority (APEDA) 11. National Horticulture Mission, Government of India 12. State of Indian Agriculture, 2011, Ministry of Agriculture, Government of India 13. Indiastat 14. CRISIL Research 15. Centre for Monitoring Indian Economy (CMIE) Database 16. Global Cold Chain Alliance India s Cold Chain Industry August 2011 17. Agmarknet 18. Dacnet 43
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