Cold Chain – Part of the Infrastructure Sector
Ministry of Food Processing Industries announced India to be the second largest producer of fruits and vegetables in the world for the year 2010-11. But in the same year, post harvest losses and wastages were estimated to be in the range of 5.8% and 18%, which was to the tune of INR 44,000 crore per annum. This was the time when cold chain infrastructure was identified as a problem area and in the budget of 2011-12, it was considered to be a part of the infrastructure.
FDI in Cold Chain
The Government of India has permitted 100% FDI in the cold chain sector through the automatic route in the budget of 2011-12. It included other benefits like
- Project import status at a concessional customs duty of 5% with full exemption from service tax for the initial setting up and expansion of cold storage, cold room (including farm pre-coolers for preservation or storage of agriculture and related sectors produce) and processing units
- Full exemption from customs duty to refrigeration units required for the manufacture of refrigerated vans or trucks.
Cold Response
It was anticipated that this move would help in solving the cold chain infrastructure problem in India and consequently reduce the prices of perishable items. However, the industry hasn’t experienced the impact, as the FDI flow to this segment has been insignificant till now. This luke warm response is mainly due to the absence of front-end multi brand retailing, which has been shrouded with controversy.
Going Forward
But now that multi brand retail is on the verge of becoming a reality in India, it will create a lot of opportunities for warehousing; especially cold storage facilities. This is because there is a mandate of 50% investment in backend infrastructure which includes cold chain logistics and storage. Looking at the current demand supply gap, there will be huge opportunities for new entrants to penetrate the market. So far, very few international companies like Spire group, GE equipment services, Hiasen have entered the cold chain logistics.
Target niche areas: The current competition in rail operations is pretty one sided with Concor having a market share of 94% (in terms of volumes). In road transport, there are many small players in road transport like R.K. Foodland, Refcon Carriers, Indraprastha Cold Chain, Bulaki Deep Freeze, and Glacio Cold Chain, Snowman who are continuously improving their capabilities. International players can look at building their capabilities in the refrigerated road transport sector. In surface storage, majority of the players are concentrating on agricultural produce like fruits and vegetables. There lies a huge opportunity in specialized sectors like pharmaceuticals.
Engage in long term Investment: Cold chain infrastructure needs huge investment with a payback period of more than five years. The foreign players should look at investing in building infrastructure with a long term view in mind.
Use technology for gaining a competitive edge: Technology along with high service standards and process efficiency is what will give the foreign players an edge over the current competition in this industry. There is a huge demand for controlled atmosphere storage facilities for handling different types of fruits and vegetables at variant temperatures.
Partner with local distributors: Foreign players can enter the Indian market by identifying local partners, agents or distributors. For example, Haisen has signed an agreement with the Beta Empire Group and Pace CFS for a possible joint venture to establish cold chain logistics in India. The companies can also partner with other Indian retail giants as a 3PL as they are looking to invest billions in backward integration. This is evident from recent investment announcements by Bharti Group (about INR 2.5 million) and Reliance Industries’ retail venture (INR 25,000 crore) in cold chain facilities.
Although the recent move on allowing FDI for cold chain industry has received a cold response, we believe that the industry will grow significantly as multi brand retail is no longer a distant dream. The foreign companies will vie for a share in this market. Cutting edge technology and right partnership will help the companies create a position for themselves in this market.