The Indian cold chain industry is expected to clock a CAGR of 13-15% in the coming five fiscals through 2022 compared to the average CAGR of 11-13% in the previous five fiscals. This will potentially swell the industry from Rs24,800 crores in 2017 to Rs47,200 crores in 2022. This economic progress also denotes India's potential to emerge as the food factory of the world by 2030. As India is set to discover its potential to emerge as the food factory of the world; it is up to the industry members to be ready and also get others ready for this growth journey, with innovative, affordable, efficient and sustainable cold chain solutions for tomorrow’s India and bring that CHILL factor the country needs to be at par with the rest of the world.
The cold chain industry in India and globally has witnessed an exponential growth over the last 5 years primarily because of the shift in consumption patterns. The US leads the world’s cold chain storage accounting for 15% of total capacity. The cold chain industry grew at 20% during 2012 – 2016. As per some industry reports, the cold chain market was pegged at $167 billion in 2016 and is expected to touch $235 billion by 2020. The emergence of the middle class and increase in disposable income have contributed to increase in demand for cold chain products like fresh and organic produce and the consumers want the same kind of product, to taste the same doesn’t matter the location. This has resulted in growth of cold chain industry to be fastest in the APAC region. Various industry surveys suggest that different temperature zones should be maintained and if the produce is subject to temperature fluctuations, it must be tested for damage to avoid deterioration. “Using cold chain infrastructure, shelf life of food products can also be increased. Owing to these factors, there has been a rise in demand of cold chain and entry of many companies entering this segment, which has helped organizations like ours in scaling up rapidly and providing fresh, top quality products to our customers,” informs Ghanshyam Singh, Director, SCM and Quality Assurance, Chai Point.
Adding on the same, Mihir Mohanta, General Manager (SCM), Mother Dairy, illustrates that the cold chain industry in India is evolving, from the potato-based warehousing cold stores to an end-toend cold chain solution system. The market is gradually getting organized and focus towards multi-purpose cold storages with integrated back & frontend. Quick service restaurants (QRS) across India are penetrating faster, even in small towns. With consumers shifting to fast-paced lifestyle, changing eating habits on increasing purchasing power, they are looking for more convenience & ready food solutions. This is fueling demand for cold chain services. On the back-end, the export-oriented grapes industry is building up its farm centric pack houses with pre-cooling infrastructure enabling exports of more than 7000 containers of grapes to Europe &Middle East. The shelf-life & availability of Indian apples is improving with the advent of Control Atmosphere (CA) technology. Today, one can get stored Indian apple even in the month of May/June. Frozen veg (green peas, corn, vegetables & french-fries) is also expanding its network & slowing creeping into urban consumers plates. The volume of frozen veg industry today is of about 2.6 lakh MT/ year. The pharma industry is growing on a sound note, as there is a widespread of private hospital network. Hence, the demand for precision & dedicated cold chain services is gaining traction. As per TechSci Research, Indian frozen food market stood at $310 million in 2017 and is projected to grow at a CAGR of over 16%.
Shobhit Jain, Head – Supply Chain, Pizza Hut at Yum! Brands, elaborates,“Cold chain sector is showing strong growth on the back of both demand and supply side factors. Growth is coming because of robust demand in categories like dairy and fresh produce. Food service and retail sectors are showing growth which, in turn, is driving the growth in cold chain. Consumers are also getting more aware and demanding better quality and safe products. On supply side, there is investment in better cold storage facilities and reefer vehicles. There is also support from government. This confluence of favorable demand and supply will continue to drive strong growth in cold chain. At the same time, there are ample opportunities to improve performance on quality & processes and adoption of global best practices. We need to focus on quality growth. This will be enabled by consolidation and emergence of bigger and organized players in the system.”
According to Debajit Bhattacharyya, VP – Procurement, Havmor Ice Cream Ltd., India’s cold chain sector is a combination of cold storage and refrigerated transport. The Industry is growing at a CAGR of 20%. The cold storage facilities (approx 6300) unevenly distributed across the country and mainly used for potatoes. More than 50% of those are located in West Bengal and Uttar Pradesh. In spite of several governmental initiatives, organized players in this field are very less (8-10%). In recent times, India has been developing at a quick pace, which has resulted into manifold increase in horticultural product. Around 20 – 40% of these produce is getting lost due to supply chain inefficiencies. So, in spite of 20% growth, the performance of cold chain industry is way behind the expectations or requirements.
On similar vein, Anand Sen, Business Head-Temperature Controlled & Express, Future Supply Chains, informs, “There has always been a shortage of cold chain capacity but sustained interest and increase in demand from new sectors such as fruits & vegetables, meat, seafood and bio-pharmaceuticals, which are mainly exported oriented, has resulted in an addition of about 4.5-5 million ton of cold chain capacity in India. Stringent food safety norms and regularizations have necessitated criticality in temperature compliance across the value chain. Hence there has been growing preference for organized players compared to unorganized ones. Also, there has been an increased focus by the Government of India on developing farm to fork cold chain infrastructure as seen in the recently announced SAMPADA scheme. Setting up of pack-houses is thus being an emerging business opportunity with multi-product cold stores within 50-100 kms from the farm gates as collections centers and increased investment in refrigerated vehicles for distribution purpose.”
There are many challenges that come in the way of successful operations of cold chain. Some of them include high cost of setting up and cost of operations. For some items like core vegetables, this implies a high proportion of cold chain cost in the overall product cost; availability of skilled manpower especially drivers; lack of standardized and good condition vehicles which impacts efficiency and product quality, etc., states Jain. Singh avers that with the explosive growth in cold chain industry, a number of challenges have come as part of the package. These include:
TEMPERATURE MAINTENANCE: The single biggest challenge is maintaining the right temperature when moving food products from one point to the other. It starts right from the point when the item is sourced to kept in the warehouse to transportation in between cities and finally at the store level. The laws governing movement of heat-controlled temperature sensitive products, especially in the pharma sector, have become more stringent over the years. These changes have led the companies to define a more precise specification, thus leads to dependency on highly secured cold chain solutions.
Industry standard is to maintain -18°C for frozen foods and between 0-5°C for food in chilled state. “At Chai Point, we maintain the temperature between 0-5°C as well. It is important for the exact same temperature to be maintained at every stage of product movement, otherwise the product will not only lose its taste and freshness but can also go bad. This results in a loss for the company and a tarnished image among customers,” adds Singh.
CUSTOMERS’ EVOLUTION: A decade ago, cold chain was normally associated with the right packaging and logistics. Now with newer things being introduced, we have definitely rocketed forward. Process, temperature monitoring, qualification, validation of a solution and control movement have become integral elements of cold chain’s value proposition. In addition to that, customers are getting exposed to learning more about these techniques and gaining knowledge on the same. This means that both companies and cold chain partners have to stay a step ahead to meet customers’ quality standards and expectations.
GOING GLOBAL: With enterprises out to fulfill their global ambitions, it means that now cold chain companies have to be present in locations outside their home country and be well-versed with the weather conditions across the different regions of the world. This means that they have to be aware of environmental conditions and custom regulations, which has a huge impact on shipping and packaging requirements. While offering startling stats, Mohanta states that approx 104 million metric ton of perishable produce is transported between cities each year. Of this figure, about 100 million metric ton moves via non–reefer mode and only four million metric ton is transported by reefer. Of the 4 MMT of perishables transported in refrigerated vehicles, ~80% are utilized for milk and milk products transportation. There is a significant value loss owing to this. As per the study conducted by CIPHET (under Ministry of Food Processing), harvest & post-harvest losses of fruits & vegetables alone are 31.5K crore. On the other hand, there are other challenges which the industry is facing such as:
Adding to this, Sen highlights that temperature-controlled services especially transportation, have the dual challenge of being time bound and temperature sensitive. Customers expect high service levels at par with express delivery and zero deviation in temperature. Much of the desired service levels and temperature adherence depends on the driver community and hence it is imperative that this community is given its due respect. Currently availability of trained drivers and their retention is one of the key challenges, which the industry is facing. Skewed demand for temperature-controlled vehicles in the long-haul sector (loads majorly concentrated in west and north compared to East and South) results in improper utilization of vehicles in reverse hauls.
Anuraaga Chandra, Head – Cooling & Heating Sales, Danfoss India Region, says, “In the current scenario, one of the most critical challenges is that of lack of cold chain warehousing capacity, as only 25% of the capacity is now available for fruits, vegetables, processed foods and pharmaceuticals, whereas 75% of the capacity is created for handling potatoes. Additionally, there exists low awareness at the grassroot level in handling temperature- sensitive products.”
Fuel costs in India constitute around 30% of operating expenses of cold storage in India as compared to 10% in the West. Further, cold storages are dependent on steady supply of power. Since most Indian regions face power cuts, companies are forced to invest in power back-ups, which further pushes up the capital investment requirement.
One of the biggest hurdles that companies continue to face is the availability of cold chain spaces in India. Though, over the last few years, there has been an increase in the number of cold chains across the country, but this business is capital intensive and the rate at which cold chains have mushroomed in the country still don’t meet the demand from the enterprises’ side. According to a report by NCCD, under department of agriculture and farmers’ welfare published in 2015, India needs additional creation of around 70,000 modern pack houses, 3.27 MT of cold storages, 53,000 refrigerated transports and close to 8,500 modern ripening chambers. These numbers present a clear picture of the demand of an integrated cold chain infrastructure needed by the country. Singh believes that there is a need to formulate a formal policy to address the development of farm-gate infrastructure development like modern pack-houses at the production areas, pre-conditioning of the produce for the market movement. These need to be linked to the front-end by actively refrigerated transport, through which efficient long-distance movement is possible without damaging the produce.
To balance other variations in demand generated by local availability of fresh produce, a higher storage capacity centers should also be set up to store buffer produce and plan the supply as per perishability of each product type. This will also benefit the MSME sector, which focuses on pack houses, food processing and also generate jobs at the rural level.
Revealing more startling stats, Mohanta elaborates, “If you analyze the Indian cold storage industry, you would find about 88-90% of the market share is with temperature-controlled warehouses and remaining 10-12% comprise of temperature-controlled vehicles. Our cold chain industry is skewed to cold store centric. The study by NCCD & NABARD indicates there is not much of gap between requirement (35.3MMT) & availability (32.8MMT) in cold storage per say but the gap is in the 1st mile and last mile connectivity. There is a very large gap between requirement and availability of pack houses (required- 70,000 & available-250) & transportation (vehicle required- 62000 & available-10000).”
Technology is an important enabler for improving quality, reliability and efficiency in cold chain. Jain avers that there are ways in which companies can deploy technology to their best advantages. He suggests some of the tech tools that would aid in enhancing the operational efficiency of cold chain in the country. These include:
As we have already established, how paramount it is to maintain temperature to ensure the best quality to our consumers. Seconds Singh, “We lean on technology and appropriate instruments to achieve that. For instance, while products are being transported from Bengaluru to Mumbai in a cold chain truck and for some reason, if the temperature changes, even for a few hours, the product quality is likely to drop. Thanks to technology today, we can use an array of tools to not only keep the products at the right temperature but also monitor the same.” By using temperature sensors and GPS to self-reporting alerts, the companies can monitor the temperature of the produce at every minute of the day. There are highly equipped vans that can allow monitoring the temperature, location, humidity, and speed of the van in real time. Advanced tracking abilities such as these, enable companies to receive advance warnings of any changes or malfunction; where timely alerts can help the companies flag the issue and control the damage before it happens.A decade ago, cold chain was normally associated with the right packaging and logistics. Now with newer things being introduced, we have definitely rocketed forward. Process, temperature monitoring, qualification, validation of a solution and control movement have become integral elements of cold chain’s value proposition. In addition to that, customers are getting exposed to learning more about these techniques and gaining knowledge on the same. This means that both companies and cold chain partners have to stay a step ahead to meet customers’ quality standards and expectations.
According to Mohanta, Indian consumers are value conscious. They are averse to pay more or pay extra unless they realize definite benefits. The role of technology is very crucial to improve benefits & reduce cost. So, technology upgradation & replacement has to be a continual process in this industry for penetration to new markets new users. Investors have to look for multi-commodity, energy efficient & environment friendly technology. Chandra states that with the advent of latest digital technologies, several ‘easy to understand and use’ solutions at affordable pricing, is now available in the market to address the challenges. In this area, currently we see lots more start-ups exploring new business models. For technology to enable this expanse, creating successful and sustainable business models, which address the needs of both the farmer and the consumer will be the gamechanger.
India needs to learn a lot from its global counterparts when it comes to adopting best in class practices. Jain highlights that the country can catch up on certain aspects to offer a value chain that best matches global standards. These include right design of cold storage to maintain product quality / integrity and ensure higher efficiencies; facility with multiple chambers across temperature ranges; world-class infrastructure to maintain product integrity (eg: right temperature at loading docks, no cross contamination and other hygiene principles, etc.); palletization which ensures faster turnaround time and minimizes temperature abuse; automation like bar-coding for expediting put-away process and better inventory accuracy; and robust SOPs / SLAs.
To build a reliable cold chain system, the following practices needto be adopted by the industry, notes Mohanta: online/centralized live temperature data logger monitoring systems; conduct periodic air leakage test for Insulated Reefer Boxes (IRB) & get them rated; maintain and manage adequate internal accessories for air circulation; adopt SOPs for loading, unloading & temperature proving; and pre-cooling of refrigerated vehicle to -18°C prior to loading of the frozen products. Breaching the integrity of cold-chain in storage or transportation is a crime. The stakeholders involved need to find ways to manage it.
3PLs’ role is very crucial in terms of preserving, protecting & improving product shelf-life, so as to improve the product utility for a longer spread of time & geography. Singh elaborates that setting up a cold chain infrastructure is a high investment business model. Thus, for small yet fast growing companies like ours, it is logical to outsource this entire piece, but at the same time, use technology to monitor is closely to ensure the quality of the products reaching the end-consumers. The main advantages of signing up with third party are:
COST: Logistics is core specialty of third party providers; their expertise in the area is likely to be superior to that of a company’s. Such specialist providers have the time and resources to keep their tech updated, ability to meet technical demands in a more cost and time efficient manner. They help company management to reduce overall inventory costs as well.
CAPITAL COMMITMENT: Companies outsourcing logistics don’t have to worry about maintaining and managing their own warehousing and transportation operations. The 3PL firm does all these in a far more efficient manner and the capital required to contract such specialists is lower than a company investing into building the entire infrastructure in-house and cost overheads of running it.
FOCUS ON CORE COMPETENCY: Running a large-scale business is complex and it is not possible for a company to have expertise in every function. Thus, it is advisable to hire experts in form of 3PL to do this while as a business you can focus on building on your core competency, which your product or service for your consumer.
Talking about the desired expectations from the service providers, Jain offers these valid points:
While Singh expects service providers to maintain the required temperature throughout the cycle; Continuously check the products; storage as per the norms laid out for the specific product type; ensure adequate air flow, etc. Apart from these, they need to ensure that there’s no overstocking happening; goods are being stacked in the correct fashion; when moving from point A to B, the temperature needs to be kept in check. And in case of an anomaly, flag it to the company immediately. On the other hand, the vendor, while taking the delivery, should check the temperature of the products and stack it as per the norms specified with the type of the product.
Offering the 3PL perspective, Sen says, “FSC had entered into the temperature-controlled logistics space in order to leverage its expertise in managing the value chain for the industries like dairy, fresh fruit and vegetables, frozen food and quick service Restaurants. FSC has planned to expand its warehouse footprint across tier I and II cities in India in order to cope with the growing demand from in-house businesses of Future Group as well as external customers from the above sectors. There has been substantial focus from the Group in developing the farm to fork model, which will lead to backward integration in times to come. Hence significant investment has been planned in creating state-of-the-art warehousing and distribution model to serve the customers with high quality of services.”
An efficient cold chain mechanism counters the perishable nature of food, thereby extending its saleable life cycle. It applies technology to stretch the marketable time of a perishable product, for a longer duration. A cold chain network can be used to link production centers to the consumption centers through cold chain grids. These can connect key production areas with centralized distribution channels that ensure last mile delivery of the produce in the desired quality and quantity. Additionally, by knowing the markets and timing of the harvest, the producers can meet the demand and have a higher share of wallet with reduced loss. Farmers and owners of the produce can reach newer markets to realize greater economic value. This boosts their incomes and incentivizes higher agricultural production – a win-win situation for farmers as well as consumers, shares Chandra.
An optimized supply chain should be able to give their customers what they want, when they and yet keep the costing under control. “Supply chain starts from tier II or subcontracted supplier to the primary suppliers. As the tier II suppliers provide us with raw materials, components, etc., it becomes important to know who subcontracted suppliers are, materials they are providing, costing and their lead times. This also gives the benefit of negotiating on the basis of volumes as more often than not, many of the tier 2 suppliers provide services to more than one vendor of the company. Thus, it is important that you maintain visibility on the overall supply chain and keep the costs low at the same,” states Singh.
SUPPLIER INVENTORY VISIBILITY: As a company, you should be aware at all times, the inventory your supplier holds because if he runs out of your product at his end, your operations are likely to be impacted. Sharing this information can be beneficial for the supplier too, because it can help them do their inventory management more efficiently. “We have built SHARK, a platform, which connects the entire operations cycle of Chai Point. Right from vendors to warehouse to stores, POS. Everything moves through the cloud-based platform, which enables us to plan our supply chain strategy and execute it with minimum scope of error,” shares Singh.
According to Bhattacharyya, endto-end optimization can be achieved through Information Flow Optimization. An information flow system will tell the farmer, a logistics service provider or a food retailer on how much of storage and transport capacity is available for a perishable product at any given point in time and within reasonable reach. These pointers summarize ways to optimize end-to-end supply chain in the best way as offered by Jain:
Companies need to make food safety an utmost priority and develop right mindset, culture and skills in the organization. Jain feels that selection of right partners – both suppliers and 3PLs who have capability to ensure end to end temperature compliance (supplier’s supplier, supplier storage, primary transportation, storage at DC, secondary transportation and beyond), would hold the key for enhanced performance.
Additionally, as Singh elaborates, “We need cold chains set up in close proximity of the source or the produce, so that post harvesting, it can be stored nearby for further transportation as per the market demand scenario. For eg: Potatoes, are mainly grown in Uttar Pradesh. If there is no cold chain facility, then the farmers will have to move the product from ambient temperatures to other locations with cold chain facilities. This may result in a large part of the harvest going bad and loss of sale for the farmers. Cold chains should be set up near the source, should have regular power supply and a good roads network for easy transportation of the produce from the cold chain to the market.”
Talking about the upcoming ectors that will drive the growth of cold chain in times to come, Chandra says, “Agriculture and horticulture will emerge as the sunrise sectors for India in the near future, with cooling and refrigeration experiencing high growth. Wherever there is a distance between the production centre to the consumption centre, there is an opportunity for efficient cold chain. In this regard, India has a long way to go. The penetration of refrigeration in China is 45%, whereas in India it is a mere 4%. So, there is an impending need for more cold chain solutions to bring meat, seafood and horticultural products to market without wastage and support in the value addition of produce.”
Currently, there is a lot of policy push from central and state government to create more cold chain infrastructure across the length and breadth of the country. For e.g., 101 integrated cold chain projects have been sanctioned and assisted in 2016-17 by the Ministry of Food Processing, but they are yet to be completed. These projects are expected to leverage a total investment of `3,100 crore for the creation of modern infrastructure for the food processing sector. These 101 cold rooms are expected to create an additional capacity of 2.76 lakh ton of cold storage/controlled atmosphere/frozen storage, 115 ton per hour of individual quick-freezing capacity, 56 lakh litres per day of milk processing, 210 ton per batch of blast freezing and will include 629 refrigerated/insulated vehicles; this will be a great milestone in our journey towards achieving food security in the nation. This is not all, there are many more such initiatives to help minimize the food loss in the nation and to help double farmer’s income, states Chandra.
The Ministry of Food Processing has placed cold chain under the infrastructure category and has launched a string of initiatives to promote setting up of cold chain and ancillary infrastructure across the country. Singh adds, “Their flagship program ‘National Horticulture Mission’ has been reaching out to private enterprises for partnerships and offering a slew of subsidies and exemptions. Between 2009 –12, more than 1,000 government controlled cold storages have been developed with a spend of Rs660 crore. The subsidy has also been enhanced from 25 to 40%. We believe the schemes launched to grow the sector have been launched in the right spirit but due to lack of transparency, the implementation has been slower than expected.” Thus, the sector needs a desperate push from both the state and Central Government to capitalize on the opportunity of building a cold chain industry, which can boom because of the local demand and consumption.
While ample measures have been taken in the recent past by the government, still a lot more needs to be done. Mohanta offers three such changes that need attention from the authorities:
According to Bhattacharyya, lower cost of funding for setting up cold chain infrastructure; promoting campaign awareness to educate people about the importance of cold chain facilities; ensuring better and efficient refrigeration technology to further improve shelf life; and power subsidy to cold storagesaresome of the parameters that will help the industry to be at par with the rest of the world and enhance performance. Sen avers that the government has shown great level of interest in developing cold chain infrastructure in order to support the agricultural sector. ‘Operation Green’ proposed in this year’s budget has been allocated with fund to promote Farmer Producer Organization, which would include agricultural logistics and primarily cold chain infrastructure. Allocation for ‘Kisan Sampada Yojana’ has also been increased, which will further attract investors to develop cold chain facilities.
India is at the threshold whereby 2030, we expect that over 70% of the population will live in urban areas. The 100 smart cities initiative of the Government is aimed at enabling this urbanization to happen in a sustainable and planned manner. However, along with urbanization, there would be a significant change in the food plate composition. The demand for high protein foods such as fruits, dairy products, fish, etc., will increase. This means that there will be an increasing requirement of high value foods, retail chains, food parks, etc.
To meet this demand, we will need to have a supply chain infrastructure, which will seamlessly connect the farm to the fork and this will mean having pack houses at the farm, cold storages, collection centers, food parks, food processing centers, juice manufacturing plants, dairy and dairy processing plants, reefer trucks spread across the length and breadth of this sub-continent. This infrastructure is not going to be built over night in 2030 and looking at this requirement both from a demand and supply side today, substantiates why India has a great potential for investment through structured cold chain implementation from harvest to retail.
“View the entire chain from supplier’s supplier to end consumer as a seamless chain requiring 100% product integrity and safety; worldclass infrastructure and operational best practices; developing right expectations and mindset in service providers; tight SLAs and performance measures for service providers, etc., are all the ingredients towards bettering the performance of cold chain,” asserts Jain. For Singh, maintaining an endto-end visibility of the entire supply chain is paramount to ensure quality is maintained. This can be achieved by following 3 simple steps: Identifying problems in the initial stages; build processes to contain problems; and being proactive while responding to problems which have been flagged, in order to ensure it’s contained without causing damage to the product.
Offering real-time insights on the aspects that need attention from the industry and government alike, Mohanta says that the cold-chain business is highly technical. Unlike road transportation, it needs skilled & trained people for operation & execution, as errors or malfunctioning has a very high cost. So, people capability development is a must. Standard Operating Process (SOPs) at every stage needs to be followed. Appropriate technology needs to be selected for specific products & these need to be upgraded continually to bring in efficiency & reduce cost. Once if for any reason, the cold chain integrity is broken, it cannot be reversed to original form. Hence there is a need to be extra vigilant. Government, on the other hand, has to formulate & monitor for food safety standards and also specify ways to achieve these standards. Least it would be like looking for carbide free ripened mangoes without having the basic ripening infrastructure.
Sen points out that the use of IoT for remote temperature and location monitoring coupled with advance telematics for control over refrigerated systems and vehicle health tracking helps in keeping a constant eye on the entire supply chain. Defining standard operating procedures, as per internationally accepted standards, also help in being prepared for any operational exigencies that may impact the quality of goods / service. Chandra elaborates that setting up pre-cooling facilities at production sites, employing reefer vans, mobile cooling units as well as value addition centers, which include infrastructural facilities for preservation and processing will be a key element to ensuring quality throughout the value chain. “While this infrastructure is being set up, it is important that the skills required for handling of the produce, maintaining the right temperature/humidity, etc., is imparted across the value chain. Further, the protocols required for maintaining the right quality is different for different products. This is also dependent on the climatic zones. Hence, it is of prime importance that the protocols for each produce be developed and disseminated to all stakeholders concerned,” he adds.
For products such as fish, grapes and few other limited commodities which are exported, quality standards and protocols exist. For the others, we need to define the same. By developing these and raising awareness, we can ensure quality throughout the value chain, as technology is also now readily available to monitor the same.“Innovative and sustainable solutions to support the cold chain requirements of tomorrow’s India is what we are focusing on today, to help India attain its vision for being the food factory of the world,” concludes Chandra.