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Supply chain and cold chain mgt needed at all levels from farm to fork
Nov 11, 2014

Agriculture is one of the major occupations in India and the country is the largest producers of agricultural products in the world.

Regardless of the fact that India is a worldwide leader of agricultural products, it has a huge need for modern post-harvest storage network, deficiency of which causes large losses both in quantitative and value terms. Almost $8 to $15 billion losses have been estimated per annum from the agricultural sector alone.

Maintenance of quality, value enhancement
Cold chains and ambient temperature warehouses play a vital role in the food industry for the maintenance of the quality of produce and in value enhancement. It is also essential for extending the shelf life, period marketing, avoiding over capacity and reducing transport bottleneck during peak period of production. The development of cold chain industry has an important role to play in reducing the wastage of the perishable commodities and thus providing remunerative prices to the growers. It can as a backbone to all interested players – the farmer, the trader and the agriculture industry and helps to maintain the freshness of the products by providing temperature-controlled environment.

With growth in domestic manufacturing and retail segments, the demand for efficient warehouse management service has improved and this is only the start. Over the last 10 years, some  investment has moved in the warehousing and cold storage space, however, much more is needed.  Current spending on organised warehousing in India constitutes nine per cent of total logistics spending, as against 25 per cent in the US.

Government role
A very large role is played by the government, being the largest user and also owner of capacity, through the CWC (Central Warehousing Corporation) and SWC (State Warehousing Corporations) and it is for them to make the sector attractive, the warehouse rental rates need to be attractive. With a large gap, the government should rather pay Rs 30 per quintal per year extra to ensure proper storage, instead of ruining a bag worth Rs 1,500 and incurring losses.

India stands at 54th position in the world ranking, according to a survey conducted by World Bank 2014. It is behind countries like Japan, the United States, Germany and China. Almost 6-10 per cent of logistics costs contribute to the retail prices in India as compared to the global average of 4-5 per cent. This proves that there is a lot of room for reducing prices by 3-5 per cent by improving the efficiency of the supply chain and logistics processes. Developing an integrated supply chain, including cold chain, can save up to 300 billion kg or Rs annually, and at the same time, reducing the wastage of perishable horticulture produce. It is worth noting that the price of vegetables, fruit, milk and eggs, meat and fish have been rising faster in spite of the fact that India is the second highest producer of fruit and vegetables. This is caused by inadequate supply chain and logistics infrastructure and management.

In the last three years, India’s integrated cold chain industry has grown at a compound annual growth rate (CAGR) of 20 per cent for the last three years and it is a combination of surface storage and refrigerated transport. The cold chain market in India is anticipated to reach 624 billion by 2017.

Cold chain infrastructure includes cold storage infrastructure, transport infrastructure and point of production infrastructure. There are approximately 6,300 cold storages in India designed originally for single commodity storage – potatoes, though we have seen them being used for carrots, tamarind, pulses, chickpea, and so on. Refrigerated transport or cold chain distribution is still in its nascent stage in India and is way behind if compared to world standards for cargo movement. Presently reefer transport business in India is estimated to be worth $10-12 billion which includes demand for both exports and domestic.

Various industries covered under cold chain are agriculture, horticulture and floriculture, dairy, confectionery, pharmaceuticals, chemicals, and poultry. India has around 6,300 cold storage units, but can only store less than 11 per cent of the country's total produce. While 105 MT of perishable produce is transported across India annually, only 4 MT is transported via reefers.

Storage, supply chain
India is bestowed with a varied agro-climatic condition which is highly favourable for growing a large number of horticulture crops such as vegetables, fruits, aromatic plants, and herbs and spices. It is among the foremost countries in horticulture production, just behind China. However, despite the rise, India is way behind its nearest rival in per-hectare yield and processing of horticulture products. It stores only two per cent of its horticulture products in temperature-controlled conditions, while China stores 15 per cent and Europe and North America store 85 per cent of their products in such conditions. Adequate cold storage facilities are available for just about 10 per cent of the country’s horticulture production. Of the total annual production, 30-40 per cent is wasted before consumption. During the peak production period, the gap between the demand and supply of cold storage capacity is approximately 25 million tonne.

Another important factor that touches the agriculture industry of India is the supply chain. Supply chains are principally concerned with the flow of products and information between supply chain member organisations — procurement of materials, transformation of materials into finished products, and distribution of those products to end customers. Today’s information-driven, integrated supply chains are enabling organisations to reduce inventory and costs, add product value, extend resources, accelerate time to market, and retain customers.

The supply chains of different agricultural commodities in India are fraught with challenges stemming from inherent problems of the agricultural sector. The agri-supply chain system of the country is setback by different niggling issues like dominance of small marginal farmers, fragmented supply chain, absence of scale economies, low level of processing, inadequacy of marketing infrastructure, APMC (Agricultural Produce Marketing Committee) laws – which some states have tweaked a little but on reading the fine print, it is clear that the policy has no heart and is not serious. For a company intending to set up multiple locations – there are no set of guidelines, incentives and at times not recognised as an industry, as such supply chain infrastructure, is service-oriented in nature and not an industrial, manufacturing or processing unit.   

Farmgate integration and efficiency cannot happen without meaningful development of infrastructure - close to producers. The future market is assisting in price discovery and hedging for traders therefore the farmers need accredited warehouses, where they can store produce and have access to finance against the commodity. Indian farmer is still very emotional about his produce and needs to see his bags and touch them, so paper trading of commodities is still far off. Access to warehouses accredited to exchanges where he can store and if he feels like – sell through the futures/spot market, the duplication of labour and transport will definitely be avoided and also losses in transport that happen every time.

With accredited warehouses for delivery limited to 50km radius of few major towns, a high percentage of the farming community is unable to participate – the idea is inclusiveness. It is not an easy task for the exchanges to cover a country the size of India, they have been doing a good job and they need to build more alliances with organised and credible players. With a country the size of India – more delivery centres need to be identified, and it must be ensured that there are multiple locations within 5km radius of major delivery centres. Warehouse rental rates offered by the government are not commercially attractive compared to that being charged by future accredited warehouses. Besides this, the APMC rules are so strict that one even after having the will to invest – is not offered any incentives from the government. He remains still exposed and at the mercy of mandi inspectors.

Meanwhile, the lack of financial availability is another factor that is hampering the growth of the farmers because not all warehouses are approved by WRDA (Warehousing Development and Regulatory Authority), and without the WRDA regulation, warehouse owners face difficulty in funding farmers, if the warehouses have onward lending capacity, they are used by the warehouse owners or associate traders.

Currently, the Indian farmer realises only 1/3rd of the total price paid by the final consumer. A complex chain of middlemen and lack of storage facilities and free-market dynamics currently result in extremely low farm produce income for the farmers. Gramco Infratech’s efforts will increase the farm yield and the overall income of farmers. It is investing in modern back-end infrastructure complete with cleaning, grading, packing and warehousing facilities close to growing areas, that will help lower logistic costs, reduce wastage of farm produce, improve the livelihood of farmers, lower prices of products and ease supply-side inflation.