Is cold chain logistics an unexplored goldmine ?
14 Billion USD. This is value of annual wastage in India’s agricultural sector due to inadequate cold chain infrastructure. 18 Percent of fruits and vegetables produced in India get wasted due to insufficient cold chain network, which is a direct contributor to food shortages, and resulting high prices. While the ambient supply chain has evolved in last one decade, the cold chain network in India remain at a nascent stage; with only 10 % of network being served by the organized players.
Therefore, cold chain network is attracting lot of interest from both government as well as investors. Government has also announced subsidies and benefits for players who want to invest in developing cold chain network in India. With most of logistics players now focusing on this sector, the early movers are surely going to get the advantage.
Logistics companies as well as real estate firms are aggressively exploring the investment opportunities in the sector. Cold chain infrastructure being a capital-intensive business with longer gestation period sometimes act as a deterrent for the investors. For long term investors. looking for 5- 7 years horizon, it can be a goldmine yet to be explored:
a. Demand clearly outweighs the supply: The current infrastructure can store less than 15 % of total produce. The segment is already growing at 25 % CAGR but is still very far from fulfilling the demand. Apart from warehouses, there is also a need to boost ****** transportation which currently is highly inadequate. Currently less than 5 % of total perishable food items are transported in ****** trucks. More than 70 percent of ****** trucks are utilized solely for transportation of milk. The clearly visible mismatch between demand and supply makes a very good case for investment in cold chain infrastructure.
b. Government Policies: Cold chain storage is not only essential for Food &Beverage and Pharmaceutical industry but also acts as a backbone for Agricultural Industry. Food wastage and high fluctuation of commodity prices has been perpetual concern in India. Considering these problems, government has initiated multiple subsidy programs to encourage investors to invest into integrated cold chain projects. National Horticulture board (NHB) has capital Investment subsidy for construction/ expansion/ modernization of cold storage for Horticulture Products for setting up or modernization of cold storage of capacity above 5000MT and less than 10000 MT. Similarly, for cold storage below 5000 MT, national horticulture mission (NHM) has capital assistance scheme to finance up to 35 % of capital cost in general area and up to 50% of hilly or scheduled area.
Apart from these two schemes, there are other programs as well suiting different needs of investors looking to invest in cold chain sector.
c. Uneven development of infrastructure: The problem of limited supply is even more aggravated due to uneven distribution of infrastructure and lack of supporting facilities. More than 60 % of all cold stores are present in 4 states. All of remaining 25 states are underserved in terms of cold store capacity. Traditionally the cold stores have been developed closer to production sites and there is lack of cold chain infrastructure in the downstream of supply chain. Now there is emphasis of developing the transportation network as well as storage units near the consumption points to have a robust and integrated cold chain network covering farm to fork.
d. GST making more sense out of big ticket investments: GST is bound to cut the number of warehouses and bring in consolidation which will make it financially feasible to make more investments and create tech savvy cold stores with better handling and facilities. Fully integrated cold chain infrastructure requires associated facilities like pack zone and cold transport which will make economic sense with bigger and better warehouses.
The industry will re organize to give way for organized players which will further see flow of investments.
With government support and GST in place, cold chain logistics industry is poised to see very good growth in next 5 years. The investors have to do due diligence to identify the right locations to invest in. Looking at the demand supply scenario, it is a very lucrative business but at the same time investors have to be ready for gestation period of 5 – 7 years due to the capital-intensive nature of business.