India’s cold chain industry is still evolving, and is operating way below its capacity. However, increasing urbanisation and the growth of the organised retail, food servicing and food processing sectors are boosting growth in the cold chain industry. The trend is shifting towards establishing multipurpose cold storage facilities and providing end-to-end services to control parameters throughout the value chain. The focus on cold chain facilities has been increasing in healthcare, which is expected to double the growth metrics for the segment in the next two to three years.
Size and growth
According to the latest available data, as of December 31, 2020, there are 8,186 cold storages across the country with a cumulative capacity of 37.42 million tonnes (mt). Between 2014 and 2020, the number of cold storages in India grew at a CAGR of 2.6 per cent to reach 8,064 units in 2019-20, while the cold storage capacity grew at 2.4 per cent to reach 36.95 mt in 2019-20. While 973 cold storage units were added during the six-year period 2014-20, capacity addition stood at about 4.92 mt, implying an annual average addition of only 0.7 mt. This may be attributed to the addition of several smaller capacity units, primarily in the unorganised sector. State-wise, Uttar Pradesh, West Bengal and Gujarat account for a 65 per cent share in total cold storage capacity. Uttar Pradesh, Gujarat and Punjab account for a 50 per cent share in the total number of cold storages. Moreover, 70-75 per cent of the infrastructure is dedicated to the storage of potatoes (mostly in Uttar Pradesh, West Bengal, Gujarat and Punjab).
Key demand sources Pharmaceuticals
Following the Covid-19 outbreak, the cold storage segment is expected to witness robust demand. Major segments of the pharma industry, such as vaccines, require cold storage infrastructure for transportation and handling. Owing to this, several dedicated cold storage facilities have been developed across the country, specifically at airports. The urgency triggered by the need for storage and distribution of Covid-19 vaccines is a great opportunity for the country to build the cold storages it has needed for a long time. The demand for cold storage is also being fuelled by the wider omni-channel distribution of food and groceries (F&G) across Tier I and Tier II cities in the country. The emergence of the “cloud kitchen” concept is also likely to boost demand for cold storage facilities. The projected growth of F&G, online F&G, dairy, food processing and pharma industries over the next few years is likely to drive demand for cold storage and reduce product wastage.
Cold chain players are recalibrating their services and reach, while keeping in mind the changing parameters of the healthcare sector. This involves strengthening the network of healthcare logistics points across the country, and refurbishing their offerings to suit the necessary ultra-low temperature and delicate nature of vaccine distribution. Players are gearing up for an unbroken cold chain in terms of infrastructure upgrades such as fixed cold warehousing, portable cold storages and reefer trucks, as required for vaccine distribution. The future plans of cold chain logistics players are intertwined deeply with the growth that will come as a result of handling and distribution of Made in India vaccines, both nationally and internationally.
Processed foods
The food processing industry is one of the largest industries in India and is ranked fifth in terms of production, consumption, export and expected growth. In recent times, there has been a shift towards the consumption of processed tertiary foods in India – yogurts,
ready-to-eat items, processed meat, seafood and poultry, and confectionery – all of which require cold chain facilities. Also, there has been a rising export demand for processed and frozen food over the past few years.
Organised retail
The organised retail sector in India has been growing at the rate of 20-25 per cent per annum. In the food segment, companies such as Reliance Fresh and Nature’s Basket (acquired by Spencer’s Retail) have continued to increase their foothold in the market. With this, the demand for cold chain logistics infrastructure is expected to increase further.
Quick service restaurants
With increasing urbanisation and higher disposable incomes, there has been a growth spurt in the quick service restaurant (QSR) industry. The industry relies heavily on cold chain logistics to meet its raw material requirements, and hence, functions as a major growth driver for the cold chain industry. Several QSR players have even adopted backward integration and developed their own cold chain logistics. Thus, the increased demand for refrigerated offerings has impacted the cold chain industry, placing increased demands upon it.
Issues and challenges
The existing cold storage facilities are very unevenly distributed across the country. Over 50 per cent of the existing infrastructure is based in the northern region of the country. Unexpectedly, the southern states, despite being economically strong in terms of manufacturing levels, consumer demand, propensity to consume, etc., lack such infrastructure, accounting for only about 8 per cent of the existing capacity. Moreover, commodity-wise, most of the storage facilities in India (almost three-quarters) are used only for warehousing of potatoes. Multi-commodity facilities are scarce, as they require varying temperature controls. The operating cost of cold storage in India is estimated at $60 per cubic metre, compared to $30 in the West. The development of cold storage infrastructure requires vast areas of land. This impedes the development of cold chain projects, owing to the time and monetary costs needed for land acquisition. At the same time, high land costs contribute significantly to the high life cycle costs of projects. Energy costs account for 40-60 per cent of the total operating cost of cold storage facilities. Further, the shortage of power during peak
hours necessitates the installation of backup facilities, pushing up operating costs. The range of indigenously developed refrigeration and temperature control systems is limited. Currently, the majority of the modern equipment and technology is imported from foreign countries and suppliers.
The way forward
The upcoming National Logistics Policy will enhance the efficiency of the logistics value chain and eliminate inefficiencies specific to cold chains. The Logistics Wing will work with various ministries and state governments to identify key policy interventions and infrastructure enhancements to promote the penetration of cold chain facilities in strategic locations. The development of cold storage infrastructure and the adoption of digital technologies would also reduce the costs associated with warehousing operations. Based on the historical growth rate of 2.4 per cent during 2014-20, the cold storage market in India is expected to reach a capacity of about 42 mt by 2025-26. Further, as per industry and India Infrastructure Research estimates, the annual investment requirement for cold storage infrastructure between 2020-21 and 2025-26 will range from Rs 8 billion to Rs 10 billion. The total investment requirement during the period is expected to be at least Rs 55 billion.
Meanwhile, under the Scheme for Integrated Cold Chain and Value Addition Infrastructure, 324 cold chain projects have been approved as of February 2021. Of these, 210 projects have been completed, and 114 are currently ongoing. These projects entail an investment of about Rs 88.28 billion. Further, growth in the cold chain and container segments is also expected to give a boost to the logistics industry. With more players joining the e-commerce bandwagon, the sector is set to witness a new phase of growth. Cold chain logistics are prepared to undergo a massive change that would add value to the current supply chain and reduce wastage, thereby improving the overall consumption and export across India.