The Cold Chain Industry is Poised for a Steady Growth in India



The Indian cold chain industry is poised for a steady growth backed by changing lifestyle patterns, rise in consumption of processed food, growth in e-commerce retail, & India's growing agri-export business.

The Indian cold chain industry is poised for a steady growth backed by changing lifestyle patterns, rise in consumption of processed food, growth in e-commerce retail, & India's growing agri-export business. 

Currently, there are around 6,300 cold storage warehouses in India with a majority concentrated in places such as West Bengal & Bihar. These storages are primarily used for commodity storage (potatoes mainly). Recent times have seen the development of more cold storage units in Gujarat, Tamil Nadu, & Maharashtra, primarily used for dairy, fruits, & animal proteins. 

India's current capacity is pegged at around 31 Million Metric Tonnes (31 MMT). However, the total market demand is estimated at around 60 MMT, which implies that there is a significant gap in the market. 

The cold storage industry in India is also highly unorganized & heterogeneous. The majority of the cold storages work as a standalone unit & are located in rural areas with limited facilities. They are primarily used for the collection of farm produce. However, simultaneously new & organized players are also entering the market. There around 30+ organized players in the market & conditions are conducive for many such players to come and thrive. These new entrants are not just limited to cold storages but are actively involved across the value chain, thereby creating a cold chain infrastructure. 

Due to the entry of more organized players, the industry is seeing advanced & well equipped cold warehousing systems with facilities such as deep freezers, precooling, ripening chambers, packaging facilities & much more. Few cold storages also have fleets of refrigerator trucks.

As the industry is gradually organizing, it is also drawing the attention of international PE. In recent years, around USD 150 million has been poured into the sector. 

Many domestic food retail & e-commerce ventures are developing their storage facilities to backward integrate with their supply lines. Big Basket, an online grocery start-up that has recently raised USD 60 million, is developing its cold storage chains. Likewise, food retail houses such as Haldiram & Amul are also developing their cold storage chains. 

India Cold Chain Industry: Head Winds 

  • There is a visible existing gap in the market. Unprecedented events such as COVID-19 further reinforce the need to invest in an extensive & robust cold-chain system. 
  • India's processed food industry is growing at an unprecedented pace. At present, it comprises of around 30% of total food consumption. 
  • The Fractured & unorganized nature of the Indian cold warehousing industry will continue to necessitate the need for larger players to grow. 
  • Govt. has pledged100% FDI in the cold chain sector in India under the automatic route without any prior approval. 
  • India's growing retail industry will also dovetail demand for modern cold storage facilities. Govt. has also allowed 100% FDI in Multi-Brand Food Retail (MBRT), which will result in the growth of organized retail, thereby feeding demand for cold storage chain. 
  • India's rapidly emerging as one of the biggest food export destinations in the world in the fruits, vegetables, dairy, & meat. 

Headwinds in the Indian Cold Storage Industry 

  • Hitherto, the industry is highly unorganized & not very effectively managed. 32% of the existing cold storages have a capacity of less than 1000 MT
  • Electricity accounts for around 25-30% of the cost of operations. Frequent power cuts are rampant in some parts of India. This might affect the cold-chain operations. 
  • There are many products such as coffee beans, tea leaves, spices & groundnut, etc. that require a constant temperature for a long duration. Frequent power cuts can be detrimental. 
  • There is a rising demand for cold storage in tier 2 & 3 cities as well. However, food suppliers find it difficult to find & book suitable cold warehouses. Recent times have seen a few apps that can help in finding & booking cold storage units. However, tech-enabled search & booking is relatively a nascent industry in the cold-chain sector. 

A Lucrative Business

Investing & developing in cold-chain is a very lucrative business in India, with attractive ROIs. Although returns will be subject to a host of factors such as the price of land, products to be stored, total inventory capacity, loading frequency, & much more. 

The cold chain is an important node in a supply chain. However, due to poor cold warehouse infrastructure, it is believed around 40% of the horticulture produces (fruits & vegetables) are lost. Hence with a long-term objective of boosting export, harmonizing discrepancies in supply chains, & cutting down on food wastages, the Indian government supports & incentivizes the development of cold warehouses & chains. The Government of India (GOI)  offers financial subsidies, credit-linked aids (up to 50%), fiscal incentives (income tax cuts), & subsidized custom duties on imports (~ 5%). 

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