Reinventing cold chain industry in India: need of the hour. Interview with Mr Sanjay Aggarwal

Journal of Agribusiness in Developing and Emerging Economies

ISSN: 2044-0839

Article publication date: 28 October 2011

Citation

Narula, S.A. (2011), "Reinventing cold chain industry in India: need of the hour. Interview with Mr Sanjay Aggarwal", Journal of Agribusiness in Developing and Emerging Economies, Vol. 1 No. 2. https://doi.org/10.1108/jadee.2011.52401baa.001

Publisher

:

Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited


Reinventing cold chain industry in India: need of the hour. Interview with Mr Sanjay Aggarwal

Reinventing cold chain industry in India: need of the hour. Interview with Mr Sanjay Aggarwal

Article Type: Industry perspective interview From: Journal of Agribusiness in Developing and Emerging Economies, Volume 1, Issue 2.

India is getting ready for a second-green revolution through market-led extension. This one has the potential to dwarf the first one, while being more global in its consequences. Food Safety is now a global issue; and India with less than 1 percent of the global surface area, produces 13 percent of the world's fruits and vegetables! That too at dismally low yields (example: Apple 5.5 MT/Hectare versus 60 MT/Hectare in Europe/USA), and suffers staggering supply chain losses in feeding its far-flung massive population. Despite achieving food sufficiency years ago, factors such as poor market linkages, poor access to quality farm inputs, services and technology, awareness about Government resources, institutions, services and schemes compound Indian farmers’ losses and severely limit incomes. A majority of small and marginal farmers in India also lack access to current information about consumers, market demand and prices making them vulnerable to exploitation by intermediaries in the value chain.

In light of the emerging global agricultural trade and organized food retailing, efficient forward and backward linkages are needed in order to connect farmers in developing countries to globalized markets. Before India realizes this dream, many challenges have to be met. These include reducing post-harvest losses across the chain through building market infrastructural machinery such as cold chains, grading and standardization, machinery etc. building market information systems to assist farmers in decision-making and improving food safety and quality of farm produce available in the markets. The Cold chain industry in India is estimated to be presently worth over Rs.13,000 crores (US$2.6 Billion) per annum with opportunities existing in various segments such as dairy, fruits, vegetables, chocolates, ice-creams and frozen food. Despite the huge opportunities, the cold chain industry is at a nascent stage with inadequate capacities, lack of technologies and unorganized players. A lot is yet to happen in the industry with respect to technological development, govt. policies, and strategies before it can really transform the lives of small and marginal farmers in India.

(Sanjay Aggarwal)

Dr Sapna A. Narula, Assistant Professor, TERI University and member, editorial team, JADEE investigates the future prospects, challenges and strategies of the industry and also its role in development of agri/food supply chain in this conversation with Mr Sanjay Aggarwal, innovative entrepreneur and Chairman and Managing Director of Dev Bhumi Cold Chain Ltd., New Delhi, India.

Mr Sanjay Aggarwal is Chairman and Managing Director of Dev Bhumi Cold Chain Ltd, New Delhi, India. He has an experience of 35 years in agri supply chain and cold storage industry in India. As an innovative entrepreneur, he has played a key role in reinventing the cold chain industry in India by introducing state-of-the art technological interventions as well as breaking the rules of the game by following the direct procurement model. He also plays an important role in advising the Government of India in agribusiness related policy making as an industry representative in the Planning Commission's working group on food processing, and the sub-committee on infrastructure, and also on the Confederation of Indian Industries Task Force Committee on cold chain industry.

Sapna A. Narula: What are the major constraints in the supply chain of fruits and vegetables especially from hill areas? What role can a cold chain play in reducing the post harvest losses?

Sanjay Aggarwal: The Indian horticulture supply chains are fragmented because a majority of farmers are small and marginal with very limited landholdings being largely dominated by intermediaries (commission agents/arhtiyas) with little value addition across the chain. The limited landholdings result in a small amount of produce that poses transportation problems resulting in a greater reliance on intermediaries.

These intermediaries collect the produce from small farmers, aggregate across farmers to fill a truck load and bring it to Delhi and other central markets. In the process, they hardly add any value to the produce, while a large share of a farmer's realizable value is lost as commission, supply chain mishandling and losses. On its way to the market, a lack of proper infrastructural facilities results in greater wastage of produce. The intermediaries generally do not care about the losses the farmers have to incur and are not willing to spend on quality cold storage and other post harvest facilities. This results in immense loss in the quantity and quality of the produce, giving rise to the oft touted 40 percent value loss in the Indian Supply Chain for Fruits & Vegetables. Moreover, fruits and vegetable being perishable are greatly constrained by their supply chain in comparison to other commodities. In most cases, these supply chains lack storage facilities, post harvest machinery, marketing infrastructure such as grading, standardization and other machinery. In hilly areas, this problem is aggravated due to constraints of infrastructure, labour and other facilities. The farmers, while having access to market information about the prices available in the agricultural markets, have virtually no bargaining power because of their small size and the consequent forced-dependence upon intermediaries. I feel that the traditional intermediary system has in the natural order of things, given rise to the problems besetting the consumers & the farmers.

Keeping in view the global food security problems, reduction of post-harvest losses across the chain, especially in developing countries like India, is a critical task which can be achieved by understanding the above constraints and addressing squarely the problems for promotion of cold chain industry. Post-harvest technology includes automated approaches for sorting, packing, and forwarding perishable crops into intermediate storage facilities before transporting in temperature-controlled containers to their destinations, including processing factories. Logistics and traceability obviously play a vital role in the supply chain.

Sapna A. Narula: In your view, what is the potential of cold chain industry for Fruits & Vegetables in India?

Sanjay Aggarwal: As far as vegetables are concerned, these grow almost all over India and are consumed regionally, whereas the fruits grown in specific regions e.g. apples grown in the Himalayas, grapes in Maharashtra etc. have to be distributed to various regions all across India. Due to lack of proper post-harvest management, a large percentage of the fruits lose value. It is estimated that there is a value loss of up to 40 percent in the horticultural produce supply chain. As the horticultural produce has to be transported over significant distances and climactic regions, encountering different environments affects the quality of the produce and cold chain becomes essential in order to develop the horticulture supply chains.

Undoubtedly, the potential of the cold chain is immense as most of the fruit and vegetables are grown by small and marginal farmers who lack any storage facilities and access to other post harvest facilities. Due to the rise in the middle class, the demand for fresh and safe fruits and vegetables in the country is growing exponentially and hence the cold chain industry has a critical role to play. The size of the Indian cold chain industry is estimated to be US$ 2.6 Billion per annum, which looks like a drop in the bucket compared to what is needed and in-fact going to be (estimated to be worth US $ 12.5 Billion in 2015), as the Government and other players are gearing up to raise the capacities of cold chains. I feel that there is tremendous scope for cold chain in all fruit and vegetable growing areas of India, which if pursued sensibly and boldly may lead to a new dawn of food safety and sufficiency not only for India, but globally. Robust supply chains will bring in reduced post harvest losses, enhanced farmer incomes and more consumer well being; thereby enriching the country, the farmers and the consumers.

Sapna A. Narula: What are the different kinds of models operating in India? What are the advantages and disadvantages of these models in the cold chain industry? Which model are you following and why?

Sanjay Aggarwal: Two business models exist currently in India, both of which have some advantages as well as disadvantages. The 3PL (third party Logistics) Service Providers Model, which means that the cold storage and other post-harvest management services are provided by a third party service provider for a charge. Here, the role of the service provider is limited across the value chain only to provide services. This model does not work because the main customer, the intermediary/commission agent, has no reason to pay higher money for better technology since losses are borne by someone else, viz. the farmer. The farmer on the other hand, has very little bargaining power and is unable to dictate any practice. Other companies which are following this model are sustained by marginal requirements of dairy and pharmaceuticals, but not much from the mainstream fruits and vegetables. Our company uses the Integrated Cold Chain Model, also being followed by some other companies such as ADANI and CONCOR. This is a farm-to-retail model involved right from production to the retail end of the supply chain, i.e. purchasing produce at farm-gate and distributing produce after value addition to the retailers.

Our first Strategic Distribution Centre (SDC) at a cost of over Rs. 500 million, is located in a rural growing area, at Village Matiana in Himachal Pradesh and is connected to farmers as an aggregation point. It provides services such as grading, washing, packing, long term storage and processing. The farmers’ produce is purchased at the Farm gate thus freeing farmers from the losses of the supply chain.

Our Retail Distribution Centre (RDC) is located in Azadpur Subzi Mandi, which is the largest fruit and vegetable market in Asia. This RDC is linked to retail outlets. We mainly deal with apple, pear, kiwis, grapes, citrus fruits, banana and mango. The company turned over 10,000 tons in direct purchase this year and our target is 25,000 tons next year.

Our model is unique in that it has direct tie-ups with the farmers; the commission agents have been eliminated from this model. We pay them the same price that they used to get at the Mandi which means that they do not have to incur the losses of transportation and other logistics activities thereby boosting their revenue. They are also freed of any burden of post harvest management and other activities and consequently they get one and half times higher benefit than they were getting through traditional channel before. Also, the post harvest losses in the chain are reduced to a minimum through technology intervention.

Sapna A. Narula: What are your expansion plans for Dev Bhumi ?

Sanjay Aggarwal: Currently we are operating our SDC at Matiana in Himachal, where we have completed investments of Rs. 20 crores (USD 4.5 million) last year. This year, we are investing Rs. 37 crore (USD 8.2 million) through various technological interventions in the expansion of the plant. We also plan to invest in other parts of India in next few years e.g. in Ahmedabad (mango, banana), Mumbai (grapes, pomegranate and mango) and Chennai (mango). In Chennai, we are also planning a processing plant at an investment of Rs. 46 crores. In all these states, we plan RDCs in the metros along with supporting SDCs in the surrounding rural areas.

Sapna A. Narula: How did this model evolve with respect to Dev Bhumi ?

Sanjay Aggarwal: We are operating in the cold chain business for many years. In 2000, we completely renovated the traditional cold storage with the state of the art cold chain. With a huge investment, we brought in world class technologies, such as controlled atmosphere, etc. However, there were no takers for the new-technology storage as the commission agents were not willing to pay to reduce the losses in transportation of agricultural produce. That was when we decided to approach the farmers directly and Dev Bhumi Cold Chain was born. Incorporated in 2003, it is the largest presence in Azadpur, in turn the largest fruit and vegetable market in the world. The company has been doubling its turnover every year since inception. It took Dev Bhumi eight years to build its presence in this sector. Our sixty years of history gives us unparalleled access to farmers and the unorganized markets. Besides our company, ADANI and CONCOR are also operating with somewhat the same model but our company has its USPs.

Sapna A. Narula: What are the constraints faced by your company while operating a cold chain in India?

Sanjay Aggarwal: The major constraint in operating a cold chain in India is the lack of customers! Due to the commission agent system evolved in India and the extremely small holdings of the farmer, there are no takers. Lack of indigenous technologies and reaching the farmers at the field level, are other constraints. Therefore, Government help in the form of capital grants becomes absolutely necessary, as long as these grants result in direct benefits to the small farmers. As I mentioned earlier, purchase of produce at farm-gate results in substantial increase in farmers’ revenue and then if the government assisted technological intervention (in the shape of cold chain) can reduce waste and inefficiencies in the supply chain it can make the model viable and therefore sustainable. . Putting in place a source of constant benefit to the farmers every year, of about 50 percent of the government's initial invested grant amount – I don’t think there can be a better investment than that!

Years back we understood that though cold chain was something bound to ultimately enjoy a good future in India, initially we would have to make a lot of investment with no takers of the technology. We therefore set about creating a diversified income to sustain such a bold step. When we finally took the step of investing in our first SDC, I told my staff “now we can sleep peacefully, as there will be no competition to us; nobody will be as foolish as we”. It was, of course, a tongue in cheek comment (my fingers are crossed), and my staff was well used to such off-beat comments by then, for them to pay much attention to it.

However, we can now see the light at the end of the tunnel coming through to our bold gambit, (and no, I can assure you it is not an approaching train!). This promises to herald a new chapter of unprecedented growth in our fast growing company.

Sapna A. Narula: What role can the government play in development of cold chain in India? Can you throw some light on the policy changes that may be required to help in the development of the industry in India?

Sanjay Aggarwal: The Indian Government is giving adequate amount of subsidies to set up cold chain in the country. However, more encouragement of the industry is desirable. Grants to establish new storage facilities, reduction in peak import duties on equipment imported for storage facilities and taxes on them, are some of the incentives provided by the Government.

But I would urge the government to ensure these subsidies are passed on to the right users. The government must make sure that these subsidies are availed by only those companies who are buying the produce directly from the farmers so that the benefits of these subsidies reach the farmers directly and these initiatives empower farmers economically The government should apply to its policy decision-making the same touchstone advocated by Gandhiji: “Recall the face of the poorest and the most helpless person whom you have seen and ask yourself if the step you contemplate is going to be of any use to him. Will he or she be able to gain anything by it?” The Government should apply the same litmus test while making policies.

Sapna A. Narula: What are the strategies you need to follow for development of cold chains in India?

Sanjay Aggarwal: While private entrepreneurs who face such situations everyday are well aware of the challenges of maintaining a cold chain infrastructure, a misunderstanding occurs between the central and state governments in terms of allocation of resources. The cold chain should be regarded as an agricultural industry so that the operators can purchase agricultural land, rather than expensive industrial land. As a result of this, credit and electricity would be less expensive and more reasonable for the cold chain and it will be easy to operate a cold chain. I am sure, this will lead to increased investment in the industry.

Sapna A. Narula: How will the consumers benefit from the cold chain concept?

Sanjay Aggarwal: In this farm-to-fork concept of cold chain, the consumers and the farmers are the ones who will benefit the most. The farmers will benefit as they are going to have enhanced incomes as their produce is taken care of by the cold chain operators. The consumers will benefit as these cold chains will meet all the food safety standards. As we take care of all the food safety aspects through washing, reduction of chemical residues, the fruits are safer than the ones available through alternative channels. All other permitted post-harvest management practices are followed. Hence, the quality of the fruits and vegetables is maintained. If people are consuming healthier food, the health of the people is ensured which leads to building a healthier happier and more productive society. Our company intends to implement HACCP in our upcoming facilities and promote GAP standards to ensure better food safety practices. As the temperature throughout the cold chain is maintained, the quality of the fruits and vegetables is safeguarded till it reaches the consumer.

Sapna A. Narula: What role can the organized retailers play in building the cold chains in India?

Sanjay Aggarwal: Organized retailers can play an important role by investing in agri-supply chains i.e, by investing, bringing in new technologies, making a connection with the customers and farmers thus benefitting both consumers and producers. At the end, through this platform, I would urge all the stakeholders of the agri-supply chain to come forward for making efforts for the development of the cold chain industry in India through more investment, bringing new post-harvest technologies and providing better products and services to the farmers directly. This re-intermediation will end the exploitation of the farmers at the hands of commission agents.

Sapna A. Narula: What is your vision for cold chain industry in India in general and that of Dev Bhumi Cold Chain in particular?

Sanjay Aggarwal: The cold chain industry is still at a nascent stage in India with few players operating in the industry and has a long way to go. If you look at the actual requirements of the agricultural sector, you will find that the current capacities are inadequate to serve the needs of the sector. Improvement and development of the cold chain infrastructure is crucial for the Indian economy to prosper. I feel that at the present stage, India is emerging as a major power on the global scene and offers opportunities in each and every sector, and in none more so than the food supply chain. Everyone who is aligned along this progressive stream is certainly going to be benefitted with these opportunities. So, I see Dev Bhumi as a contributor to society in this stream working in agri-supply chains for farmers and serving the global needs. Through this platform I would urge other entrepreneurs to come forward and invest in this particular sector and I am sure with our kind of differentiated approach, they are bound to grow.