The Cold Chain Challenge

The good news: retail FDI is likely to boost the country’s back-end infrastructure for food items
Retail
CHILL PILL Refrigeration facilities could fix many of India’s food-supply problems and even help contain prices

Now that India’s policy of letting FDI into its multi-brand retail sector has the Lok Sabha’s nod, attention will shift to issues of implementation. Will a lot less farm produce rot? This depends on the setting up of elaborate ‘cold chains’ across the country, something ‘back-end’ investors are expected now to be keen on. Such a chain would have onfield post-harvest pre-cooling units, cold storages and refrigerated vehicles to ensure farm-to-fork freshness.

While India is the world’s second largest producer of fruits and vegetables, it has been a champion at letting tonnes of it—40 per cent by one estimate—go waste for lack of refrigeration and modern handling facilities. If vegetable prices have been rising in double digits year-on-year relentlessly for much of the past year (and, in fact, at a rate of over 20 per cent for five of the past seven months), it is largely because supply has fallen badly short of demand. Big money invested in back-end infrastructure is expected to address that problem and shield the Centre from public ire over food inflation.

Horticultural, meat and poultry products, appetites for which are turning voracious too, also need cold chains. As of now, says Jaldeep Sodhi, a retail expert at Avalon Consulting, “Food and grocery [items] comprise the largest component, 66 per cent, of India’s $450 billion retail market and is least penetrated by organised retail.” This is the segment of sales that any mega-retailer would first target, with an efficient cold-chain working in tandem with computer-mapped logistics, the idea being to “attract higher footfalls to a store” which in turn could lead to “various high-margin impulse purchases by customers”.

But first, there are several cold chain challenges to be met. “Setting-up cold chain infrastructure is very expensive, with long payback periods for investment,” says Dr Kalyan Goswami of PHD Chamber of Commerce, “Only large retail players would have the financial wherewithal to support such investments.” Not only are escalating land prices a big worry, electricity accounts for 28 per cent of cold-chain operating expenses. Dr Goswami, however, is optimistic that private funding will result in an $8 billion cold chain industry by 2015.

Also, since running a cold chain takes a skillset quite apart from that of operating supermarkets, in the West it is usually separate companies that do it. India, however, appears to be relying on mega-retailers to turn in a bravura back-end performance as well. Is this realistic? According to Sodhi, they could adopt a two-stage strategy. At first, they could set up cold-chain subsidiaries to meet India’s back-end stipulation. Later, they could hive these off to focus on their core business.