And the story of cold storage in India

I have a confession to make. I am addicted to food. What, that doesn't surprise you?

Oh yes, I forgot my prosperous potbelly is a give away! So anyway, here's another secret. Past few days have been very tough for me and my better half. Ah, you must be wondering what has come in between the unflinching love of Panditji and Panditainji. Hold your heart.

It is the mighty onion. Yes. Onion. At sky-high prices I've dished out as much as Rs 80 a kilo. Onions have become a distant dream in my household, and most others, across India. From Punjab's rajma, Tamil Nadu's uttapam to Sikkim's momo's, onion, after all, is the quintessential ingredient of food for hundreds of millions of Indians.

So, have you been wondering what all the brouhaha over this bulbous vegetable is? What is the reason for this year's sudden onion scarcity? Is it only because the onion crop in states like Maharashtra and Rajasthan was ruined due to late monsoon rains?

Onion facts

India consumes 40 lakh tonnes of onions a year

India is the second largest onion producer in the world after china

Almost 30 per cent of the country's crop is produced in maharashtra

India is the largest producer of fruits and second largest producer of vegetables in the world.

Why, still, are onions being imported from Pakistan?
As Dr M S Swaminathan, one of the most important Indians of the 20th century according to Time magazine and the man responsible for driving India's green revolution points out,

Why is India witnessing unprecedented food inflation?
Well, let me tell you the truth, folks. The single most important problem facing the Indian agricultural industry: Highly inefficient supply chain. Let me quote Dr Swaminathan here.

Let me explain the current state to you. I read all this in a recent paper published by a leading trade association.

INDIA IS:

One of the largest fruit and vegetable producers in the world (134.5 million tonnes). But cold storage facilities are available only for 10 per cent of the produce.

The second highest producer of milk, with cold storage capacity of only 70,000 tonnes.

The fifth largest producer of eggs. Investments in cold chain required to store 20 per cent of surplus of meat and poultry products during 10th plan requires Rs 500 crore (US$ 100M)

The sixth largest producer of fish with harvesting volumes of 5.2 million tonnes.

HOW DOES THE INDIAN SUPPLY CHAIN WORK?
Let me explain this by giving you a peek into the life of Gopal, my farmer friend.

A well organised cold chain reduces spoilage, retains the quality of the harvested products and guarantees a cost efficient delivery to the consumer, giving adequate attention for customer service. The main feature of the chain is that if any of the links is missing or is weak, the whole system fails.

An efficient system of cold storages and warehouses is crucial as it: ensures scientific storage of produce,

protecting it against odd weather, rodents, insects and pests

 preventing quality and quantity losses.

It also regulates price levels.

How? Well, it's simple. Cold storages can help in regulating the supply of goods in the markets. When supplies are abundant, more goods can be released from the buffer and when supplies are scarce, more produce can be stored.

The cat and mouse game between the seller and the consumer
Did you know that the produce changes hands and vehicles multiple times before reaching you and i, the consumer, with a price increase of nearly 2000 percent? unbelievable? TRUE. Here's what I dug out for you. Lobsters are hand picked on the Orissa-Bengal sea coast and sold for Rs 5 a kilo to the money lender. The same lobsters reach the consumer in New Delhi for Rs 1,600 a kilo. Indian farmers, according to the Department of Industrial Policy & Promotion (DIPP), receive not more than one- third of the total price paid by the final consumer.

Talking figures: What is the government doing and why isn't cold storage and warehouse business taking off?
According to the National Portal of India, 3 public sector agencies are involved in building large-scale storage and warehousing capacities in the country. These are the Food Corporation of India (FCI), Central Warehousing Corporation (CWC) and 17 State Warehousing Corporations (SWCs).

While the FCI uses its warehouses mainly for storing food grains, the storage capacities with CWC and SWCs are used for the storage of food grains as well as other items. Apart from this, there are private players in the industry too.

Against a production of 180 million tonnes a year of fruits, vegetables and perishables, India has a capacity of storing only 23.6mt in 5,386 cold storages across the country, of which, 80 per cent is used only for potatoes, according to the latest DIPP paper on foreign direct investment (FDI) in retail.

So, why aren't cold storages and warehouses taking off, despite positive signals and subsidies? is it because the organised retail industry in india is at a very nascent stage? according to experts, for cold chain to attract substantial fdi, it will take time and some promised returns before we see substantial money flowing into it.

Yes, the government has made LIBERAL POLICIES, launched INCENTIVES. Foreign equity participation of 51 per cent is permitted for cold chain projects and there is NO RESTRICTION ON IMPORT OF COLD STORAGE EQUIPMENT OR ESTABLISHING cold storages in India. However, the FDI in cold chain infrastructure in India has been nil. To handle the expected higher agricultural production during the Tenth Plan Period,the Inter Ministerial Task force on Agricultural Marketing Reforms constituted by Ministry of Agriculture, Government of India has recommended the creation of additional cold chain facilities at an investment cost of RS 2500 CRORE, of which RS 625 CRORE ARE TO BE PROVIDED AS SUBSIDY and the rest has to come as private investment. They have also suggested modernisation of existing facilities with an investment cost of RS 2100 CRORE, of which RS 525 CRORE ARE TO BE SUBSIDY and the balance to come as private investment. State governments also have initiatives in the food processing and cold chain sectors. For example, the Gujarat government has given top priority to agro processing and horticulture, in view of the high export potential for fruits like mango, banana and chikoo.

WAY AHEAD
Clearly, a complete overhaul of the current system is needed. India's trade experts suggest the following steps.

1. The Government should react fast on lowering the existing tariffs and allow import of these commodities.
2. State Governments should do its utmost to prevent hoarding.
3. The Government should invite and incentivise private sector (both domestic and foreign) cooperatives and NGOs to come up with business models that directly link the growers with processors and retailers.
4. All fruits, vegetables and other perishables including fisheries should be purchased from the growers. Processors and organised retailers should be encouraged to procure directly from the farmer groups. Incentives should be given for building infrastructure in rural areas for processing the fresh produce, cleaning it, grading, packaging, and storing in cold storages before bringing it to the retail market. This will create not only employment in rural areas but also build the much- needed infrastructure.
5. The Centre should also encourage the States to help build this infrastructure, especially cold storages, to save on wastages which will boost supply side and help in keeping prices under control.
6. The Government should move towards a unified national market and allow free movement of fresh produce across the country without any taxes whatsoever.
7. Most importantly, it is time to usher in market reforms that will bring farmers in direct contact with consumers. The model of creating a marketing platform at the village level needs to be promoted where the buyers will come to the producer groups, rather than farmers going outside to sell their produce.
8. The entire marketing system needs to be remodelled (on both domestic and foreign fronts) in order to shore up the supply chain and ensure good prices to farmers as well as consumers.
9. Above all, strong and urgent focus is needed to raise farm productivity. Farmers should be supplied with all that is required to grow more, using sustainable inputs. Scarcity cannot be dealt with by short cut methods.
10. A special agreement should be signed between India and the neighbouring countries, for import and export of perishables. This will be a confidence building measure and will allow each to pitch in during critical times, in a manner that is mutually beneficial.

I remember a brilliant observation made by Dr M S Swaminathan during the peak of the nuclear debate in India. He quipped how India appeared to have the land and wherewithal to set up mega nuclear plants, but not enough land and infrastructure to set up cold storages.

Immediate way out = Focus on removing supply chain bottleneck