The cold storage sector in our country is still in its nascent stage with many hindrances, since India is a geographically big and climatically diversified country. The cold storages existing today are largely single product cold storages. Most of them are localized and lack expertise in professional management. However, with the globalization of the economy, slowly the industry is shifting from multi-level (manual) cold storages to single level cold storages (automated), from single point (one location) cold storage to multi-point (multi location) cold storage, from single product cold storage to multi-product cold storage, and from just storage to supply chain management.
However, transformation in this sector has just begun and has miles to go before it matches international standards. The industry is still knitting its way to meet the concept of farm to fork. New cold storage setups are the need of the hour as more than 30 percent of vegetables and fruits are wasted due to lack of cold chain facilities across the country. A lot of facilities like fruit ripening chambers, pre-cooling units, controlled atmospheric cold storages, cold storages, pack houses, refrigerated vans are coming up and the government is also going hand in glove with entrepreneurs to grow this robust and important industry of the Indian economy.
Cold storage project has been classified into Infrastructure Category in the recent Union Budget this year. Being a capital intensive project, it requires heavy investment in fixed assets like plant and machinery, building, insulation and panels. Depending on the size of the project and design of the infrastructure the Capex is derived. Typically, a traditional cold storage of multi-tier walk in with a capacity of 6,000 tons would cost Rs.5 crore, excluding land.
The Capex includes building which includes civil structure, EPS and PUF panels, refrigeration system, conveyor system, generators and electrical system. If it’s a new-age single floor rack-supported cold storage facility, then the Capex is little higher. For the same 6,000 ton cold storage it would cost Rs.7 crore, which includes civil structures, EPS and PUF panels, refrigeration system, generators, electrical, MS racks, fork lifts and pallet trucks and cranes. Typically, a pre-cooling unit with an 8 ton/per shift, pre-cooling capacity and 80 ton cold storage and grading and sorting hall would cost Rs.2 crore. For a small cold storage company, the best place to source funding is from a bank. VCs and PE come in to the foray if the size of the cold storage is big, to begin with at Rs.25 crore.
Human resources required
You will need individual teams for technical, administration and operations. Technical team would run the cold storage plant and maintain the desired temperature levels and ensure that the product is preserved safe. Administration staff will take care of invoicing, inventory tracking, banking and accounting. Plant operations team will physically handle stock movement and inventory management.
Mostly, cold storage equipment is run on ammonia or Freon Gas in India. Refrigeration system includes compressors, air handling units, humidity controllers. Typically, you will require at least one acre of land to set up a cold storage facility and strategic location is important in setting up a cold storage. It is advisable to have a facility near an agricultural/market yard or orchards for best logistical advantage.
To set up a cold storage in India, broadly, you will require various government permissions from Pollution Control Board (although cold storage unit is designed for a pollute-free environment), Factories Department, local bodies like Panchayat or municipality, Fire Department and common taxation requirements like PAN, TIN, DIN and VAT.
There is stiff competition in this segment with many standalone cold storages in India but very few cold storage chains. The government has addressed the need of this sector and is supporting the industry with capital incentives. There has been a decent growth of cold storage industry in India and at the moment supply demand gap is maintained. As a first generation entrepreneur, to beat competition, you will need to be innovative about your services like automation in handling, inventory tracking and online tracking of temperature. Such value-added services would help you counter competition. Also, there are growing customer needs in administration, dedicating chambers, online inventory, faster operations, 24/7 operations, hygiene, complete automation in handling stocks, maintaining the desired temperature and humidity accurately. You could look at building your own brand office with a bouquet of value-added services as mentioned. Make sure you analyze and research type of products in your region.
Publicity and etiquette
For the first couple of years, word-of-mouth would be the best publicity for a new company. MNCs in India today demand world-class infrastructure with complete automation in handling the products, online temperature and inventory management system. You will need to take lot of precautionary measures while handling various clients under one roof, like physically demarking the space allotted to each company. This business etiquette is important to keep trade secrets of one client from another.
While designing a cold storage facility, it is essential to follow the fire and safety policies by installing fire alarm systems and fire extinguishers, especially if you have a multi-tier cold storage.
It is essential for your firm to become a part of Cold Storage Association in your state. The presence of these associations is felt especially during representations to the government or CII. An association’s voice is better heard in a community than an individual voice.
Gubba Kiran is Director of Gubba Cold Storage, based in Hyderabad, pioneers in the field of cold storage.
©Entrepreneur June 2011