Cold Chain Infrastructure Group 7, Section B

Cold Chain Infrastructure Group 7, Section B
The supply chain as a concept and a reality is moving far beyond the confines of
an individual organization. It has become a dynamic process that involves the
simultaneous acquisition and continuous reevaluation of partners, technologies,
and organizational structures. The building blocks of successful supply chains
are numerous and their interactions are complex, but businesses have no choice
but to embark on such an initiative: the supply chain has evolved from corporate
necessity to enhancing competitive advantage for savvy industry leaders.
- Andersen Consulting Report on Supply Chain Infrastructure

Executive Summary
35% to 40% of the total production of fresh fruits and vegetables is wasted in India. This
alone builds up a case sufficient to set up a cold supply chain infrastructure in the
country. The service being offered here is essentially a privately owned and operated cold
supply chain service provider. Maharashtra has been chosen as the area of operation. It
would involve procuring the produce from the place of growth, manufacture or
packaging, getting it to the central distribution hub, storing at the hub under controlled
conditions and then transporting the stuff to the customers premises as and when
required.
The customers are the large retail chain operators in Mumbai who require a regular
supply of fresh fruits, vegetables, meat and other perishable food products. Also, caterers,
hotel, restaurants would be the customers as their requirements are also the same.
The needs of the customers are:
Due to a dearth of cold storage facilities, the seasonal production deteriorated rapidly
and had to be sold within weeks.
A proper cold chain facility could also help meet the demand-supply gap of various
food products including fruits and vegetables.
Marketing objective
Sales target is to have an 70% capacity utilization in the first year, thereafter
increasing by 5% every year till it is 90% at the end of the fifth year.
Marketing objective would be to enter into long term contracts with the retailers and
hotel/restaurant owners to give that level of capacity utilization.
Positioning
Better customer service in the delivery of orders.
These benefits can be achieved while at the same time reducing costs in the supply
chain through
greater efficiency,
lower inventories
shorter lead times.
Communication
The communication strategy would involve meeting a lot of potential clients in the
beginning and carrying out direct marketing of the service
Advertisements in trade journals and similar publications
Holding seminars and workshops in conjunction with government agencies
Pricing
Pricing would be dynamically decided depending on the capacity utilization of the
whole chain
The price charged would be higher for the value-added service being provided

Special prices could be negotiated with the customers who enter into a long-term
contract
The competition charges a price equal to Rs. 1600 per pallet.
Operations plan: Logistics

A hub and spoke system would be utilized for the distribution of the perishable
commodities
There would be two hubs
Pune, covering the hinterland areas of Sholapur, Satara, Sangli and Ratnagiri
Nasik, covering Jalgaon, Nagpur, Amravati and Aurangabad
Both these hubs would feed into Mumbai
Hubs would have state of the art cold storages so that the perishable stuff does not
leave the cold chain
Financial plan
The capital expenditure for the project is estimated to be Rs. 23 crore. The project is to be
financed by a capital structure of 50:50 debt/equity. The revenue model is based on the
utilization of the storage services, transportation services, or a combination of both, plus
value added services would be charged more. The NPV of the project is coming out to be
Rs. 4.2 crore.
There are a few uncertainties regarding the project. They are: high demand risk,
electricity fluctuations and charges, fuel for the trucks, objections by the trucker’s union,
objections by local wet market operators and political interference.

TABLE OF CONTENTS
1. Introduction 5
2.Service Description 8
3. Industry Analysis 10
4. Customer Analysis 17
5. Marketing Plan 19
6. Operations Plan 21
7. Financial Plan 26
8. Uncertainties 29
9. Conclusions 30
10. Financial Projections 31

INTRODUCTION
This report is a detailed business plan for a privately owned cold chain infrastructure
service provider. The aim of the report is to clarify the business goals and the means to
achieve them. It will also serve as a standard against which the actual performance of the
business can be checked in future to determine if it is on the right course.
The rationale for setting up of this business venture is linked to the need for setting up a
cold storage infrastructure in India, which is as follows:
In order to service so many outlets throughout the country, India has a unique but
unsophisticated network of up to 6 or 7 intermediaries between the primary source
(producer and growers) and the end consumer
Because of the presence of so many layers and the lack of adequate storage facilities,
35 - 40% of all perishable food produce in India is spoilt before reaching the end
consumer
Food forms less than 14% of organised retail trade in India, while an average Indian
middle class consumer spends around 50% of his/her income on food and food
products. This mismatch is purely due to infrastructure constraints
Shortage of cold storage facilities and refrigerated transport equipment lead to
inefficiencies in handling perishable products which manifest themselves in the
wastage, which according to some estimates, is more than the total production of
fresh fruits and vegetables in Great Britain.
As most of the companies in the food-processing sector are in the Small-Scale Sector
(as part of Government policy) economies of scale is very difficult to attain in storage
and transportation. This builds the case for a service provider to whom these small
companies can outsource their storage and transportation functions.
However, there is a no commonly understood or accepted definition of a state-of-the-art

cold chain in India. There is no defined common goal. There is no evidence of an
industry association, or other organization, in which common understandings could be
formulated, or in which a common voice could be developed to propose changes in tax

laws that would assist the development of the industry. Moreover, the lack of
understanding of a state-of-the-art cold chain extends to the higher levels of state
government planning and policymaking causing plans to be developed that ignored the
basic economic principles of the business. There is, however a great deal of private
enterprise interest in building the cold chain, and some state government organizations
willing to consider public and private participation
The issues to be addressed include:

Whether newer refrigeration technologies can provide lower costs of cold storage
services;
How the scale of operation of cold storage facilities has an impact on capital
investment and operating costs;
Whether perishable foods distributed by cold chains are safe;
Whether the cold chain industry requires any safety regulation;
How to increase the demand for refrigerated products; and
How food imports impact cold-storage services.
Maharashtra has been chosen as the region where this proposed cold chain infrastructure
is to be set up. The reasons for choosing Maharashtra would be explained in greater
detail later in the report.
The cold chain infrastructure would basically consist of cold storages and refrigerated
trucks. Along with the above mentioned infrastructure, the service would be provided
using the following:
Hub and spoke network
Use of vehicle routing algorithms to optimise
Use of technology to improve service levels
Process orientation
Cross docking

The structure of this report is as follows - Chapter 2 describes the service in detail.
Chapter 3 assesses the needs of the customer and evaluates how our cold chain service
provider satisfies those needs better than competition while Chapter 4 looks at the
industry structure and competitors. Chapters 5,6,7 and 8 discuss the marketing,
operational, financial and staffing issues respectively. Chapter 9 critically evaluates the
assumptions on which the expected results depend and the sensitivity of the results to
those assumptions. Finally, Chapter 9 gives the conclusions of the report and an
implementation schedule.

SERVICE DESCRIPTION
The retail outlets, where we do our purchases of the food products, or for that matter the
restaurants where we eat, are just the tip of the iceberg. The products travel a long way
from all parts of India. To make it happen efficiently, a new system of food transport
needs to be developed - what is called as 'cold chain', in India. This system procures
ingredients from their places of growth and manufacture, spread across vast geographical
area and brings them to the centralized distribution hub. At this hub, the products are
stored in controlled conditions. From here, all retail supplies move on to the customer’s
premises on a daily basis. By transporting the products at a particular temperature, the
cold chain ensures freshness and adequate moisture content of the perishable food
products like fresh fruits, vegetables, meat, sea food etc. This temperature is maintained
inside the storage chamber of the specially made refrigerated trucks throughout the
journey. The drivers would be instructed specifically not to switch off the chilling system
even in case of traffic jams to save electricity.
The business would provide complete solution for operational logistics support. The
challenge would be in handling India's weak logistics infrastructure and the ability to
meet the strict standards set by the customers for safe and timely delivery of material to
each outlet as well as the physical movement of material and inventory control in a
country with unreliable roads and other basic infrastructure bottlenecks. To meet
customer’s high standards, the business would ensure that requirement for quality,
temperature and packaging are met. At the same time, unused capacity in the vehicles
would be used to transport goods from other vendors, which might not require
refrigeration, which would help the business deliver the lowest cost with the highest
quality.
Just-in-time delivery
The parameters of cost and quality matter only if the final product reaches the customer
each time, every time. While the quality is easily maintained at the source of the supply,
it becomes all the more important to retain the same quality once the products reach the
customer’s premises. All along, the focus would be on smooth feeding of the retail

outlets/restaurants with optimum quantity and yet keeping inventory for the customer
under control.
The business would not only provide outward movement of perishable food products
from the villages and the places of manufacture, but also would utilize the return journey
of the trucks to transport goods for daily consumption into these areas. This would result
in the capacity utilization of the trucks. But servicing widely dispersed, relatively small
population clusters would be a logistical complication of its own, let alone, with poor or
lack of adequate road infrastructure. However, the rural market is so significant that it
cannot be ignored and presents a lucrative opportunity to exploit the return journey of the
trucks. Rural retail establishments represent 68% of the total retail trade in the country
and are growing at a faster rate than the urban areas.
INDUSTRY ANALYSIS
The cold storage industry in India is over a hundred-years old. It has adopted gradual
change in technology. Cold storage units in the 1960s were built only for storage of
potatoes and potato seeds but as the commodity base increased, different types of cold
store facilities were built. At present there are 3252 cold stores in the country with an
installed total capacity of 8.7 Mn. tonnes and further 250 cold stores are under
implementation. On establishment of all the cold stores, the total capacity would increase
to 10 Mn. tonnes. But growing needs indicate that it is likely to fall short of the
requirement by 0.5 Mn. tonnes during the peak period.
Out of the total cold storage capacity in the country, nearly 48% (4.83 Mn. Tonnes) of the
share is with a single state i.e. Uttar Pradesh where the cold storages are mostly used for
potato and potato seed. It is followed by West Bengal with a cold storage capacity of 2.24
Mn. tonnes (Share 26%). The Western part of India has a cold storage capacity of 0.5
Mn. tonnes, out of which the State of Maharashtra has a capacity to store 0.35 Mn. tonnes
The rank wise commodities stored in the cold storage are potatoes, apples, spices, dairy
products, marine products, other fruits and vegetables. Nearly 80% of the capacity gets
utilized in the storage of potatoes and potato seed.
The major commodities transported by reefer trucks are:

Cut Flowers and grapes from production location to air port. Majority of floriculture
units owns such vehicles.
All Ice cream products.
Chocolates
Fish and Meat products for domestic and export purpose.
All frozen fruits and vegetable products.
Pharmaceutical Products.
Dry Fruits

Apart from the reefer trucks, reefer containers are used for exporting grapes, apple and
pomegranates. There are no Indian reefer container companies leasing out the containers.
MAERSK or American Presidential Lines lease-out most of the reefer containers from
abroad to Indian exporters. A few trials were recently conducted on shipment of mangoes
by adopting special containers with controlled atmosphere technology.
MAHARASHTRA SCENARIO
Maharashtra plays a major role in India's horticulture, as its production of fruits is 12%
and 10% of vegetables of the total produce of India. The export contribution from
Maharashtra for fresh vegetables and fruits to the India's basket is 30% and that of
processed food products nearly 50%. The floriculture export from Maharashtra is
estimated to be 65% of total exports from India. This spells out opportunities in
infrastructure facilities for exports as well as domestic market1.
Mumbai sea port and airport are principal export points for high value produce from
Northern and Western India to Middle East, North America and Europe. The Mumbai
metropolitan area is also a major consumer of high value products due to its higher
standard of living and large population from higher income group.
The export of fresh fruits and vegetables from the state has shown an increasing trend in
the past five years and has doubled in value and volume. The quantity of grapes exported
alone has increased from a negligible level to 15,500 tonnes (which is 75% of the total
Indian grape exports), in the past seven years and with an increase of 40% to 100% per
year over the previous year. Among other fruits being exported are strawberries,
pomegranates, mangoes and cashew nuts.
1
Source: www.nic.gov

The growth rate of flower exports i.e. roses, has shown an increase of 536% in the past
five years. The value of roses exported in 1994 was Rs. 59 Mn. while in 1995 it was Rs.
180 Mn. and in 1996 it crossed Rs. 400 Mn.
Pack Houses
The number of Cold Storages and Pack-houses completed and owned by Co-operatives is
28 while 7 more are under construction and will be ready by the end of the year. These
are located in the grape growing areas of Pune, Nasik, Sangli and Solapur. A unit has
been set up for pre-cooling, storage and packaging of oranges in Nagpur. The pre-cooling
capacity ranges from 4 tonnes to 10 tonnes per 6 hours cycle and the cold storage
capacity ranges from 20 to 50 tonnes. The total number of cold storages in the State is
367 in Private, Co-operatives and Public Undertakings. Based on an average of 3 tonnes
of pre-cooling and 30 tonnes of cold storage the capacity developed is 125 tonnes and
325,000 cu.ft. However, most of these facilities are used for two months while some are
used for 6 months.
In Maharashtra, the horticultural production is increasing rapidly with increase in the

productivity and area under fruit crops. Orchard growers organizations in the State are
very particular in production of quality produce with the application of hi-tech methods
relating to insecticides, hormones and fertilizers. To assist them better post harvest
technology and infrastructure needs to be developed.
Infrastructure at Production Point
Scope exists in Maharashtra for all those industries, which could invest in following areas
of agro infrastructure.
Roads, speedier transport facilities.
Storing and grading sheds.
Packing and grading infrastructure with controlled temperature.
Cold storage (medium capacity)

Store houses for storing packed material, such as insecticides, pesticides, fertilizers
etc.
Cold Storages
Nearly 80% of the cold storage capacity is owned by the private sector. The balance 20%
is owned by co-operative and public sector undertakings. The average cold storage
capacity utilization in the private sector is 70% and that of others is 50%.
Most of these are located near Mumbai, as it is major produce and products consuming
center. The capacity of these cold storage units range from 500 tonnes to 1000 tonnes.
The total capacity of these cold warehouses is approximately 50 Mn. Cu ft. However,
there is no cold chain as such in existence. In the early 1970s the cold storage was mainly
used to store potato seeds and a few frozen food products but later with the increase in
production of ice cream and export of fruit produce pre-cooling, the cold store gained
importance. Now there is substantial scope for a cold storage chain in Maharashtra.
Produce Flow
The agricultural produce flows from the production region to the markets. It flows not
only to destinations within the state but also to cities outside the state. A matrix for major
quantity of produce grown, its location and destination has been given below
Mango Grapes Tomato Pomegranate Bananas Orange Sapota

Location lime
Pune 1,2,3,4,5,7,8 1,2,3,5,6 1,2,3,8 1,2,6 1,2,3,4
Nasik 1,2,3,5,6,7,8 1,3,5,6 1,3 1,3
Ratnagiri 1,2,3,4,
5,6,7
Nagpur 1,2,3,4,5,6,7,8
Kolhapur 1,2,4 2

Jalgaon 1,2,3,4,5,6,8
Sangli 1,2,3,8 1,2,4,8 1,2
Solapur 1,2 1,2,3,4,5,6,8 1,2,3
1. Mumbai 2. Pune. 3. New Delhi. 4. Bangalore. 5. Vadodara. 6. Ahmedabad.

7.Madras. 8. Abroad. (source: www.nic.gov)
The major markets receive the produce and redistribute them to the nearby regions or sell
the produce to the retailers within the city. The rapidly perishable produce such as leafy
vegetables coming to the marketing centers rarely goes to long distance markets. The
production of produce and its marketing is highly de-centralized, hence except for a few
fruits like grapes, oranges, mangoes most of the vegetables and fruits are available round
the year.
Transport Infrastructure
The major centers for marketing the agriculture produce are the metro cities and township
with industrial development. The production centers for vegetables are located in a radial
distance of three hundred kilometers from the city or township. Even if this is true there
is some produce which has to travel a long distance i.e. bananas are transported over 800
Kms to New Delhi or 400 Kms. to Mumbai. The transportation mode adopted to transport
the produce, coming from the villages or taluka places to nearby places or distant cities,
vary and depend on availability and affordability.
The following is the usage pattern for transportation of agriculture produce from
production sources to market yards.
Number Mode Percentage

1 Trucks ordinary 21
2 Tractors 18
3 Tempo-trucks 8

4 Bullock-carts 49
5 Others 4
Total 100
Source: www.nic.gov
The produce going through the wholesale market varies from season to season, fruit to
fruit, vegetable to vegetable, and location to location.
The mode of transport adopted for transportation of produce over long distance may be as
follows:
Number Method of transport Percentage
1 Unrefrigerated mode, 83
traditional packing
2 Unrefrigerated mode, 10
cartons and boxes
3 Refrigerated trucks 4
4 Freezer trucks (frozen 1
products)
5 Railway 2
6 Air negligible
Source: www.nic.gov
Refrigerated Transport
Reefer transportation has been in existence for two decades but has now been considered
important with the increase in export of fruits and floriculture produce. Initially, reefer
transport system was used for transporting life saving drugs, ice-cream, frozen food and
meat products only. Presently only grapes and flowers are being transported from the
production location to the exit point at the seaport or the airport in reefer containers. The
flower exporters usually own refrigerated trucks and send flowers to the airports where
these are re-loaded on to 3-D containers.

The growth in horticulture exports will be on an average 7.5 % over the next five years.
In addition, Maharashtra's sale of produce to other regions of India is expected to grow at
6%. The growth of major metropolitan markets such as Mumbai and New Delhi is
expected to reach 8%. This growth will substantially raise demand for transport services
and infrastructure and hence the need for reefer trucks.
Up-Coming Infrastructure Projects
Several recent infrastructure developments have the potential to influence produce trade
drastically in the next decade. These include:
Completion of the Konkan Railway
Concession awarded for development of berths in Jawaharlal Nehru Port and
container freight station at New Mumbai.
Perishable cargo center being established at Sahar Airport, Mumbai on BOOT basis.
Obviously private investors would get better returns by investing in agri infrastructure at
this point of time.
Policy
The policy for setting up a cold chain infrastructure is investor friendly. The state
government has been empowered to issue licences for establishment of cold storages. No
permission is required from revenue department.
Finance from the National Horticulture Board is available at 5% rate of interest to a limit
of Rs. 10 Mn. loan. Besides these there are subsidies on plastic crates, refrigerated trucks
and other miscellaneous items. Agriculture and Processed Food Products Export
Development Authority (APEDA) a Central Government agency offers subsidy and
financial assistance for market promotion, packaging materials and airfreight concession
for specific commodities for export oriented units.

CUSTOMER ANALYSIS
Who are the customers?

The customers of the proposed service would be large retail chain operators in the cities
who need to source fresh fruits, vegetables, meat etc. from the villages. Also, large
caterers/hotel/restaurant operators would be the customers of the service, as these also
need to have access to fresh food products. In this regard, it would be the endeavour of
the business to enter into long term contract with the customers to provide efficient and
value added service to them without bothering about scouting for customers in the
absence of long term contracts.
The demand for the service would be a derived demand with the end consumers of the
food products being the ultimate customers of the service. The demand for the service is
ultimately derived from the demand for perishable food products by the consumers. For
this reason, the business must closely monitor the buying pattern of the ultimate
consumers. The demand would tend to be volatile, because a small percentage change in
the demand by the consumers may cause a large percentage change in the demand for the
service due to the bull whip effect.
Most buyers in the business would prefer to buy total solution from the sellers i.e. total
supply chain outsourcing. Therefore, this total solution would be used as a marketing
tool.
What are the customer’s needs?

Two effects, one cause. The urban Indian cannot access ready-to- eat matar paneer for the
same reason as the farmer in the rural India loses 30-40 per cent of his produce every
year - the country lacks a cold chain infrastructure.
Due to a dearth of cold storage facilities, the seasonal production deteriorated rapidly and
had to be sold within weeks. A proper cold chain facility could also help meet the
demand-supply situation of various food products including fruits and vegetables.

There is a consensus on the issue of requirement of cold chain facilities and services in
India to help reduce post-harvest losses of fresh fruits and vegetables. The need to change
people's mind-set on eating stored food products is another area, which needs the
attention of both the Government and industry. The Government and the industry need to
work together to assure consumers of a safe and high quality frozen food supply. It is also
important for customers to understand that chilled and frozen foods in most cases offer
better quality, nutrition and value for money than the regular foods available in the
market place.
The dearth of cold chain facilities in India narrows down to the most basic of all
economic fundamentals, demand and supply. However, there are adequate cold chain
facilities for products that can bear the price, ice-cream and meat movements do not
suffer from lack of cold chain storage, and neither does sea food.
People do not yet perceive the value of frozen foods. A common perception is that fresh
vegetables from the neighbourhood vegetable vendor are more ``fresh'' than packed
vegetables in supermarkets. By cooling/freezing horticultural products, their freshness is
captured and retained as the rotting process is arrested at low temperatures. Shelf lives
can be extended by a few days/weeks/months depending on the product.
Once a demand for frozen/chilled products is set into motion, there will be a pressure
from the market to supply the products. More cold chains and cold storages will be set up
throughout the country. With larger volumes, the cold network will also become
economically viable. Most important, it can take care of the over Rs. 9,000 crore worth
agricultural produce that goes waste every year, purely for want of post-harvest storage
facilities. In fact, immediately after harvest, the produce contains field heat (akin to body
heat in animals). The sooner the field heat is removed, the longer the product can be
stored.

MARKETING PLAN
Marketing objective
Sales target is to have an 80% capacity utilization in the first year, thereafter increasing
by 5% every year till it is 95% at the end of the fourth year. Marketing objective would
be to enter into long term contracts with the retailers and hotel/restaurant owners to give
that level of capacity utilization.
Positioning
Increasingly, businesses are examining their logistics requirements and discovering that a
competitive advantage can be gained through better customer service in the delivery of
orders. In addition, these benefits can be achieved while at the same time reducing costs
in the supply chain though greater efficiency, lower inventories and shorter lead times.
Furthermore, due to the cost a developing systems and the challenge of matching
performance to promises, customers are increasingly turning to outsourcing their logistics
requirements. The business would be positioned to take advantage of this growth by
offering advanced supply chain solutions to customers seeking an effective method of
improving their own customer service and reducing costs.
Communication
The success of the business is based on the fact that the business would enter into long-
term contracts with the customers to provide complete cold supply chain logistics support
system. Therefore, the communication strategy would involve meeting a lot of potential
clients in the beginning and carrying out direct marketing of the service. The top
executives would have to convince the potential customers of the benefits of the new
service being offered.
In terms of the effort required as far as communicating the benefits of the new service is
concerned, the initial effort would be quite a lot. Once a few long-term contracts are
established and a presence is built in the market such that the market perceives the
benefits being offered by the service, then the incremental effort required to secure new
clients would be minimal.
In addition to direct marketing to the potential clients, the business would be advertising
in trade journals and similar publications communicating the benefits of the service and
educating the customers. Apart from this, awareness would be spread by holding
seminars and workshops in conjunction with government agencies like Agriculture and
Processed Food Products Export Development Authority (APEDA), ministry for food
processing industry etc. and other similar non-government agencies where beneficiaries
of the proposed service would be invited and their doubts and apprehensions cleared.
Pricing
Pricing of the service would depend on the service being offered. If the material required
special handling in terms of temperature and humidity control etc. then the price charged
would be higher for the value-added service being provided. Otherwise, the price charged
would be at par with the competition. Special prices could be negotiated with the
customers who enter into a long-term contract.
Ultimately, the pricing would be dynamically decided depending on the capacity

utilization of the whole chain. Since the business is highly capital intensive, in the short
run, it might be worth while to charge a price equal to the variable cost of operation. In
the market, for a similar service, the competition charges a price equal to Rs. 1600 per
pallet per year. This would be the initial offer price of the service that would be offered.

OPERATIONS PLAN
While establishing a cold chain, the essential components of the cold chain are the cold
storage and refrigerated trucks. Using these two, and efficient utilization of information
technology, a world class cold chain infrastructure can be built up.
Logistics
A hub and spoke system would be utilized for the distribution of the perishable
commodities. In a hub and spoke system, the shipment to a region is delivered first to a
primary hub and then transported to its final destination, whether by rail, road or inland
waterways. Similarly, shipments from the region are collected in the primary hub, then
transported to final destination. There are usually two primary characteristics that are
used to select the location of the primary hubs
(a) Tend to be geographically central to the region (with a substantial hinterland - that is,
it attracts a considerable amount of movement of goods that would in any case flow
through that city); and
(b) Has the basic infrastructure like roads, power availability for the cold storages etc. in
place
The main purpose for this type of network is the precise timing of banks of arriving
trucks to offer a seamless onward transfer to banks of departing trucks and to maximize
the number of attainable connections for incoming goods, without the need for storage in
the cold storages. At the same time, the connecting times should be kept within defined
and acceptable limits. Two major types of hub-and-spoke networks can be discerned, the
hourglass and hinterland networks.
Through an hourglass hub, trucks come in from one region, are consolidated at the hub
and diversified in the opposite direction. A hinterland hub uses spokes, short-haul truck
journeys to feed the hub and consolidate for long-haul routes. In the business, hinterland
hub would be utilized. Since the geographical region to be covered is vast, it is envisaged

that there be two hubs present. One at Pune and another at Nasik. The hub at Pune would
have in its hinterland Sholapur, Satara, Sangli and Ratnagiri apart from Pune itself which
is a major producer of fruits. The Nasik hub would have Jalgaon, Nagpur, Amravati and
Aurangabad in the hinterland. Both these hubs would feed into Mumbai where the
produce would be consumed and exported. Both the hubs would have state of the art cold
storages so that the perishable stuff does not leave the cold chain.
Cold storages
Construction of cold storages requires high-tech engineering services, whereas in India

currently, cold storages are being constructed and operated by people who do not have
any formal education in engineering and design. Across the country, there is no
standardization in construction and equipment of the cold storages. The practices are
rather localized and based upon erroneous concepts of heat transfer and principles of cold
storages resulting in substantial extra spending in construction and regular loss of energy.
Insulation plays a major role (nearly 80%) in the performance of the cold storages, but
not much attention is paid to this aspect during construction. In fact only about 10% of
the total cost of installation and machinery is spent on the insulation. The principle on
which our cold storages are being designed is again standing upside down. Our cold
storage engineers focus more on retaining coldness in the cold container than to make
necessary arrangements to retard the heat and vapour transfer from outside (higher
temperature) to inside of cold storage (lower temperature). Similarly, they resist any
modern research about insulation materials and techniques of cold storage insulation for
energy saving.
Following are the design issues which would be considered while setting up of cold
storages:
proper temperature guidelines for fruits, vegetables and other important imported
perishable items,
the importance of humidity control to maintain product quality;

the use of ethylene oxidizers to prevent premature ripening of fruits and vegetables;
incompatible perishable food items and associated storage guidelines;
methods to improve air circulation/velocity in chiller rooms;
the importance of defrost cycles in cold storage facilities;
storage time limitations for various imported perishable foods;
methods to optimize stacking/shelving parameters in cold storage facilities; and
use of automated cold storage inventory control technologies.
Keeping cold on the road
Cold warehousing facilities are one important link in the cold chain; temperature-
controlled transportation is another. While all types of goods suffer from slow or
inefficient transportation modes in India, the problems are particularly critical in the
distribution of refrigerated and frozen goods, which require special equipment to
maintain product quality. India's rail system--historically best suited for the shipment of
commodities--is predictably a weak link in the cold chain.
Nonetheless, railways continue to be the most common channel for the large-scale
distribution of food in India, but it hardly includes frozen food products. Transporting
frozen goods by rail in India has enormous drawbacks, including the need for advanced
bookings and special connections. As temperature-controlled equipment is usually
unavailable, food products, in some cases, are simply cooled with bagged ice and covered
with a blanket. Marketers of consumer-oriented, temperature-sensitive food products
have additional concerns, including excessive loading and unloading under less than ideal
conditions, excessive damage potential, and unreliable delivery times.
Fortunately, India's trucking industry is growing rapidly, fueled by the competitive

demands of free markets. Even though road networks in India are notoriously
underdeveloped, improved highway segments are making regional truck distribution a
more practical option for the food industry.

Such improvements are much welcomed, as the flexibility of truck transport makes it
especially suited to the movement of perishable foods. Many of India’s restaurants and
supermarkets require frequent deliveries of food products. By delivering shipments via
truck, the distributor can supervise door-to-door service to accommodate the demanding
schedules.
The increasing viability of trucking in India has enabled some companies, like HLL, to
adopt an integrated India manufacturing strategy and to attempt inter-regional transport.
With the further development of road network, several large international shipping and
logistics companies would make inroads into India’s distribution system, in some cases
providing controlled-temperature trucking services. The business licenses for these firms
in India may also include warehousing in the specified scope of business, but for the most
part these firms concentrate on transporting goods
At the local level
Whether the goods travel initially by road or rail, efficient transport for the final few
miles of food distribution is essential. Traffic problems and regulatory hurdles make
timely distribution to retailers in Indian cities a challenge. Many of India's cities have
adopted traffic controls as a means of combating gridlock, and restrict trucks from
entering the central business district during daytime hours. When the truck enters the
central business district, the driver will likely have some difficulty finding a place to
"stop and drop." Using three-wheeled bikes with thermal containers on the back to make
deliveries to small retail outlets can be one viable strategy.
A last but critical link in the cold chain is food retailing. Despite the fact that Indian
tastes, customs, and culinary culture dictate a strong preference for freshness and a bias
against packaged foods, supermarkets are beginning to make their mark.
The advent of supermarkets in India also promises greater sales potential for chilled
products such as packaged meat or fish, which offer consumers the taste advantages of
fresh products as well as the flexibility to store the wrapped and sealed product in the

refrigerator for consumption a few days later. Meat or fish purchased at a wet market, in
contrast, usually must be prepared and consumed immediately. Consequently, packaging
will play an increasingly important role in cold chain management and the extension of
product shelf lives. For example, the need for high-quality, high-barrier plastic packaging
for vacuum or modified-atmosphere packing of meats goes hand-in-hand with the
development of the delivery systems to get these packaged products to the retail outlet.
While traditional Indian wet markets will continue to be a mainstay, the needs of urban
dwellers, with smaller household units, greater household discretionary spending, and
more hectic working days, favor the development of supermarkets and the popularity of
chilled and frozen products. And central- and local-level policies are encouraging the
development of large-scale chain stores.

FINANCIAL PLAN
Financial objectives
positive NPV project
operating profits from the first year
ROCE of 20%
Capital expenditure2
Warehouses
Location: 1 in Pune, 1 in Nasik
Areas: Pune – 1 lakh sq ft (20 lakh cubic ft), Nashik – 1 lakh sq ft (20 lakh cu. Ft.);
Capacity of 700 tons each
Precooling – 12 tons per 6hrs cycle, Cold Storage: Remaining
With construction cost of Rs 150 per square ft, this works out to Rs 1.5 crore per
warehouse, or Rs 3 crores.
Cold Storage Equipment:

To maintain Temperatures below –15 degree celsius, Cooling capacity required for the
above areas is about 500 tons.
At a cost of Rs 15000 per ton, this works out to Rs 75 lakhs
For precooling the cost for 12 tons is Rs Rs 1.8 lakh
Approximate cost – Rs 77 lakhs
Backup Diesel Generator equipment (2 nos. @ Rs. 50,00,000) = Rs. 1 crore
Total cost of 2 warehouses (+ 15% for insulation) = Rs 5 crores
+ 4 forklifts each warehouse (8 @ Rs 5 lakhs) = Rs 40 lakhs
+ Cost of 80000 pallets (@ Rs 250) = Rs 2 crore
Pack Houses:
2
the information has been collected by talking to a cold storage operator in Gujarat, from the internet and
one of the group members has local area knowledge.

Capacity of 30 to 50 tonnes, Average 3.25 lakh cu.ft (20000 sq ft)

Total cost of construction = Rs 30 lakhs,
Cost of equipment (cooling + cold storage)- Rs 4.5 lakhs.
Total cost (+ 10 % for insulation) – Rs 40 lakhs
For 10 such packhouses, total cost – Rs 4 crore

1 forklift per packhouse - Rs 0.5 crore
Truck fleet of reefer trucks:
Estimated cost for a 5 ton reefer truck = Rs 16 lakh
For a fleet of 25 trucks, cost = Rs 4 crore; the fleet will need to be subsequently expanded
to 50 trucks for value added services like ‘Just in Time’ delivery (costing another Rs 4
crore).
Office + Logistic Systems:

Cost of Communications System: (2 option: VSAT link: One at Mumbai, Pune and
Nashik) - RS 10 lakhs
Computing Power (Server: Rs 1.5 lakh, 6 desktops – Rs 3 lakhs)
Office infrastructure (Rs 45 lakhs)
Website Design and Hosting: (One time cost of Rs. 20 lakhs, Hosting fees operational
cost)
So total infrastructure cost = Rs 22 crore
+ Working capital (Rs. 1 crore)= Rs 23 crore
Total investment in the project = Rs. 23 crore
Capital Structure
Typically, for infrastructure projects of such magnitude, the capital structure is in the
form of 50:50 debt/equity.

For equity, the customers who are targeted for long term contracts for the capacity
utilization would be approached to take up stake in the project. A few private equity
funds would also be approached. Development agencies also can take up equity stake in
the project if they find it viable and attractive. For debt, government agencies provide
subsidized financing for such projects.
Revenue model
Customers would be charged for the storage services provided in the cold storages
Customers would be charged for the transportation services provided, with or without
refrigeration.
Higher charges for value added services like just in time delivery to customer’s
premises, specialized storage conditions for certain items etc.
The NPV of the project is coming out to be Rs. 4.2 crore at a discount rate of 20%
The detailed financial projections are provided in the end.

UNCERTAINTIES
Demand risk
This is the most critical element of the project. This risk can be mitigated by having the
long term partners take equity stake in the project.
Electricity fluctuations and charges

The most important cost element is the electricity charges for the refrigeration plant. The
risk is both in terms of the supply of power as well as the tariff charged. To mitigate the
supply risk, a back up source of power is provided at both the cold storages. The tariff
risk would still be present in the project and it can affect the profitability to a large extent.
Fuel for the trucks

Most important cost element in the trucking business. Would be totally dependent on the
cost of the fuel prevailing in the market.
Objections from the trucker’s lobby

Fifty refrigerated trucks coming suddenly onto the roads would elicit negative response
from the existing truckers associations.
Objections from the wet market operators in Mumbai

Since this project would impact the wet market operators directly, they will have a thing
or two to say against this project.
Political interference
This is always present and no amount of planing can mitigate this risk. The best way to
deal with this risk is to be prepared for it and take it as it comes.
CONCLUSION
Through the establishment of this business, it is envisaged that the following goals could
also be accomplished, in the larger interest of development of cold chain infrastructure in
India.
The development of an industry association would provide an opportunity for
members of the cold chain to develop commonly accepted understandings and to
speak with one voice in favor of constructive changes in government policies to
increase the rate of growth in the industry.
Standards for the handling and storage of all perishable items would improve the
quality of fruits and vegetables, which would increase the price and consumption,
which in turn, would provide a better return to the farmer.
Thinking of the cold chain as a pipeline through which perishable products flow from
the growing site to the point of consumption would enable the public sector planners
and managers to identify bottlenecks which break the chain or damage the products.
Considering the encouragement of private sector investment and participation with
the public sector at critical points in the cold chain, for example, airports, terminal
markets, and field chilling might help remove the critical bottlenecks that are
reducing the quality of products.
A public sector focus on major infrastructure factors critical to the cold chain,
including highways and interference with the flow of traffic, for example, octroi
taxes, would enable the cold chain to make vast improvements.
There would be certain social benefits attached to the development of this project.
High standards of hygiene and cleanliness - reduced risk of disease
Reduction in wastage - lowers costs to end consumer
Fewer intermediaries - producer receives higher prices
Organised sector entrant builds economies of scale and scope - cold chain instead of
many cold storages

Cold Chain Infrastructure Group 7, Section B

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Cold Chain Infrastructure Group 7, Section B

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Cold Chain Infrastructure Group 7, Section B

- Andersen Consulting Report on Supply Chain Infrastructure

Operations plan: Logistics

10. Financial Projections 31

However, there is a no commonly understood or accepted definition of a state-of-the-art

The issues to be addressed include: