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Current Issue • Jan-Mar 2017

Cold Chain Intervention for Fruit-and-Vegetable Distribution in India: A Case Study on Kinnow

This article focuses on a particular supply chain for kinnow. Their study draws attention to the fruits and vegetables wastage and greenhouse gas emission due to a reluctance in investment in cold chain. They help shed light on a subsidy mechanism designed appropriately that could result in equitable profits for all stakeholders and could also reduce carbon footprint.

In India, as elsewhere in the world, a major portion of the fruit and vegetable produce gets wasted, leading not only to economic losses for stakeholders in various stages of the value chain, but also resulting in significant addition to greenhouse gas emissions. A subsidy mechanism designed keeping supply chain aspects in view could result in equitable profits for all stakeholders. It could also reduce the carbon footprint, as depicted in this case study of a supply chain system for kinnow, in the state of Punjab in India.

However, there is lukewarm investment in cold chain, despite its potential benefits. At present there is less than 1% movement of fruits and vegetables through cold chain . The stakeholders in supply chain – aggregators, transporters, distributors and retailers – perceive the cost of investment high and benefits uncertain. To help shed light on these concerns we carried out a study to assess the investment in cold chain, by analysing profitability, for all the stakeholders involved in a particular supply chain.

Our study focuses on a particular supply chain for kinnow, a citrus fruit. The supply chain we studied originates from Abohar in Punjab in northern India to Bangalore in southern India. This supply chain allows us to analyse the time and distance-related aspects of cold-chain investment. kinnow, a hybrid of two citrus cultivars—’King’ (Citrus Nobilis) and ‘Willow Leaf ’ (Citrus Deliciosa)) is grown extensively in Punjab, India. Kinnow is available only for 3-4 months a year and is highly perishable. Post-harvest losses in kinnow from Abohar to Bangalore are estimated at 28% in the supply chain, from the orchard to the retailer . Increasing yield and acreage has meant that production is too high for the local market but there are challenges in distribution in markets that are further away. A cold chain intervention is required to contain spoilage and continue supply in off-season. Moreover, kinnow also presents a robust possibility for export, as Punjab government (through Punjab Agro Export Corporation) has been instrumental in finalising key trade contracts with Russia and Dubai. The full report can be obtained from the authors, or from the MIGM website (www.isb.edu/migm).

For analysing investment, we assessed the profitability under four scenarios: two “Basic” scenarios without cold chain, for the months of January and February respectively, and two “Intervention” scenarios for the months of February and March respectively. The latter two intervention scenarios are one with refrigerated (“reefer”) truck transportation only in February, and the other with both cold storage and reefer transportation in March.

We estimated the revenues and costs across the supply chain, for comparison of the four scenarios taken up for this study. For the calculations, we started with the retailer selling one metric tonne (MT) of kinnow and then going from the retailer to the aggregator and identifying the quantity sold, procurement and operational costs, revenues and spoilage at each level – retailer, distributor and aggregator – to make this one MT of retail possible in Bangalore. Note that taking spoilage into account, upstream stakeholders need to move more than one MT of kinnow to ensure the retailer can move one MT to consumers. Our spoilage numbers were taken from prior studies and from our own survey of the companies we studied along the supply chain

At present there is less than 1% movement of fruits and vegetables through cold chain . The stakeholders in supply chain – aggregators, transporters, distributors and retailers – perceive the cost of investment high and benefits uncertain.

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Next, we estimated the profitability for the retailer, distributor, transporter and aggregator and also calculated the payback period for the cold-chain investment used in the intervention scenarios. We analysed the profitability for different stakeholders in these four scenarios and concluded that cold chain is profitable for all stakeholders along the entire supply chain – the aggregator, the transporter, the distributor as well as the retailer – when they all invest in the cold chain.

Cold chain has the potential for increasing volume of flows, which can eventually result in better prices for farmers, especially if they can move their produce directly to retailers or distant distributors.

Moreover, we found that payback for pre-cooling equipment and reefers is only about two years, while that of cold storage is greatly reduced, from about 16 years to 9, when the cold storage becomes part of the complete cold chain for kinnow.

Our indicative calculations, based on two trips per month from Abohar to Bangalore using the income from the outbound journey with kinnow, give us the transporter’s profitability at 23%. The payback period for a transporter for investing in a refrigerated truck is a little over four years.

Carbon Impact
We also assessed the carbon footprint of supplychain activities in all scenarios. The sources of CO2 considered for the study were – refrigerant leaked from the reefer trucks, CO2 produced from the precooling at aggregator level and cold storage at retailer, distributor and aggregator levels, CO2 produced from rotting kinnow at retailer, distributor and aggregator level, CO2 produced at harvesting, CO2 produced by transportation diesel and CO2 produced by operations at the pack-house.

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We found that the cold-chain intervention does not increase CO2 emissions, and may actually decrease emissions despite the additional emissions from carbon-based energy required for refrigeration. This is because there is considerable reduction in spoilage of kinnow by using cold chain. For February the figures are readily comparable: without cold chain the emissions are 486 kg per tonne of kinnow sold in retail and with the intervention of reefer trucks, the number actually reduces to 408 kg despite the use of reefer trucks. As can be expected, in-season sales and transportation in January have the least environmental impact at 403 kg, but using cold chain, off-season sales in March using cold chain have less impact at 449 kg relative to in season sales in February without cold chain at 408 kg.

Our study shows clear profits for aggregators, distributors and transporters. Additionally, there are implications for farmers and for the government as well. Cold chain has the potential for increasing volume of flows, which can eventually result in better prices for farmers, especially if they can move their produce directly to retailers or distant distributors. So government-encouraged cooperatives for small farmers can help farmers get the same benefits as aggregators in our study. We found out that the maximum profit comes when a complete cold chain is used. Therefore, any inducements by way of subsidies should be designed taking a supply-chain perspective, by considering all stakeholders along the supply chain rather than piecemeal subsidies. Whether there should be subsidies at all is another question given the high economic benefits as shown by our study.

ABOUT THE AUTHORS

  • Sodhi

    ManMohan Sodhi

    ManMohan Sodhi, Cass Business School, City, University of London and a Visiting faculty, at the Indian School of Business (ISB).
  • Sukhmeet-Singh

    Sukhmeet Singh

    Sukhmeet Singh, Associate Director, Munjal Institute of Global Manufacturing and Bharti Institute of Public Policy, at the Indian School of Business (ISB).
  • Chetna-Agnihotri

    Chetna Agnihotri

    Chetna Agnihotri, Analyst, Bharti Institute of Public Policy, at the Indian School of Business (ISB).
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