Cold storages seek arbitrage business model to attract investment

Warehouses in search of infrastructure status, a statutory regulator with long term policy

Companies offering cold storage facilities have urged the central government to allow a price arbitrage model in the horticulture sector to reduce post-harvest loss in fruit and vegetables.

According to estimates, horticulture produce worth Rs 80,000 crore gets wasted. Non-availability of adequate cold storages at major producing centres results in distress sales and spoilage.

“The government should allow procurement and sale of horticulture products by cold storage players in the coming budget to attract investment in this sector,” said B Thiagarajan, president (channel business group), Blue Star, one of India’s largest commercial cold chains.

Commercial refrigeration has seen negligible investment for several years. With the government’s price control, no investor has prepared any massive investment.

“Commercial refrigeration will become viable only in four circumstances. One, if it is a high-value commodity like apples. Two, if consumed through the year in large quantity like banana, onion or potato, for which backward integration is needed to control their procurement, harvesting, supply and distribution. Three, exports should be allowed, to fetch higher value. Four, it should be used for food processing,” said Thiagarajan.

Backward integration would also require a long-term and sustainable policy.

There are many subsidy schemes but these largely benefit middlemen.

“Therefore, a high powered committee should be formed to comprehensively recommend what needs to be done for the cold storage industry. There are technical standards and protocols; subsidy should go only for that kind of cold storage,” Thiagarajan added.

The sector will then see entry of new entities and competition, which will ultimately lower prices.

Meanwhile, the warehousing sector has sought grant of statutory status to the Forward Markets Commission, through either its merger with the equity market regulator, the Securities & Exchange Board of India or by amending the Forward Contracts Regulation Act. Also, for grant of infrastructure stratus to the sector.