Supply Chains for Horticultural Products

[Editor’s Note: This article was originally published on Scribd.com by Sivakumar Surampudi (aka “Shiv”), a 22 year ITC veteran, architect of e-Choupal, and head of their Agro Business Division (ABD). It’s being republished on TechSangam as a two-part series with Shiv’s permission. Original Scribd link here. When we bemoan the paucity of efficient supply chains as a key reason for farmers’ poverty, we tend to lump all vegetables and fruits under one ‘produce’ bucket. In this article, Shiv goes into detail about three different segments.]

The Product

India produces a wide variety of fruits & vegetables, with different inherent characteristics, across very diverse agro-climatic regions. As such, one type of supply chain will not effectively serve them all. Broadly, fruits & vegetables can be classified into three segments, based on how their shelf-life varies under ambient or controlled climate conditions.

Segment A: Long shelf life under controlled conditionsProducts such as potato, apple and chillies can be stored for as many as six to eight months in cold stores, and can thereafter be simply transported in regular trucks under ambient conditions. Onions and oranges are somewhat similar, and can also be classified under this segment, although the nature of the stores required are different, and their shelf-life is also a few months shorter.Large part of the production of these fruits & vegetables is restricted to just one season in a year; as a result, the price increases, barring an odd year, are more than the cost of carry through the storage period. Consequently, setting up cold stores is a financially viable proposition for these products, and a significant part of the private sector investments have gone into this segment. That substantial part of the production of these fruits & vegetables is restricted to a few regions in the country, also helps the financial viability through geographic arbitrage.The financial incentives currently available via NHM (National Horticultural Mission), NHB (National Housing Bank), MoFP etc. have further accelerated capacity creation in the recent past. An important task now is to modernise the old storages in this segment, to make them more energy & labour efficient, as well as more flexible through multi-chamber facility creation for better capacity utilisation.Considering that this approach for segmentation is literally adding apples and oranges,there are important nuances one must be aware of …Early crop varieties of potato, Pukhraj for example, do not go into cold store as its skin is not suitable for long storage. The price of this early crop fluctuates depending on the overall availability of potato within that time window rather than the cold stores capacity.Also, while investments are being made along the whole chain for high-priced products within this segment (eg. apples) to explore if quality retention can be better, experiments are being conducted in low-cost modified heap storages at farm level for low-priced products (eg. potato).Segment B: Moderate shelf life under controlled conditionsThe shelf-life of several other products like grapes and pomegranates can be increased to as many as eight to ten weeks using an end-to-end cold chain. This will mean farm level pre-cooling and transportation in reefer trucks besides the cold stores. One can also include products like bananas and tomatoes in this segment, which respond tospecific shelf life enhancement processes (eg. controlled ripening).Once again, there are nuances within this segment too, based on seasonality, prices or production regions…Tomatoes, for example, are available almost throughout the year in Maharashtra, Andhra Pradesh and Tamil Nadu, while they are available for only four months in most of the other producing states. The average price in September 2009 was Rs 4/kg in Bengaluru, while it was Rs 29/kg in Gangtok at the same time. Earlier in Feb, in the same year, in Bengaluru itself it was Rs 2/kg and went up to Rs13/kg by Dec 2009. The shelf life of tomato is just four days, when harvested at semi ripened stage and kept at ambient temperature in the supply chain; but, if harvested in mature greenstage, kept in cold store at 10-130C, and transported in cold chain, the same can be extended to as many as three weeks.Although the value loss is quite high in many of the fruits & vegetables in this segment due to quality deterioration and wastage, this segment is not able to attract the required scale of investments in cold chains, due to lack of financial viability barring a few export oriented chains. Needless to say, there is an urgent need for innovation in the structure of financial incentives to attract investments into this segment.Segment C: Limited shelf life even under controlled conditionsOther fruits & vegetables whose shelf-life is minimally impacted by cold chains, or those that do not require cold stores at all can be included in this segment (eg. papaya, melons, gourds, cabbage, cauliflower, leafy vegetables). While it is true that the shelf-life of some of these vegetables can be enhanced by a few days, when they are put through a cold chain, it is a more cost-effective solution to stagger the production of such vegetables aligned to the demand than the expensive cold chains.Unfortunately, the financial incentive systems in India are more capital investment friendly, as opposed to how they could catalyse innovations that may be more revenue expense intensive but do not involve much capital expenditure. As a result, this segment has barely attracted any investments, barring sporadic experiments. In any case, APMC (Agricultural Produce Market Committee) regulations – still applicable in many states – do not allow transactions outside the mandi system, limiting the ability of farmers and the agri-businesses to forge partnerships that enable such coordination along the supply chain.A quick estimate suggests that the 230 million metric tonnes of fruits & vegetables produced in India are distributed almost equally in each of these three segments.An assessment of the market and proposed solutions – here in Part 2.