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Too many cold storages & govt is subsidising more
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Saturday, 16 July, 2005, 08 : 00 AM [IST]
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Joe C Mathew, New Delhi
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The Federation of Cold Storages Associations of India (FCSAI) is the apex body representing all state-level cold storage associations of the country. The FCSAI was formed four years ago as an attempt to bring in discipline in the cold storage business and put an end to the unhealthy competition that was threatening the very existence of the sector. Since inception, the federation has been against the mushrooming of cold storages and advocating the need for demand-based addition of cold storage facilities in various parts of the country.
It has also made several representations before the central government to put an end to the continuing subsidies given to the new players in the segment.
In an interview with Food & Beverage News, G L LutHra, Secretary, FCSAI, and President, All-India Cold Storages Association (AICSA), Delhi, spoke at length on the issues before the cold storage sector of the country. Excerpts:
How lucrative is cold storage business today? With the government pledging all support for value addition in agri-food sector do you foresee large capacity requirement for cold storage facilities?
Let me put it straight. The actual position of cold storage business in the country is just the opposite to that of the general perception. There are already huge idle cold storage capacities in all major agri-food centres. Any addition to the capacity in the form of new cold storage facilities can only add up to this extra space thereby reducing further, the shrinking business prospects of the sector.
Unfortunately, the government that should try to promote agri-food productivity are utilising its resources in a non-productive manner by subsidising more cold storage facilities. This has not only resulted in the closing down of old units, but are also making new units turn sick. Unless the government puts an end to its scheme to support new cold storage facilities, I feel the future of the sector is bleak.
It is strange to hear the industry pleading with the government to put an end to its subsidy schemes for new facilities. How many units are there in the country? How serious is the problem of idle capacities?
Do we need cold storage capacities meant to stock 20 lakh apples for a post-harvest storage requirement of just 40,000? This is the situation prevailing in the case of all major fruits / vegetables. We have several times more space than what is currently required. One cannot expect large increase in the production of these items and a corresponding increase in storage needs as storage capacities continue to be added every other day with the commissioning of new units. We are against the mushrooming of cold storages. For instance, in Uttar Pradesh alone there are over 1,000 cold storages. While a majority of these facilities remain under-utilised, there are more coming up in the state. It is wastage of investment.
As per our records, there are about 5,000 cold storage facilities spread across the country. Uttar Pradesh has the maximum number of units. Every other state has a couple of hundred units each. The problem of excess capacity is a recent phenomenon. It started about five years ago. There was a bumper potato crop in early nineties and resultant shortage in storage capacities. The government incentive for new capacities happened soon after. There was never a similar demand since then, but the capacities kept increasing. It is now high time that the government decided to control the establishment of new facilities.
Why is this interest among new entrants if the sector has become so unviable?
The subsidy of the National Horticulture Board (NHB) and the schemes implemented by the Ministry of Food Processing Industries entitles 25% capital investment subsidy to new cold storage facilities. The ceiling fixed by the government in this case is Rs 50 lakh. This is the only reason why entrepreneurs are interested in setting up new units. The subsidies given by the government on the basis of (fake) project reports are the only attraction. Recently, the government of Uttar Pradesh had decided to sell off 66 loss-making cold storages in the public sector. While there were no takers for these existing facilities, there were plenty to apply for fresh projects. We have already approached the ministry with a request to conduct an inquiry into the status of all units that have come up recently with the help of government subsidies. A list of 100 such cold storages were given to the ministry with a request to go through their annual reports and balance sheets. The ministry has not taken any action. If they had, that would have been enough proof of the malpractices that are going on in the name of subsidies. One would realise that all these units are running in loss.
Is competition the only reason for the problems within the sector? Any alternative proposal to ensure the co-existence of new and old cold storage units?
First of all, the subsidy for capital investment should end. Alternatively the government should think of subsidising the operational costs of cold storages. The ever-increasing electricity rates are harming the industry in a big way. Instead of supporting more units, let the government help the existing units by subsidising power. Cold storages should be allowed power at reduced rates. This would help the cold storages pass on that benefit directly to the farmer by making their services cheaper to the farmer. The NHB should engage in more meaningful activities like exploring new markets for horticulture and choosing more productive options for farmers. This would certainly benefit the farming sector and the cold storage industry.
As the president of AICSA, how do you rate the performance of Delhi-based cold storages?
AICSA has been representing Delhi-based units since 1965. Over the years, we have seen the competition taking its toll on our members.
The high rate of power and dwindling business has resulted in the closure of 10 units recently. Currently we have 44 members. We preserve mainly fruits, potato, eggs, dairy products, meat products, pulses, kirana items etc. Of late we have started experimenting with new products also. My company (Luthra Ice Plant & Cold Storage) has started preserving wheat in small quantities. We have found that wheat can be well preserved in cold storages. Unfortunately, the government has not taken note of this and allows excess wheat to rot in warehouses.
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