Cold storage for plantation and horticulture produce – Consultancy Project Profile

1.Introduction

India is the largest producer of fruits and second largest producer of vegetables in the world. In the absence of a cold storage and related cold chain facilities, the farmers are being forced to sell their produce immediately after harvest which results in glut situations and low price realization. Sometime farmers do not even get their harvesting and transportation costs what to talk of the cost of production or profit. As a result, our production is not getting stabilized and the farmers after burning fingers in one crop switch over to another crop in the subsequent year and the vicious cycle continues. Our farmers continue to remain poor even though they take risk of cultivating high value fruits and vegetable crops year after year. A cold storage facility accessible to them will go a long way in removing the risk of distress sale to ensure better returns. This document endeavors to provide information on various broad technical and financial aspects of a cold storage unit to enable the financing banks and entrepreneurs in formulation and implementation such projects.

2. Status of Cold storage and its potential in India

The estimated annual production of fruits and vegetables in the country is about 130 million tonnes. This accounts for 18% of our agricultural output. Due to diverse agro climatic conditions and better availability of package of practices, the production is gradually rising. Although, there is a vast scope for increasing the production, the lack of cold storage and cold chain facilities are becoming major bottlenecks in tapping the potential. The cold storage facilities now available are mostly for a single commodity like potato, orange, apple, grapes, pomegranates, flowers, etc. which results in poor capacity utilization. Present availability of cold storage capacity is only 103.5 lakh tonnes, out of which units having about 8 lakh tonnes capacity are non functional. Although 90% of these units are made to store only potato even then it does not meet the requirement of the single crop, the production of which is about 300 lakh tonnes. Out of 3443 cold storage units setup till 1988, 2012 units were for potato, 447 units were for multipurpose use, 198 units were for fruits and vegetables and the remaining were for products like meat, fish, milk, etc.

Of the above 3443 cold storage units, 2975 are in private sector, 303 are in cooperative sector and the rest are in public sector.

According to the information collected by the expert committee on cold storage and storage, requirement of cold storage in the next five years may be in excess of 12 lakh tonnes. The working group of the planning commission for IX plan had assessed new cold storage capacity for fruits, vegetables and multi commodity as 15 lakh tonnes; 13 lakh tonnes in private sector, 1.5 lakh tonnes in cooperative sector and the rest 0.5 lakh tonnes in public sector. Thus, there remains a vast potential to be tapped.

3. Storage of foods and Storage Conditions

Foods and many other commodities can be preserved by storage at low temperature, which retards the activities of micro organisms. Micro organisms are the spoilage agents and consist of bacteria, yeasts and molds. Low temperature does not destroy those spoilage agents as does high temperature, but greatly reduces their activities, providing a practical way of preserving perishable foods in their natural state which otherwise is not possible through heating. The low temperature necessary for preservation depends on the storage time required often referred to as short or long term shortage and the type of product.

In general, there are three groups of products:

Foods that are alive at the time of storage, distribution and sale e.g. fruits and vegetables,

Foods that are no longer alive and have been processed in some form e.g. meat and fish products, and

Commodities that benefit from storage at controlled temperature e.g. beer, tobacco, khandsari, etc.

Living foods such as fruits and vegetables have some natural protection against the activities of micro organism. The best method of preserving these items is to keep the product alive and at the same time retard the natural enzyme activity which will retard the rate of ripening or maturity.

Preservation of non-living foods is more difficult since they are susceptible to spoilage. The problem is to preserve dead tissues from decay and putrefaction. Long term storage of meat and fish product can only be achieved by freezing and then by storing it at temperature below -15oC. Only certain fruits and vegetables can benefit from freezing. However, for fruits and vegetables one should be very careful about the recommended storage temperature and humidity a deviation from which will have adverse effect on the stored product leading to even loss of the entire commodity.

Products such as apples, tomatoes, oranges, etc. cannot be frozen and close control of temperature is necessary for long term storage. Some product can also be benefited by storing under controlled atmosphere and modified atmosphere conditions.

Dairy products are produced from animal fats and therefore non living foodstuffs. They suffer from the oxidation and breakdown of their fats, causing rancidity. Packaging to exclude air and hence Oxygen can extend storage life of such foodstuffs. The storage requirement of some of the important commodities are placed at Annexure I.

4. Economic size of unit and land requirements

Cold storage units can be used to store either a single commodity or multiple commodities. Depending upon the entrepreneur’s financial health; it can be planned to store the produce entirely owned by him or on rental basis or in combination of the two. NABARD usually encourages cold storages where 70% of the capacity is available to farmers for storage on rentals. Financial viability of a unit depends upon the intended pattern of use and rental rate prevalent in an area. However, units entirely to be used by the owners are also considered for sanction. Considering 70:30 utilization of the capacity for rentals and own use, a 5000 MT capacity unit is considered as viable with the assumptions as indicated at Annexure II. To set up a 5000 MT capacity cold storage unit although one acre of land may be adequate, it is always better to have two acres of land to take care of future expansions and waste management. While selecting the site care should be taken to select a site at an elevation free from inundation and well connected by road and other communication facilities to both production and consumption centres. The land should be of non agricultural type and the soil at the site should be firm enough to carry the weight of the building and storage racks.

5. Technology

A cold storage unit incorporates a refrigeration system to maintain the desired room environment for the commodities to be stored. A refrigeration system works on two principles:

Vapour absorption system (VAS), and

Vapour compression system (VCS)

VAS, although comparatively costlier, is quite economical in operation and adequately compensates the higher initial investment. Wherever possible such a system should be selected to conserve on energy and operational cost. However, it has its own limitations when temperature requirement is below 100C and many of the fruits and vegetables except seeds, mango, etc. require lower than 100C for long storage.

VCS is comparatively cheaper than VAS. There are three types of VCS systems available depending upon the cooling arrangements in the storage rooms i.e., diffuser type, bunker type and fin coil type. Diffuser type is comparatively costlier and is selected only when the storage room heights are low. The operational cost of such units are also higher. Bunker type is the cheapest and is preferred when storage room heights normally exceeds 11.5 m. Its operational cost is also low. Fin coil type, although about 5% costlier than the bunker type, is very energy efficient with low operational cost and higher space availability for storage of produce. Such system is used for units with room heights of 5.4m onwards. A comparison of electrical loads & energy savings, refrigerant requirement and space savings in all the three systems are given in Table 2.

Table 2 : Comparison of energy savings, refrigerant and space requirement of cooling units of a 4000 MT cold storage.
Item Unit Type of Vapour Compression System
Diffuser Bunker Fin coil
Installed Electrical load hp 180 128 124
Installed Electrical load kW 134.28 95.49 92.50
Energy saving % 29 31
Refrigerant requirement kg 1,520 2,200 380
Space requirement for cooling system cu m 452 670 36
In a refrigeration system, refrigerants are used to pick up heat by evaporation at a lower temperature and pressure from the storage space and give up the heat by condensation at a higher temperature and pressure in a condenser. Freon used to be a common refrigerant but as it causes environmental degradation, its use is going to be banned by the year 2008. Therefore, Ammonia is being increasingly used and preferred for horticultural and plantation produce cold storage units.

Although several types of compressors and condensers are available, medium speed reciprocating compressors and atmospheric condensers are preferred because of the relatively lower cost, energy efficiency and ease in maintenance.

While selecting size of the equipment, care should be taken to assess all loads and proper provision should be made to take care of the peak demand during summer loading and aging of the equipment. Heat load factors normally considered in a cold storage design are:

·         Wall, floor and ceiling heat gains due to conduction

·         Wall and ceiling heat gains from solar radiation

·         Load due to ingression of air by frequent door openings and during fresh air charge.

·         Product load from incoming goods

·         Heat of respiration from stored product

·         Heat from workers working in the room

·         Cooler fan load

·         Light load

·         Aging of equipment

·         Miscellaneous loads, if any

Structural requirement : Although the storage space provision will vary according to the room height and technology being selected. Normally, a provision of 3.4 m3 per MT of potato is considered for finalizing the room size with the bunker type of VCS technology. For other commodities, space adjustment should be made with relation to their bulk density as compared to potato. Proper soil testing and rack design need to be ensured. The rack system and its foundation should be strong enough to support weight of commodities. Normally, raft foundation is preferred for racks.

Insulation : All the sides of the cold storage room need to be insulated in order to maintain the required temperature inside. Various types of insulating materials are used for insulation of side walls, partition walls, floor and roof. However, the most commonly used insulation material is thermocoal and sometimes Poly Urethane Fibre (PUF) panels are also used for insulation depending upon the economics of the project. Proper thickness of insulating material should be used for insulation of walls. Normally, two layers of insulating material are used for insulation. A minimum 100 mm thickness of low density thermocoal need to be used for sun facing walls and roof, whereas 80 mm thickness of low density thermocoal may be used for other two walls. Partition walls need to be insulated with 40 mm low density thermocoal and a thickness of 80 mm high density thermocoal is necessary for floors.

Utilities : Availability of soft water and dependable power supply at the site needs to be ensured. In case the power available is not dependable, provision of a Diesel Generator set should be incorporated in the project. Similarly if water at site is not soft and its hardness is within the limit for treatment, a softening plant has to be incorporated to match the capacity.

6.Promoter’sProfile

The promoters can be individuals, group of individuals, cooperative societies, proprietary/ partnership concerns and joint sector companies in public or private sector. While formulating a project, complete details of the promoter(s), their experience in the activity and net worth, etc. have to be incorporated.
7. Physical and Financial Outlay

The following physical provisions with their costs are considered for a cold storage unit:

·         Land

·         Site development including leveling, fencing, road, drainage, etc.

·         Civil structures including main cold storage building, rack provisions, drying shed, machinery room, store for consumables, generator room, office, security cabin, etc.

·         Insulation of main cold store building

·         Machinery for cooling, air movement, loading, grading and weighing

·         Electric supply arrangement including installation of transformer and deposits for requisite connection

·         Standby electric supply arrangement/ DG set

·         Water supply arrangement and treatment plant, if required

·         Pollution control and waste disposal equipment

·         Miscellaneous fixed assets including office equipment and furniture

·         Preliminary and preoperative expenses

·         Contingency

·         Margin money for working capital

Wherever market is there for ice, an ice plant of the suitable size may be incorporated for better utilization of the facilities and higher income. If an ice plant is included with the cold storage, the additional investment for ice plant may also be included in the financial outlay. The average cost of a 5000 tonnes capacity cold storage is about Rs. 150 lakhs and the tentative expenditure on broad heads is given at Annexure III.

While deciding the physical provisions, care may be taken to make the unit a multi commodity and multi chamber system for better capacity utilization.

8. Financial Viability

The financial analysis of the investment of a cold storage unit of 5000 MT capacity has been attempted and is placed at Annexure IV. The project has a margin money component of 25% with the rate of interest on term loan and working capital as 15% and 18% respectively. The rental charges have been considered at Rs. 700 per MT and the profit margin on self storage is Rs. 3000 per MT. Pledge loan earns a margin of 2%. For this project, the financial indicators of the investment are as under:

Net Present Value @ 15% DF = Rs. 67.09 lakh

Internal Rate of Return (IRR) = 25.75 %

Average Debt Service coverage Ratio = 1.58

Annexure I

Desired Storage Environment of Fruits and Vegetables in the cold storage

Commodity Temperature (oC) Relative Humidity (%)
Apple -1 – 3 90 – 98
Apricots -0.5 – 0 90 – 95
Avocado 7 – 13 85 – 90
Asparagus 0 – 2 95 – 97
Beans, green 4 – 7 90 – 95
Beet root 0 – 2 95 – 97
Broccoli 0 – 2 90 – 95
Black berry -0.5 – 0 95 – 97
Cabbage 0 – 2 90 – 95
Carrots 0 – 2 90 – 95
Cauliflower 0 – 2 90 – 95
Cherries 0.5 – 0 90 – 95
Cucumber 7 – 10 90 – 95
Brinjal 0 – 2 90 – 95
Grapes -1 – 1 85 – 90
Lemons 4 – 15 86 – 88
Lettuce 0 – 1 95 – 98
Lime 3 – 10 85 – 90
Mango 11 – 18 85 – 90
Melon water 2 – 4 85 – 90
Orange 0 – 10 85 – 90
Peach -1 – 1 88 – 92
Potato 1.5 – 4 90 – 94
Annexure II

Assumptions for working out economics of a 5000 MT capacity potato cold storage

Capacity utilization : First year – nil, Second year – 80%, Third year onwards – 100%.

70% of the capacity is rented out and rest 30% capacity is used to store potato owned by the promoter(s).

Rental charges per season per MT of potato are Rs. 700/-.

Marketing margin on own potato considered at Rs. 3000/- per MT.

Pledge loan margin of 2% has been assumed on 20% of total handling, considering per ton price of potato at Rs.2500/ MT.

Electricity and other utilities expenses considered at Rs. 210/- per MT per annum.

Lump sum establishment and office expenses considered as Rs. 2 lakhs per annum.

Expenditure on maintenance and repairs considered as Rs. 20/- per MT per annum.

Expenditure on gas, fuel and lubricants considered as Rs. 10/- per MT per annum.

Labour charges for loading and unloading of potato in the cold store considered as Rs. 15/- per MT.

Insurance charges for the potato considered as Rs. 20/- per MT per season.

Interest on working capital considered at 18% per annum for six months on an average in a year.

Margin money considered at 25% of the financial outlay.

Interest on term loan considered at 15% per annum.

Even though the life of the cold storage will be much more, the life has been considered as 15 years for working out internal rate of return.

Depreciation rate of 5% and 15% has been considered for civil structures and plant & respectively.

Repayment period of nine years with one year grace period has been considered. The interest during first year has been capitalized and repayment of principal has been considered from third year.

Annexure III

BROAD TECHNICAL PARAMETERS FOR A 5000 MT COLD STORAGE

Land requirement 2 acres
Storage space requirement 17000 cubic metre
Technology preferred Gravity circulation/ Bunker type/ Fin-coil
Cold storage room height 12.2 to 18.5 m
Avg. cost of investment Rs. per MT Total Cost (Rs. lakhs)
Civil cost 1400 70
Insulation cost 350 17.5
Equipment cost 1100 55
Miscellaneous cost 150 7.5
Total 3000 150
Operational cost Rs./MT/year
Electricity & utilities 210
Establishment expenses 35
Maintenance and repair 20
Gas, Fuel and Lubricants 10
Labour charges 15
Insurance 20
Total Electrical load 125 kW
ANNEXURE V
CHECK LIST FOR COLD STORAGE PROJECTS
A) General Information
1 Name ,location and office address of the cold storage unit
2 Project background, area of operations ( no. of blocks proposed to be covered and/
or city / market targeted)
3 Population of the area, crops being grown, land holding pattern, area under irrigation.
4 Production of storage commodity in the area .
5 Demand of the commodity in the area.
6 Names of the financing bank(s) / branch(es) and whether the scheme is in their service
area.
7 Approval of the scheme/constructions from the competent authority
B) The Project
1 Objectives of the project
2 Capacity of the project and justification thereof
C) Promoters
1 Status of the promoters/ company – whether individual/ society/ partnership firm/
private limited company/ public limited company
2 Background of the promoters – educational/ technical/ agricultural/ business and
length of experience
3 Financial health of the promoter/s(to be supported with the documents)
4 Competence of the promoter/s for the project
5 Other activities being taken up/ planned
D) Technical Aspects
i) Availability of commodity
1 Commodity proposed to be stored
2 Area under the commodity for past five years in the area of operation and production
thereof / demand of the product in the target market
3 Projections of the production – consumption figures for next nine years
4 Number of existing cold storage units in the area of operation and their installed
capacities.
5 Capacity utilization achieved by the existing units in previous three years and their
financial health
6 Proposed pattern of capacity utilization i.e., for self , farmers and traders
7 Contract condition of storage of the proposed commodity with farmers and traders
8 If there is a scope of incorporating an ice plant in the unit , the capacity requirement
and details of the unit
ii) Capacity and Location
1 Locational advantage of the unit
2 Distance from the main market for the commodity
3 Location of the nearest cold storage from the proposed site & its capacity.
4 Details about the site – Area of the plot/ Site plan indicating the existing metalled roads
and the natural drainage
5 Copy of the land records clearly indicating the title and cost
6 Distance from the nearest Railway station and existing metallic road
7 Availability and suitability of water for the activity
8 Water test report indicating the hardness of the water
9 Availability of electricity at the site/ Distance from the existing HT line
10 Other communication facilities available near the site
11 Any other consideration for selection of proposed site
12 Status of site regarding use of land for non agricultural purposes
13 Whether clearance has been obtained from Pollution Control Board / competent
authorities for constructions, power connection.
iii) Civil Structures
1 Items proposed under site development and their detailed specifications ( storm
water drainage systems , roads , boundary walls , quantum of earthwork , gates etc.)
2 Soil test report for load bearing capacity of the soil
3 Details of building clearly indicating the size of each building(L/B/H) and justification
for the size
4 Layout plan for the proposed structures indicating existing structures, if any
5 Ambient temperature conditions and Provisions for insulation of the structures – the
insulation material ,thickness of the insulation for different walls (side walls, roof and
floor ) , area and cost of insulation.
6 Design details of racks proposed
7 Provisions proposed for loading/ unloading of proposed commodity in cold storage
8 Arrangements proposed for drying/ sorting/ grading of the commodity before/ after
storage and its justification
9 Analysis of the rates considered for preparing the estimates vis-à-vis rates as per
SOR for the area and base year of the SOR
10 Any other relevant information
iv) Plant and Machinery and Utilities
1 Type of cold storage technology and justification
2 Tonnage of refrigeration proposed and heat load calculations for the proposed
capacity
3 Details of the machines proposed to be procured including their technical
specifications and power requirement
4 Criteria adopted for selection of the proposed machinery
5 Stand-by items proposed under machinery and their justification
6 Source of the machinery
7 Total power requirement and arrangement for the same
8 List of essential loads to be connected to the stand-by power arrangement
9 Details of water requirement and proposed source of water
10 Details of the well, pumpset, over head tank and piping works
E) Marketing
1 Arrangement for procurement of the commodity for storage forward and backward
linkages
2 Services proposed to be offered by the unit.
3 Utilization plan of the unit for proposed services
4 Existing rates for different services and their trend for last five years
5 Capacity utilization proposed and justification for the same
F) Organizational Setup
1 Organization Structure , details of manpower requirement and salary structure
2 Availability of technical manpower
3 Availability of skilled and unskilled labours
G) Financial Information
( i ) Project Outlay
1 item wise cost proposed under site development and their quantity of work analysis
2 Item wise cost proposed under Civil structures and their quantity of work analysis
3 Item wise details of the cost of machinery with supporting quotations / literature etc.
4 Cost of miscellaneous equipments including office equipments, communication system
fire fighting equipment etc.
5 Cost proposed under electrification and item wise cost breakups
6 Cost proposed for stand-by power arrangement `
7 Cost proposed for water supply systems such as construction of well / digging of
tubewell , installation of pumpset, construction of overhead tank and piping works
8 Any other arrangement / cost proposed may be described with proper details
9 Cost of Erection and Commissioning
(ii) Means of Finance :
1 Total Outlay
2 Margin Money
3 Loan Requirement
(iii) Lending terms: Rate of interest, grace period, repayment period, down payment,
nature of security, availability of government guarantee for bank loan/ refinance,
sources and extent of availability of subsidy etc.
(iv) Proposed schedule of implementation .Year wise physical and financial programme,
bank loan refinance requirement.
( v ) Estimates of unit wise aggregate income, expenditure and surplus from the cold
storage, comments on the financial viability of the project along with cash flow, B/C
ratio, net present worth, financial rate of return , Internal rate of return and Debt
Service Coverage Ratio
(vi) Assumptions made for calculating income and expenditure statement
(vii) Income and Expenditure Statement for next nine years
(viii) Sensitivity Analysis
(ix) Socio-economic benefits including employment generation and benefits to farmers
( x) Comments on the financial position of the borrowers/ implementing agency. In case
of companies, partnership firm or society an analysis of their financial position and
audited financial statements for last three years
(xi) Infrastructure available for project implementation
(xii) SWOT Analysis
(xiii) Conclusions and recommendations

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