Several investors have exited the rural infra segment over the past few years. because they could not achieve the scale they wanted to, perhaps because of wrong strategies. This year, can it be the switch that the government can use to trigger economic growth back on track? Experts from warehousing and logistics industries tell us.Aditya Bafna, Director, Shree Shubham Logistics (SSLL)What plans do you have in rural infrastructure?SSLL has set up its own Agri Logistics Parks (ALPs) providing end-to-end logistics solutions providing storage, preservation, commodity funding, collateral, management, testing and certification, fumigation & pest management, commodity procurement, trading and exports and branded commodities.SSLL has its own world-class infrastructure at 12 locations with a storage capacity of approximately 2 lakh mt through an investment of Rs 130 crore across the states of Rajasthan and Gujarat. SSLL has currently entered its Phase II expansion plan in the states of Madhya Pradesh, Maharashtra and Rajasthan and is in the process of creating additional storage capacity of around 3.30 lakh mt with an investment of around Rs 200 crore. Total floor plate area of around 2 million sq ft will be developed. So the company will have around 5.60 million sq ft under its umbrella.How much is connectivity responsible for food grains not being evacuated from warehouses?It is not the connectivity which is an issue, but the poor handling during transportation and storage, lack of technology in food grains supply chain management and refrigerated transportation systems, poor testing and assaying procedures are some of them. These issues need to be fixed on an urgent basis. There is a disconnect in domain knowledge and resource (space) allocation. There is storage space available but look at where they are located. Take mustard, Guntur chilli or especially cumin, 80 per cent of whose production is in Rajasthan but the market is Unjha in Gujarat. So whichever commodity you look at, the story is the same: The trading place is in one location and the place of production in another location. Storage should be located to enhance and enable trading.Do you see public-private partnership (PPP) in rural logistics as workable?Why not? PPPs primarily represent value for money in public procurement and efficient operation. The PPP approach can provide a better platform in developing an integrated agri-value chain, linking various stakeholders of agriculture market. Successful replication of PPP models across various production hubs for key commodities can lead to the evolution of Indian agriculture from inefficient, supply-driven, low value business scenario to an organised, high-tech, demand-led and high-value orientation.Are private players such as you willing to hire and train local people for this purpose?The farmers and local people are educated now, thanks to the various commodity exchanges, initiatives like the NCDEX and N-SPOT Exchanges. These initiatives have shrunk distances by providing an online platform to farmers, and also the media which has played a prominent role in shaping the needs of the rural consumers and making them the large untapped market for all the private players. A farmer no longer feels obligated to sell his produce at the nearest mandi, making it clear that we need to have warehousing facilities aligned with the changing market dynamics. Hiring local people would not only give us the local touch and support in the area but would also help us to understand the specification in terms of local government policies, working of the environment, the market conditions etc, giving us an edge in training them and generate local employment.Should private players propose their own activities to be under PPP in rural areas, such as water supply?The private sector can help deliver more effective social services such as education, health, nutrition, water supply, wastewater treatment, and solid waste management. An example of public-private partnership in social infrastructure development is where private operators supply in bulk treated water to public waterworks distribution networks. The use of information technology, as in distance learning and telemedicine, presents opportunities to extend the reach of these services, especially to the poor. There are also opportunities to involve the private sector to achieve more effective and efficient delivery of essential services, for example, by contracting out to the private sector the provision of publicly funded social goods and services.PPP is gaining momentum because of the limited resources available with the states. The private players who have the requisite capacities to share the financial, technical and operational risks are venturing to have contractual partnerships with the states. PPP model is a viable alternative to accelerate the development of infrastructure in a state and it is not synonymous with outsourcing with retention of operational risks by the public partner. Nor it should be taken as an exercise of donation from a private party or borrowing by the state. It has to be seen as a partnership with a balanced risk bearing by both the parties with allocation of responsibilities to a party best positioned to control that activity and get desired results.Would it be easier if the government’s portion of the partnership and other clearances can be obtained by the government (through land banks etc.) beforehand?The concept of an agri-logistics park is still nascent and involves huge expenditure. Private companies are not keen on participating though there is enough and more money to be made in agri-logistics. To participate in the agri-logistics sector, and more specifically food grain logistics, a company needs to have deep pockets. The return on investment (ROI) involves a long cycle time and most companies don’t see value in such investments. Payback period for a warehouse is 12 years. Most trading companies do not want to make this sort of investments in setting up warehouse facilities due to uncertainty in government policies.The industry clamours for better incentives that the government can provide by way of a tax break. Even a 5-7 per cent tax break will help us. We are not seeking a tax holiday. Logistics players who are servicing the agricultural market also do not want to get clubbed under the larger category of infrastructure providers such as real estate builders and developers as this further act as a deterrent even for fledgling firms looking to participate in the PPP model that agri-logistics requires.Shree Shubham Logistics, the rural logistics subsidiary of Kalpataru
Power Transmission Ltd, is engaged in creating commodity warehouse parks
and plans to add 3.30 lakh tonne additional storage capacity over the
next three years.A Srinivasa Ramanujam, Business Head, Adani Agrifresh LtdHow do cold chains benefit from logistics in reaching markets? What has been your experience?While there has been investment in back-end infrastructure such as pack houses for fruits, corresponding investment in reefer logistics has not happened. As a result, moving fruits through reefer trucks is more expensive particularly for companies like ours in Himachal Pradesh, as we need to bring them empty to our pack house to load apples for markets. Here too, we need to pay a lot of money to send reefer trucks to non-metro cities as the trucks have to return to metro cities to pick up cargo on their return trip. Hence encouragement to reefer logistics will help in moving fruit economically and also to maintain cold chain integrity.Given a new thrust on rural connectivity how do you believe your business will change?Road connectivity to markets from orchards is extremely poor in HP and this leads to a lot of damage during the transport of fruits to the market. This is a huge economic loss to the country and hence any improvement in the road connectivity in the rural areas will go a long way in improving the realisation to farmers as well as lesser cost to consumers.Adani Agrifresh Ltd is engaged exclusively in backend fruit and
vegetable procurement and distribution, including integrated storage,
handling and transportation infrastructure, and handles 18,000 tonnes
of apples annually worth Rs 150 crore.Vineet Agarwal, Joint Managing Director, Transport Corporation of India (TCI)How does warehousing benefit from better logistics in reaching markets?The Indian warehousing and logistics sector has been growing at a steady rate of 8-10 per cent per annum. With sustained focus on sectors like manufacturing and retail, and with increasing domestic demand, the warehousing sector in India is likely to maintain its impressive growth rate in the long term. Efficient warehousing is an integral and crucial part of the business.The logistics sector in India has undergone a tremendous makeover. From a mere combination of transportation and storage services, logistics is fast emerging as a strategic function that involves end-to-end solutions that improve efficiencies and enhance growth prospects. The existing warehousing capacity of India is estimated to be 80 million tonne with additional requirement of at least 35 million tonne in the next 5-10 years. A well organised, transparent and effective hub and spoke network greatly enhances customer satisfaction levels and by faster access to markets. It also leads to cost optimisation with economies of scale and efficient inventory management.What multiplier effects do you see from the new thrust by the government on rural connectivity?The logistics sector has a huge potential to grow in rural areas of India. However, this potential is largely hampered by poor infrastructure connectivity. The need of the hour is to extend the logistics services to the rural areas. The Government of India has recognised the importance of infrastructure in the development of Indian economy, thus investing in the development of road networks. This has in turn resulted in bringing a considerable reduction in congestion and increase in the rural connectivity. Government spending and involvement of private players will catalyse the growth of the industry. The continued investment in infrastructure projects through PPP will also help in the sustained development.According to the Planning Commission estimates, investment in the infrastructure sector is expected to touch $500 billion by the end of 11th Five Year Plan. This kind of unprecedented investment in the infrastructure of the country is expected to provide impetus to the logistics sector in the coming year. Indications are that the government is keen to develop this sector by bringing investments through PPP.Introduction of GST hopefully by this year is another aspect that is all set to change the warehousing scenario in India. The proposed implementation of GST and the development of logistics parks and Free Trade Warehousing Zones (FTWZs) will speed up the formation of regional hub-based infrastructure and an environment conducive for rationalisation of the logistics network. This will help reduce intermediaries and streamline supply chain operations.How is connectivity responsible for food grains not being evacuated from warehouses?The concept of Agro Logistics Parks is still new to the Indian concept and requires huge expenditure. Retailers and manufacturers aim to not only present the product attractively to the shopper, but also provide good shelf life and should result in better yields for farmers. Managing an agile supply chain, with special focus on product quality and freshness therefore, in a way, funds for itself through increased sales and better service. Perishable items have limited shelf life and need speedy, temperature controlled logistics.This poses an arduous challenge of ensuring consistently the speed and dependability of specialised transportation, storage and handling systems. There is a lack of connect in the resource allocation and more concentrated efforts are required by all to change the scenario.Transport Corporation of India (TCI) is a multimodal integrated supply chain solutions provider with revenues of Rs 2,000 crore. Its supply chain division provides warehousing services.