AdaNI INSTITUTE OF INFRASTRUCTURE MANAGEMENT, AHMEDABAD | Quantitative Model for Cold Storage Location Choice | Submitted to | Prof. Debjit RoyOn 01.03.2014ByGroup-IIIAbhishek DuttaAnkesh KumarRakesh ThakurSrikant Sharma |

EXECUTIVE SUMMARY:
Cold Chain Sector has been recognized as one of the sunrise sector of the Indian Food Industry. It is indeed very true that for a country like India which is the largest milk producer in the world, second largest producer of fruits and vegetables and has a substantial presence in the production of marine, meat and poultry products, the Cold Storage Facilities are not enough. Because of the shortage in cold storage warehousing and cold storage transportation vehicle, Indian agricultural sector is facing pre and post-harvest losses of around 30-40%. As per the survey of “National Centre for Cold Chain Development (NCCD)” these valuable agricultural food products if restored and processed in a maintained environment would have generated a revenue of around 8-15 billion USD per annum.

Project Profile: We have planned to set up Cold Storage Warehouse and Cold Storage Transport Vehicles in order to procure fruits and vegetables from the farmers and process it and deliver it to the nearest market thereby maximizing the profits of the farmers. For this purpose we have selected the city of Ahmedabad as our nearest deliverable market. The procurement will be done from three places namely Mehasana, Anand and Junagadh.
Project Motivation: The main motivation behind the project is to procure the food from the farmers and generate maximum revenue for both by processing and selling the products in the market. We have selected a few location wherein fruits and vegetables shall be procured from the nearby agricultural area and cater the bigger urban markets nearby. The motivation for the project originated from the market scenario prevailing for pre and post-harvest losses and also the revenue that can be generated by catering these unutilized food products in the urban markets.

Approach and Analysis: We have tried to gather the requisite information about the fruits and vegetable production of Gujarat through various sources and analyse the data’s to come to a preferred location for setting up the facilities. We have also tried to gather information about the potential market where the processed products can be sold so as to maximize the profits of both the farmers and our organization.
We have also formulated a quantitative Linear Integer Model for our project that will help in evaluating the Procuring and Transportation cost of the project so as to give a better perspective for the project.
Relevant Issues and Challenges:
The followings are some of the challenges in cold storage infrastructure in India: * High Operating Costs: * Operating cost accounts for INR 80-90 per cubic feet (double compared to western countries) of Cold Storage Warehousing Space. * Total Infrastructure Cost is very high at around 30% of the Project Cost compared to only10% for Infrastructure facilities in Western Countries * Cost surges due to power deficit and frequent power failures (investment in back-up systems) * High Infrastructure and Capital Investments: * High capital investment to facilitate integrated cold storage warehouse and advance technology e.g a fully integrated cold storage facility with international standards with 1 million cubic feet of storage space will require an acre of land (with a very huge investment going to acquire the land) * Lack of Advanced Technology: * Lack of advance technology for storing diverse kind of commodities and lack of refer (refrigerated trucks) for transportation of these commodities to different places as and when required. * Strategic Issues: * Majority of cold storages are concentrated in states like UP, Uttarakhand, Maharashtra, Gujarat, Punjab & West Bengal * Establishment of Cold Storage facilities should include the strategic issues like * Distance to be travelled by the commodities * Nearness to consumer in terms of consumption * Effective utilization of transport modes available

TABLE OF CONTENTS:

MOTIVATION FOR THE PROJECT:
India is one of the largest agricultural, dairy, poultry, marine and meat producers in the world. India is also one of the largest exporters of food products in the world. But on account of less Cold Storage Facilities across the country, most of the produce (around 30-40%) is being wasted. This in turn results in a huge loss of export revenue which accounts to around 7-12 billion USD per annum.
The major focus of the project is not on international export but domestic storage and supply of fruits by procuring from the local farmers and supplying to the urban markets. The motivation for the project came from various factors. Firstly, Gujarat is a major producer of fruits and vegetables across the country. But there exist a huge supply and demand gap within the state due to the reason of insufficient cold storage facilities. Though there is a high demand of fruits across the major metro politian areas across Gujarat, most of the supply gap exist due to the pre and post-harvest losses of the fruit produce. These gaps can be reduced if Cold Storage Facilities can be set up at a equi-distance from the farmer’s land and the supply market (from where it would be supplied to the consumer).
Secondly, Gujarat has been connected with well-developed roads and has better basic infrastructural facilities like Drainage and Sewage Systems. Also the state has adequate supply of power and the issues of power shortage are heavily minimized.
Thirdly, the Government of Gujarat is heavily subsidizing the Cold Storage Facilities in a view of attracting more investment in the sector and thereby making Gujarat a preferable location for setting up the Cold Storage Facility Business.
In the context of setting up the facility in the state of Gujarat, various factors have been considered which is elaborated in the Approach or Methodology section.

COLD STORAGE FACILITY PROCESS AND BUSINESS MODEL

The Cold Storage Operation generally involves procuring fruits and vegetables from the farmers, precool the products to remove the harvest heat which is one of the major causes of losses, transport the pre-cooled products to the nearby warehouse and store them as per the product characteristics, process the products for longer life of the fruits and vegetables and then supply the same as per the demand and location desired through refrigerated vehicles.
A typical cold storage network (for fruits and vegetables) comprises of * pre cooling facilities * transportation by refrigerated carriers * cold storage warehouses * sorting-grading-packaging at these warehouses * cold storage facilities at the retail points * information management system (tracing and tracking)

Location Selection for Cold Storage:
Plant location decisions are strategic, long term and non-repetitive in nature. Without sound and careful location planning in the beginning itself, the new plant may pose continuous operating disadvantages. Location decisions are affected by many factors, both internal and external to the organization’s operations.

Internal factors include the technology used, the capacity, the financial position, and the work force required.

External factors include the economic, political and social conditions in the various localities.

Most of the fixed and some of the variable costs are determined by the location decision. The efficiency, effectiveness, productivity and profitability of the plant are also affected by the location decision. Location decisions are based on a host of factors, some subjective, qualitative and intangible while some others are objective, quantitative and tangible.

The impetus to embark upon a plant location study can be attributed to reasons as given below:

· It may arise when a new plant is to be established.

· In some cases, the plant operations and subsequent expansion are restricted by a poor site, thereby necessitating the setting up of the facility at a new site.
· The growing volume of business makes it advisable to establish additional facilities in new territories.
· Decentralization and dispersal of industries reflected in the industrial policy resolution so as to achieve an overall development would necessitate a location decision at a macro level.
· It could happen that the original advantages of the plant have been outweighed due to new developments.
· New economic, social, legal or political factors could suggest a change of location of the existing plant.

Some or all the above factors could force a firm or an organization to question whether the location of its plant should be changed or not. Whenever the plant location decision arises, it deserves careful attention because of the long-term consequences. Any mistake in selection of a proper location could prove to be costly. Poor location could be a constant source of higher cost, higher investment, difficult marketing and transportation, dissatisfied and frustrated employees and consumers, frequent interruptions of production, abnormal wastage, delays and substandard quality, denied advantages of geographical specialization and so on. Once a plant is set up at a location, it is very difficult to shift later to a better location because of numerous economic, political and sociological reasons.

Factors Influencing Location Choice : The location choice for a cold storage mainly depends on the following factors:- * Price of Land * Area Available * Labor (Skilled & Unskilled) Availability * Parking Facilities * Electricity & Water * Basic Infrastructure * Geographic Location * Government Regulations * Raw Material * Supply & Demand Location

* Price of Land:
The price of the land selected plays a major factor as it is around 30-40% of the project cost. The price of the land should be reasonable enough for viability of the project. * Area Available:
The plot of land selected for cold storage must be large enough to hold the proposed structure and should provide room for future expansion.

* Labor (Skilled & Unskilled) Availability:
The availability of skilled and un-skilled manpower, the prevailing wage pattern, living costs and the industrial relations situation influence the location choice for cold storage * Parking Facilities
There should be sufficient space for parking of the incoming and outgoing vehicles for smooth operation of the cold storage. * Electricity & Water:
Electricity plays the most important role for uninterrupted operation of the cold storage. Hence, the selected site should have continous supply of electricity & water. * Basic Infrastructure:
The site should be accessible by road and rail and should be preferably in proximity to fire station, police station, plant services etc. * Geographic Location:
The selected site should not be in the earthquake zone and should have a leveled surface. * Government Regulations
Factors such as financial and other incentives for new industries in backward areas or no-industry-district centers, exemption from certain state and local taxes, octroi etc. are important. * Raw Material:
Sometimes accessibility to vendors/suppliers of raw materials, equipment etc. may be very important. The issue here is promptness and regularity of delivery and inward freight cost minimization. If the raw material is bulky or low in cost, or if it is greatly reduced in bulk viz. transformed into various products and by-products or if it is perishable and processing makes it less so, then location near raw material source is important. If raw materials come from a variety of locations, the plant / facility may be situated so as to minimize total transportation costs. The costs vary depending upon specific routes, mode of transportation and specific product classifications.

* Supply & Demand Location
There has to be customer/market for the products. The market growth potential and the location of competitors are important factors that could influence the location. Locating a plant or facility nearer to the market is preferred if promptness of service is required particularly if the product is susceptible to spoilage. Also, if the product is relatively inexpensive and transportation costs add substantially to the cost, allocation close to the market is desirable.