Note: This blog post was originally published on the MIT Public Service Center website. It’s the third post in a blog series sharing findings from a research project I’m working on throughout the month of January.
January 14, 2012
Paul Artiuch and Sam Kornstein are graduate students at the MIT Sloan School of Management. Throughout the month of January they are researching market-oriented approaches to reducing agricultural food waste in India. They will be sharing their project scope and some of their findings in this blog series.
Cold storage facilities, essentially refrigerated warehouses, can reduce agricultural price volatility, helping to minimize food waste and increase income for various supply chain stakeholders. The benefits of cold storage are simple: most types of produce have shelf lives ranging from just a few days to a couple weeks when kept at room temperature. Farmers and traders are forced to quickly get their produce to consumers, even if there’s too much supply in the market. This can result in low prices that often don’t even cover the price of production and transport. In the most extreme cases, when the market is flooded with a particular item, it makes more economic sense for farmers to just let certain crops rot in the field, rather than spend the time and money to harvest them.
Cold storage can extend the shelf life of produce for months or longer, buying farmers and traders valuable time. Fruits and vegetables can be stored while prices are low and there’s little demand, and then released into the market when prices rise again. Since this process regulates supply, it helps stabilize prices over time, which is one of the reasons produce prices in developed countries are less volatile than those in developing countries.
India lacks sufficient cold storage for the majority of the country’s produce. However, in recent years there’ve been significant investments made by both the private sector and the government to increase capacity. While this is a positive trend, enormous challenges remain. We met with two privately owned cold storage trading companies based in Delhi, and learned something interesting. Since cold storage can be so expensive, as it requires capital investments and large amounts of energy, it’s most profitable to use the capacity to store high-value imported goods that are generally consumed by the more affluent customers.
We took a tour of one facility, a giant nine story refrigerated warehouse in North Delhi, and were surprised by what we saw. Imported products such as apples from Washington State, tangerines from China, and kiwis from Italy filled the majority of the shelves. These products sell for as much as fifty times the value of many locally grown products, and as a result, paying to store them to avoid waste and maintain quality makes economic sense. There are exceptions though. One of the firms we met was investing in state of the art cold storage facilities to store and ship Indian-grown apples and other fruits from the foothills of the Himalayas to the rest of the country.
For less expensive products – such as potatoes, onions, and tomatoes – that are prone to rotting and are staples for the majority of the lower income population, the cost of cold storage can exceed the value of the goods. The government has stepped in and subsidized storage in many areas, but this support often doesn’t address the problem.
Potatoes are a perfect example. A couple years ago there was a potato shortage in India, and prices spiked. In response, many farmers grew potatoes in the following seasons, and as a result, there’s now too much supply and prices have plummeted. Many potatoes have ended up in subsidized cold storage facilities; however, in some regions, prices are so low it’s not even worth harvesting them. In protest, many farmers have been leaving piles of rotting potatoes in the streets to show the government their dissatisfaction.
While cold storage has clear potential to reduce food waste, it’s apparent that without innovation, price reductions, thoughtful policy, and subsidies, the storage capacity will not be filled with the low-value crops that are both food staples across India and are also most likely to go to waste.