Connecting Bhutanese Farmers to Market with Cold Chain Logistics

Background

Bhutanese agriculture is characterized by isolated small land holding farmers who do not have assured access to market.  Transporting small quantity, particularly the fresh produce, by individual farmer to a distant market does pay off in economic terms. 

Traditionally the focus of agriculture development was on increasing agriculture production with no consideration on return on investment.  It was believed that by increasing crop yield the income earning for the farmer would increase.  The assumption was the cost of inputs and technologies would not affect income earning much and market for farm produce were taken for granted that once surplus production is there market would be available.  These assumptions turned out to be wrong and the progress of the production led policy was heavily constrained by increased cost of production and the disconnection between farmers and the market.

Providing market to the Bhutanese farmers across the country now calls for corporate engagement.  A public sector corporate body is inevitable to play the role of a buyer, warehouse operator, transporter and retailers. 

With right policy support and fiscal support the private sector can efficiently connect farmers with market and create job in the private sector.  The private sector can take up the business of collection, reefer storage, transport and distribution which however should guarantee good return on investment.  A department within the bureaucracy cannot accomplish this task.  Doing a trading job by bureaucratic institutions will remain ineffective and inefficient and the private sector will not prompt until the return on investment is guaranteed.

Until the produce of every Bhutanese farmer does not reach the consumer market, the livelihood of Bhutanese farmers will remain impoverished.  For providing market for fresh produce at the national level, construction and efficient operation of cold chain is inevitable.  Only with the cold chain in place, other B2B (Business to business) initiatives like contract farming and agro processing could to be prompted. 

Much resource has been spent and many options have been tried, yet most Bhutanese farmers have remained disconnected from the market.  It is this lacuna which has been the reason why Bhutan is unable to achieve self sufficiency in vegetables. 

Bhutan should have been the net exporter given the natural advantage of wide range of attitudes in the country.  There is insatiable market across the border in India during whole of summer season and it is during season Bhutan has the ideal growing condition at mid and high altitude areas.

It was assumed that when farm roads are constructed, farmers will bring their produce to the market and self sufficiency in food would be achieved.  The local markets at Dzongkhag and regional levels will be full of fresh vegetables.  Farm roads have now reached most villages, yet the import of rice, edible oil and fresh vegetables continues to rise. 

Connecting farmers growing small volume of fresh vegetables at distant locations to the markets was long been felt.  Based on this long felt need, the strategy of having a cold-chain in the country has to be realized without which the agriculture development will remain an unfulfilled dream. 

The cold chain is inevitable to provide the logistic service from the point of production to consumers.  Besides providing market for every Bhutanese farmer the cold chain will minimize huge post-harvest loss and control high retail price.

The development of cold-chain should be justified by the objective of achieving self –sufficiency and self-reliance in fresh fruits and vegetables, and promotion of agro-processing.  With the market being there farmers would be prompted to adopt commercial farming and earn profit with higher return on investment.

However, for justifying investment decision for having cold chain, there is lack of data on production and market demand to assess the expanse and size of cold-chain facilities.  It has been the constraint to specify the policy incentives for prompting private sector investment in establishing and operating some or all of the components of the cold chain.  It is an area where public-private-partnership (PPP) model could be pursued in the event of the absence of public sector corporate body.

Understanding of Cold-chain Logistics

Fresh produce have short shelf life and their holding period even when in the cold-chain is short. 

Presenting fresh produce at retail shops at their best quality standards is a challenge particularly when the scale of production at individual farm level is small and scattered, and away from the major markets and the markets at the national level are disconnected.  In such situation a cold chain logistic is inevitable, without which it is not possible to connect farmers with markets. 

The cold chain becomes imperative if the nation is committed to be self-sufficient and self reliant on food particularly fresh fruits and vegetables.  In fulfilling this national objective it is inevitable to engrain the economic perception making Bhutanese agriculture profitable for which enabling farmers to adopt technologies and linking every farmer to market are absolutely necessary.

A cold chain alone links a farmer producing fresh produce to a consumer.  A cold chain is more than a cold storage and all its components must be operated as system and not in isolation.  Each component must be strategically located and linked to each other as a single unit.  The basic components and their desired locations are:

Sl No	Cold-chain Components	Desired Location
1	Pack-house (PH)	In production areas
4	Cold Storage -Bulk	Close to production areas
3	Cold Storage –Hub.	Close to markets./ distribution center.
2	Reefer Transport	From pack-house to wholesale buyer
6	Last Mile Transport	Within a mega market
7	Front-end retailing	Last mile merchandising

The basic features of the major components of a cold-chain:

Pack-House (PH)

Pack-house is the starting or entry point of a cold-chain. 

A pack-house does to job of aggregation of small volumes typically produced by Bhutanese farmers having small land holding.

It consists of facilities for pre-cooling, sorting, grading, washing, packaging, and staging (cold room). 

A cold room is a necessary use for temporary storage of produce until dispatch. 

Cold Store -Bulk

Cold Store –Bulk is designed for bulk storage of perishable produce.  It is built near the production areas and it is fed by a number of Pack House around it.  It is relatively large in size and linked to Pack Houses of the area and to the Cold Store –Hub.

It is designed for longer duration storage so as to build an inventory buffer for stabilizing and sustaining the supply to Cold Store –Hub.

Cold Store -Hub

Cold Store -Hub is designed for short-term storage and handling.  It is built near to major markets to serves as a distribution logistics platform for front-end retailers. 

Reefer Transport

Trucks having fixed insulated body equipped with active refrigeration referred as ‘reefer transport’ is necessary for transport of fresh produce particularly from Cold Storage-Bulk to Cold Storage –Hub.

Based on storage temperature requirement of different fresh produce, the cold storage chambers are segmented into four segments based on temperature:

1.  Chill

The majority of fruits and vegetables are stored at ‘Chill’ condition in which the temperature range is between 0oC and 10oC.

 2..Mild Chill

Typical tropical fresh fruits and vegetables are stored at “Mild-Chill” condition of which the temperature range is between 10oC and 20oC.

3..Normal

“Normal” refers to uncontrolled ambient conditions for non cold-chain products, e.g. Onion which may be stored at 20oC temperature or at higher than 20oC.  

4..Frozen

“Frozen” refers to extreme cold temperature below -180C and generally referred as deep freezing. 

Justification for Investment on Cold Chain

Bhutan has diverse agro-ecology which naturally provides immense opportunity to become self sufficient in fresh vegetables.  However, vegetables are imported on a regular basis from India across border undermining the long felt commitment for self sufficiency and self reliance on food. 

Importing large amount of fresh vegetables throughout the year on regular basis not only draining huge amount of INR contributing to trade deficit but also has kept Bhutanese farmers deprived of the opportunity of earning income from growing vegetables. 

Bhutanese farmers at national level at distant locations have remained disconnected from the market for two reasons.  Firstly it is due to lack of infrastructure for aggregation, warehousing and moving the products to the consumer market, and secondly due to lack of corporate approach with public sector corporate body responsible for buying farm produce from the farmers and operating the warehouse and cold chain at the national level. 

Bhutan can achieve its goal of becoming self-sufficient in fresh vegetables with economic upliftment of small land holding Bhutanese farmers. 

Cold chain infrastructure could be built by the government and let a mandated public sector corporate body to operate the cold chain.  Trading job by the bureaucratic departments, be it for agriculture inputs or for farm produce is simply not the right thing to do.  Nonetheless in Bhutan the agricultural inputs are traded by different institutions of the bureaucracy and there is a department of marketing for marketing within the bureaucracy. 

If right policy support is provided and investment by private sector is incentivized which guarantees return on investment, private sector would come forward for investment and operation of cold chain.

If the cold chain is put in place and private and corporate entities are given the task of operating the cold chain, the self-sufficiency in fresh vegetables will be a guaranteed outcome. 

With the cold chain in operation jobs for the youth would be created along the value chain and Bhutanese farming would become more business like enterprise.

STRATEGIC DIRECTION

Lack of information on the dynamics of market demand and the production trend and assessment of potential presents an uncharted environment for making right investing decision with regards to size and scale of cold chain.  It is therefore a techno-economic feasibility study is needed to provide a basis for right policy decision for establishing a Cold Chain Logistics.

Such a study should provide strategic direction to develop appropriate cold-chain infrastructure cross tabbed with production and demand trends to ensure economic viability.

The study should provide a comprehensive assessment of the requirement of end-to-end uninterrupted cold-chain following the farm-to-fork model based on information on production and market demand forecast generated and ascertained by primary and secondary research data.

The perceived cold-chain when put in place and managed should ensure uninterrupted supply of fresh vegetables to the consumer market at one hand, and on the other hand ensures market to the farmers at the national level.

Specifically the study should determine the requirement of cold-chain infrastructure specifying the size, numbers and locations. 

Cold-chain supporting agriculture and food industry is a thriving area for private sector if the policies are right and guaranteed.  It is an area where public and private sector could come together to ensure stability of the economy and food security of the nation.  The policy however must be grounded for most appropriate business model.

Since operating the cold-chain requires knowledge and specific skills in several areas including knowledge of product specific storage requirements, good practices in handling & packaging of food products, and skills required for the operation of cooling technologies, the study should provide inputs for capacity building.

For the strategic policy decision makers, the availability of the following information will determine the success: “Current production and growth potential vis-a-vis the demand of the domestic markets cross tabbed with population and its growth.”

The availability and accuracy of the above information will determine the accuracy of the plan in terms of size and scale of the essential components of cold-chain logistics.

Detailing the size and scale of pack house, cold stores, reefer trucks and accurate cost-benefit analysis is necessary for investment decision.  Hence the baseline information on production, market demand and population dynamics must be sufficient and accurate. 

Normally an inverse approach is pursued to have the baseline information starting from the market and population end.  To be successful it is advised to adopt the approach, methods and technologies, which have been tested and proven to be successful for projects of similar nature.  However, one should always explore the opportunities to further improve methodologies for delivering best output possible.

The current production may exceed the demand but in the scenario where demand exceeds the production, the initiative for increasing the production should be prescribed. 

Hence the production and consumption data remains the main determinants for assessing development needs of cold-chain infrastructure.

For detailing the design of cold stores, it is necessary to have the information of the volume of product groups having different holding life.  It will provide the basis to have cold rooms by temperature range as chill (0-10⁰C), mild-chill (10-20⁰C), and normal conditions (at or above 20⁰C).

The primary research should generate the real time data with the objective to assess the present production and market scenario, aiming to determine the requirement of cold-chain in size and scale. 

The primary data on production and growth both in crop yield and production area, and market should be obtained through participatory questionnaire survey through direct interview method and/ or focused group discussions.  

The secondary research should involve collection of available statistical data on production, size of demand of domestic markets, import and export volumes, and views of stakeholders.

The data should be carefully analyzed using standard statistical tools such as SPSS software or Excel Spreadsheet.

Based on the information gathered, per capita consumption should be determined and the market demand should be projected using the population growth figure and the per capita consumption. 

The production projection should be supported by the scope of increasing the crop yield (production per unit area and time) and the scope of increasing the area under the influence of market demand.

The size and scale of cold chain is determined with market demand cross tabbed with production potential. 

Using the thumb rule, a space generally considered for 1 mt of fresh produce is 3.4 cubic meter of volumetric capacity for all products.

The pack house which is considered not in operation throughout the year, a unit with handling capacity of 16 MT could be considered following a standard norm.  A multiple of this unit capacity could be considered for each production area, if justified. 

With regards to reefer transport, the quantity and frequency of demand should be used to estimate the kind and number of reefer vehicles.

POLICY DIRECTION

Importing food compromises the national commitment for self-reliance and economic independence.  Hence food should be imported only upon exhausting the possibilities and economic advantages of growing food in the country. 

Food sovereignty should always be the highest priority of the nation.  The focus of developing agriculture should be on increasing production of healthy food, keeping environment clean and earning high return on investment.

Now the climate change has become a reality.  For food importing countries the source of food supply or the supply chain could be disrupted when disasters happen.  Hence it is inevitable that Bhutan should have a law to ensure support, improve and promote food production and marketing within reasonable limits, and realize the national goal of self reliance.

Bhutan has come a long way without a basic law on food and agriculture.  It is perhaps now is the high time to have a basic law on food and agriculture to stabilize and improve the life of rural dwellers and to develop national economy.  Such a law alone would ensure achieving national objective of self-reliance through comprehensive and systematic policies on food, agriculture and rural areas by means of basic principles, strategies and actions clarifying the responsibilities of national and local governments. 

Acknowledging the multi-functional role of agriculture in sustainable development, such a basic law should guarantee minimum food supply even in situation of disasters so that no significant adverse impact is on the normal life of the citizens and smooth operation of the national economy.