Agricultural Cold Storage Facilities
Agricultural Cold Storage Facilities
Business Model Description
Provide affordable and energy efficient cold storage services for small and medium farmers close to farming areas for perishable agricultural products (meat, dairy, fruits and vegetables). Internal return rates for building agricultural cold storage facilities to provide the needed services are pegged at ~15%-20% based on recent public-private partnership feasibility data.
ORCA Cold Chain Solutions (ORCA), incorporated in 2017, is a subsidiary of ISOC Holdings and operates as a cold chain company that aims to deliver technology-driven cold storage solutions to the Philippine Market. It operates two cold chain facilities in the Philippines, located in the cities of Taguig and Caloocan, with 20,000 and 15,000 pallets, respectively. (31) By the end of 2021, the total funding raised by ORCA was about USD 7.7 million.
Fresh Depot, newly founded under the Aboitiz Group, is an innovative cold chain solution company that envisions lessening fresh produce wastage and optimizing food supply in the country. Through its physical and digital platforms, it aids farmers to optimize their yield and income using data. (21) As of May 2023, Fresh Depot had two pilot cold storage projects in Buenguet and Nueva Vizcaya. (20) (21)
In October of 2022, a prototype solar-powered ice plant named Sahaya was constructed by AASC technologies and launched in the Datu Mantil Fish Port. It produces 600 kg of ice per day and is expected to tackle the key problem of ice storage at the beginning of the supply chain of the fishing community. (26)
Expected Impact
Increasing access to affordable food and reduce losses from food wastage and spoilage with the help of logistics and storage solutions.
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Philippines: Central Luzon
Sector Classification
Food and Beverage
Development need
Food security has been a cross-industry development need for the Philippines. Pre-pandemic Surveys (2019) done by the Food and Nutrition Research Institute show that 60% of households worry about food (2).
Development Need
Malnutrition is also attributed to reduced learning capabilities, a developmental aspect critical to the Philippines. Stunting which is characterized by low height-to-age ratio was measured at 28% in 2019 with 5.8% low weight-to-age ratio termed wasting. UNICEF estimates that due to the pandemic, progress in these fronts have regressed further. (3)
Policy priority
The Philippine Development Plan for 2023 to 2028 extensively discussed its strategy for Food Security, with the following aspects as priority for the governments strategy: 1. Improved production capacity for agriculture, land and fisheries. 2. Improve investments in logistical solutions for the food supply chain. (1)
Gender inequalities and marginalization issues
Surveys between male and female household headship show around 5% more households under males have expressed insecurity for their daily food intake. A much larger contrast is shown between rich and poor families within the Food Security 2019 survey of the Food and Nutrition Research Institute with 12% at least moderately insecure. (3)
Investment opportunities introduction
Food security is one of the key priorities highlighted in the Philippine Development Plan for 2023 to 2028. Investments for public private partnerships around affordable food supplies, logistics and cold storage solutions, as well as community development were expressed as key foci of the current administration. (1)
Key bottlenecks introduction
The Philippines is still considered to have a low level of mechanization at 1.23 horsepower (hp)/ha for all crops. Further, the geographical location and physical environment of the Philippines make it susceptible to typhoons, earthquakes, and volcanic eruptions, causing huge damage and losses to the agriculture sector.
Food and Agriculture
Development Need
In the Philippines, substantial post-harvest losses of up to 50% were recorded from the initial harvesting, grading, packaging and transportation from field to storage and distribution to the consumers. For onion, for example, about 35% is lost due to disease and damage. Cold storage and refrigerated trucks can recoup the 29% in the production and distribution of cabbage. (8)
Policy priority
Several programs are in the works to help farmers and fisher folk increase agricultural production, resiliency, and access to markets. The Philippine Rural Development Project (PRDP) is in line with the Department of Agriculture’s “new thinking” in agricultural development. An additional funding amounting to USD 170 million for PRDP was made with the World Bank. (1)
Gender inequalities and marginalization issues
Among the main sectors, farmers and fisherfolk families have the highest poverty incidence, with 34.3% and 34% respectively. (5) Low farm gate prices lower the income of farmers and high retail prices reduce food access to low income families. Cold storage services can minimize the losses of poor farmers and increase profits in the long-term.
Investment opportunities introduction
National priorities to improve longevity of harvest to provide better income options for farmers, local investor fora from Quezon City and Capiz have shared similar interest and preparedness for agricultural logistic solutions such as cold storages and food hubs. A 2016 study shows that around about USD 128M are lost in rice wastage alone. (7)
Key bottlenecks introduction
Challenges in connecting prospect local developers, investors and actual users can be a bottleneck for the investments. However, recent commitments from local governments provide clear signal for additional support and appetite for such investments.
Pipeline Opportunity
Agricultural Cold Storage Facilities
Provide affordable and energy efficient cold storage services for small and medium farmers close to farming areas for perishable agricultural products (meat, dairy, fruits and vegetables). Internal return rates for building agricultural cold storage facilities to provide the needed services are pegged at ~15%-20% based on recent public-private partnership feasibility data.
ORCA Cold Chain Solutions (ORCA), incorporated in 2017, is a subsidiary of ISOC Holdings and operates as a cold chain company that aims to deliver technology-driven cold storage solutions to the Philippine Market. It operates two cold chain facilities in the Philippines, located in the cities of Taguig and Caloocan, with 20,000 and 15,000 pallets, respectively. (31) By the end of 2021, the total funding raised by ORCA was about USD 7.7 million.
Fresh Depot, newly founded under the Aboitiz Group, is an innovative cold chain solution company that envisions lessening fresh produce wastage and optimizing food supply in the country. Through its physical and digital platforms, it aids farmers to optimize their yield and income using data. (21) As of May 2023, Fresh Depot had two pilot cold storage projects in Buenguet and Nueva Vizcaya. (20) (21)
In October of 2022, a prototype solar-powered ice plant named Sahaya was constructed by AASC technologies and launched in the Datu Mantil Fish Port. It produces 600 kg of ice per day and is expected to tackle the key problem of ice storage at the beginning of the supply chain of the fishing community. (26)
Business Case
Market Size and Environment
USD 100 million - USD 1 billion
5% - 10%
country’s current cold storage capacity by 10% to 15% annually
The Philippine Board of Investments predict cold chain to become USD 270-360 million industry by 2023 (15) Reported demand for foodstuffs by the CCAP generally indicated annual growth rates of 4–12% (16) In 2021, the Philippine Board of Investments estimated that the Philippine cold chain industry is expected to be approximately USD 400 million in 2023. (15)
The Philippine Board of Investments (BOI) estimates that the cold chain industry in the country will reach around $378.4 million in 2023. (29) The Philippine Cold Chain Roadmap launched in 2020 aims to increase the country’s current cold storage capacity by 10% to 15% annually, or an additional 50,000 pallets annually to satisfy rising demand or about USD 16 Million revenue annually. (30)
According to the Cold Chain Association of the Philippines, Inc (CCAP), cold storage capacity is expected to grow by 8-10% in the next 5 years, with 10% growth resulting in an equivalent of additonal 50,000 Metric Tons (MT) of cold storage capacity. Additionally, food spending was identified as the main driver of cold storage industry in the Philippines. (16)
Data from the Philippine Institute of Development Studies recorded upto 2 million kilograms of daily food waste coming from NCR in 2017. Another study published by the University of the Philippines, Los Baños notes that various agricultural food crops often face estimated net loss rates as low as 2% of the production or as high as 44% due to logistical reasons. (26) (28)
Indicative Return
15% - 20%
> 25%
> 25%
Feasibility studies by the PPP Center on Cold Chain have calculated IRRs from 20–25% (17) The Asian Journal of Postharvest and Mechanization presents an ROI of 110–115% for food storage (27) Estimates from the onlion cold storage industry indicates gross profit margins of 50% and above (29)
Recent feasibility studies provided by the country's Public-Private-Partnership Center (PPPC) presents estimated project internal rates of return (PIRR) and equity internal rates of return (EIRR) ranging from 10-20%. (17) Depending on the structuring of the PPP project, this PIRR and equity IRR may increase to a range of 20-25% (17).
A case study conducted in Bongabon, Nueva Ecija, notes that the financial performance of a near-ambient temperature storage system has an ROI of around 116.43% (17)
Investment Timeframe
Long Term (10+ years)
Revenue may be generated as soon as construction of cold chain infrastructure is completed. PPPC documents on cold chain projects estimate a 1.5 year construction time period. Revenues on these projects are highly dependent on the customers it can secure. However, due to high capex and operating costs of a such facilities, returns may require a longer timeframe to achieve.
Ticket Size
> USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Market - High Level of Competition
Impact Case
Sustainable Development Need
According to the October 2022 mobile vulnerability analysis and mapping (MVAM), one out of ten households in the Philippines are food insecure. (25) Meanwhile, the UN's 2022 State of Food Security and Nutrition in the World report showed around 5.9 million Filipinos were undernourished in the 2020-2022 period, the second highest in Southeast Asia. (26)
The food crisis is caused by various issues, including limited infrastructure to link farmers and markets. (27) High logistics costs is one of the main factors that pushes up market prices of food. (24) Farmers are often shortchanged by low prices of goods during harvest season due to oversupply of food items (24)
Gender & Marginalisation
The 2022 MVAM results indicate that the poorest regions, including BARMM, Region VIII, and XII, are the most food insecure. BARMM, the country's poorest region, records food insecurity above 30%. Agricultural households (25%) are more food insecure than non-agricultural households (9%). Investing in post-harvest infrastructure, like cold storage, will help reduce inequality. (26)
The Household Food Insecurity Access Scale 2018 showed that households engaged in agriculture are more likely to be food insecure. (42)
Expected Development Outcome
Food hubs can help lessen food prices by reducing the needed layers of traders and resellers in the food supply chain, thereby addressing the issue of food insecurity. Storage facilities also provide better income opportunities to farmers who can chose to store their produce rather than selling it at a loss or incurring losses due to spoilage.
Availability of storage facilities improves the stability of supply of food items, especially during off-production seasons.
Gender & Marginalisation
Solutions that stabilize food prices can contribute towards improving food security levels for low-income households which are severely affected by price fluctuations, and thereby improve their families' quality of life. Farmers and fisherfolks have the highest poverty incidence, 34.3% and 34% respectively, and solutions that help improve the stability of their income will be productive.
Primary SDGs addressed
2.1.1 Prevalence of undernourishment
Households meeting 100% of energy intake recommendation have regressed from 31.7% in 2013 to 19.5% in 2019. Further regression is expected due to the impact of pandemic
The Philippine government aim to achieve 45.5% of families with 100% energy intake by 2030
1.1.1 Proportion of the population living below the international poverty line by sex, age, employment status and geographic location (urban/rural)
An ADB study done in 2021 on the Covid-19 impact on Micro, Small and Medium-Sized Enterprises under the lockdown revealed that temporary closing of micro, small, and medium-sized enterprises under the lockdown have greatly contributed to unemployment.
The Philippines aim for a poverty line level of 5.4% by 2030.
10.1.1 Growth rates of household expenditure or income per capita among the bottom 40 per cent of the population and the total population
The current growth rate of those among bottom 40% of the population is at 1.2% while the total population is at 2.7 as of 2021 (28)
The target of the Philippines is to reach a growth rate for the bottom 40% that will be HIGHER than the growth rate of the total population by 2030 (28).
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
Inadequate coordination and poorly designed terms of agreement between farmers and cold storage service providers can lead to larger, more consolidated farms receiving preferential treatment, potentially exacerbating the disadvantages faced by small-scale farmers. Roads and infrastructures may destroy green covers or may displace certain organisms from their habitat.
Gender inequality and/or marginalization risk: If designed poorly, the facility will negatively affect women famers which constitute 39% of the total sector
Impact Risks
Inefficient supply chain and logistics will continue to push up prices and worsen food insecurity. Without transition to low emission energy supply, cold storage will increase electricity consumption, which in turn will increase emissions. Gender inequality and/or marginalization risk: If access to facility is difficult, it could hamper those from far flung areas to maximise impact of investments.
Impact Classification
What
Improve access of small and medium farmers to cold storage services for perishable agricultural products especially in marginalized areas, resulting in less production losses and better food prices
Risk
Working with local governments can cause delay in permits for constructing necessary infrastructure
Contribution
Necessary infrastructure to minimize travel time and wastage which is as high as 44% due to logistical reasons
Impact Thesis
Increasing access to affordable food and reduce losses from food wastage and spoilage with the help of logistics and storage solutions.
Enabling Environment
Policy Environment
RA 8435 (Agriculture and Fisheries Modernization Act of 1997) "Construction of farm-to-market roads shall be a priority investment of the LGUs which shall provide a counterpart of not less than ten percent (10%) of the project cost subject to their IRA level." (11)
National Agriculture and Fisheries Modernization and Industrialization Plan 2021-2030 presents various plans and frameworks of the government in achieving the sector goal. It comprises of 3 interrelated component plans on commodity, regions and functions. (12)
Farm-to-Market Road Network Plan (FMRNP) presents "systematic list of existing and proposed roads detailing their connectivity and links to agri-fishery" key areas. (13)
Financial Environment
For Agri-Fishery Industrial Business Corridor, Provision of preferential rates (i.e. lower than standard) and special window to private investors by the LBP, DBP, ACPC, PCIC, and other government and non-government lending institutions (i.e. through direct linkages by the Department of Agriculture). (12)
Income tax holidays for specific number of years (depending on the local government, 3-5 years) and low to zero-rated value-added tax (VAT) on transactions involving the sale and purchase of food and non-food and input products in all identified Corridors. (24) In agro-industrial ecozones, a special 5% tax on gross income in lieu of all national and local taxes.
Exemption from the payment of duties on the importation of agricultural equipment, machinery, and implements. (12)
Regulatory Environment
The Department of Agriculture issued guidelines the implementation of registration guidelines and the issuance of permit to operate for stakeholders involved in agricultural and fisheries machinery production and trade, to address information assymetry that restricts fair trade. (14)
RA 10000 (Agri-Agra Reform Credit Act of 2009) states that mandates all government and private banking institutions to allocate at least 25% of their total loanable funds for agriculture and agrarian reform beneficiaries (ARBs). (17)
Marketplace Participants
Private Sector
San Miguel Corporation, Zagana, Safe Express Logistics, Feastsaver, Mayani, RICE Up Ayala Land, SM Prime Holdings, Megaworld Corporation Aboitiz Equity Ventures, First Pacific Company Limited, Ayala Corporation's Ayala Ventures Bank of the Philippine Islands (BPI), Metropolitan Bank and Trust Company (Metrobank), Development Bank of the Philippines (DBP)
Government
Department of Agriculture, Department of Public Works and Highways, Local Government units, National Economic and Development Authority
Multilaterals
Asian Development Bank, Worldbank, United Nations Development Programme, World Food Programme, United Nations Food and Agriculture Office
Non-Profit
Kasagana Ka, Food Rescue PH, Community Pantry PH
Public-Private Partnership
Public-Private Partnership Center of the Philippines
Target Locations
Philippines: Central Luzon
References
- (1) NEDA. Philippine Development Plan 2023 to 2028. https://pdp.neda.gov.ph/philippine-development-plan-2023-2028/
- (2) Food Security Survey 2020. http://enutrition.fnri.dost.gov.ph/site/uploads/2019%20ENNS%20Results%20Dissemination_Household%20Food%20Security%20%20Status.pdf
- (3) INFF. Development Finance Assessment 2022. https://medium.com/@jp.inff.ph/2022-development-finance-assessment-shows-ph-financing-landscape-in-the-time-of-covid-19-and-the-68dcc39bcc19
- (4) UNEP. Food Waste Report 2021. https://www.unep.org/resources/report/unep-food-waste-index-report-2021
- (5) PSA. Farmers and Fisherfolks Individuals Have Highest Incidence of Poverty. https://psa.gov.ph/content/farmers-fisherfolks-individuals-residing-rural-areas-and-children-posted-highest-poverty#:~:text=In%202018%2C%20farmers%2C%20fisherfolks%2C%20individuals%20residing%20in%20rural,at%2031.6%2C%2026.2%2C%2024.5%20and%2023.9%20percent%2C%20respectively.
- (6) Manila Bulletin. Farmers Also Suffer on High Agri Retail Prices. https://mb.com.ph/2021/01/22/farmers-also-suffer-from-rising-cost-of-farm-commodities-at-retail/
- (7) Mopera, Lotis. Food loss in Food Value Chain. https://www.jstage.jst.go.jp/article/jdsa/11/1/11_8/_pdf#:~:text=The%20loss%20amounted%20to%207.3%20billion%20pesos%20in,than%202%20million%20Filipinos%20could%20have%20been%20fed.
- (8) Mopera, Lotis. Food Loss in the Food Value Chain: The Philippine Agriculture Scenario. https://www.jstage.jst.go.jp/article/jdsa/11/1/11_8/_pdf#:~:text=In%20the%20absence%20of%20storage,unspecified%20storage%2C%20threshing%20and%20handling.
- (9) Congressional Policy and Budget Research Department,House of Representatives (2021) . https://cpbrd.congress.gov.ph/images/PDF%20Attachments/Facts%20in%20Figures/FF2021-35_Food_Insecurity.pdf
- (10) Congressional Policy and Budget Research Department,House of Representatives (2022) . https://cpbrd.congress.gov.ph/images/PDF%20Attachments/Facts%20in%20Figures/FF2022-71_Consumption_Patterns_Among_Fil_Households_2021.pdf
- (11) RA 8435. https://www.officialgazette.gov.ph/1997/12/22/republic-act-no-8435-s-1997/
- (12) Department of Agriculture (2022). https://www.bfar.da.gov.ph/wp-content/uploads/2022/08/06232022_NAFMIP-2021-2030.pdf
- (13) Department of Agriculture. http://bafe.da.gov.ph/index.php/2022/03/23/http-bafe-da-gov-ph-wp-admin-post-phppost12278/
- (14) Department of Agriculture. http://bafe.da.gov.ph/wp-content/uploads/2022/10/PTO-PROCEDURAL-MANUAL.pdf
- (15) Business World (2021). https://www.bworldonline.com/editors-picks/2021/01/12/338565/boi-sees-cold-chain-industry-revenue-at-p20-billion-by-2023/
- (16) BOI, CCAP, and the Department of Trade and Industry (2020). "Cold Chain Industry Roadmap 2020-2025". https://ccaphils.org/ccapnew/newsletter/Philippine-Cold-Chain-Industry-Roadmap-2022-2025.pdf
- (17) PPPC Feasibility Study Presentation on the Establishment of Cold Chain Systems Covering Strategic Areas in the Philippines (not available online)
- (18) Orca Cold Chain Solutions. https://orcacoldchain.com/wp-content/uploads/2022/06/ORCA-Cold-Chain-Solutions-IPO-Prospectus.pdf
- (19) Orca Cold Chain Solutions. https://orcacoldchain.com/cold-storage-facilities/
- (20) Fresh Depot. https://www.freshdepot.ph/
- (21) 33) Philippine News Agency (2023). https://www.pna.gov.ph/articles/1200734
- (22) CNN (2021). https://www.cnnphilippines.com/news/2021/10/18/smc-opens-san-miguel-market-sariaya.htm
- (23) Department of Agricluture. http://bafe.da.gov.ph/wp-content/uploads/2023/04/JMC02_S21_DOLE-DA-TESDA-Manpower-Complement-Operators_Technicians.pdf
- (24) Oversupply https://www.gmanetwork.com/news/topstories/nation/865895/some-farmers-throwing-away-their-produce-as-oversupply-affects-income/story/
- (25) World Food Programme (2022) https://www.wfp.org/publications/wfp-philippines-food-security-monitoring-october-2022
- (26) Busines World Online (2022) https://www.bworldonline.com/top-stories/2023/07/14/534036/nearly-51m-filipinos-face-food-insecurity-un-report/#:~:text=Around%205.2%25%20of%20the%20Philippine,in%20Southeast%20Asia%20averaged%205.2%25.
- (27) Carnegie (2022) https://carnegieendowment.org/2022/07/13/why-philippines-is-so-vulnerable-to-food-inflation-pub-87467.
- (28) Philippine Statitics Authority (2022) SDG Watch https://psa.gov.ph/sdg/Philippines/baselinedata/quality_education
- (29) International Trade Administration (2022). Philippine Cold Chain Sector: Market Intelligence. Acccessible at https://www.trade.gov/market-intelligence/philippine-cold-chain-sector
- (30) Aviso Library https://askaviso.com/aviso-library/cold-storage-is-the-philippines-hot-sector/