Agricultural cold storage infrastructure
Agricultural cold storage infrastructure
Business Model Description
Establish and operate cold storage facilities to aggregate and store agri-produce, where either (i) farmers or cooperatives invest, own and operate; or (ii) specialized supplier firms invest, own and provide services to farmers; or (iii) a specialized storage construction firm invests, then leases the storage to farmers.
Expected Impact
Increase income and reduce environmental footprint of agri-food supply chain via enhanced agri-food storage and market operation, and reduced food waste.
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
- Armenia: Ararat
- Armenia: Armavir
- Armenia: Aragatsotn
Sector Classification
Food and Beverage
In 2018, agriculture was 13.7% of GDP, 28% of export and 32.2% of labor (10). Key challenges in the sector include inefficient water use and pollution (water stress of 57.43% (4)), inefficient soil use and soil damage (32% agri-land utilized) (7, 8, 13), high food waste and loss (15% in cereals; 19% in roots and tubers; 20% in fish, and 23% in eggs subsector (9)) as well as low farmer incomes.
The Government Plan 2019-2023 promotes the efficient use of agricultural resources and improved access of irrigation water for all. Pillars of the Plan are to enhance the productivity and food security, expand exports, promote effective farming technologies (intensive orchards, drip irrigation, anti-hail systems, modern storage and machinery), and increase income from agricultural activities (1).
In 2018, 48% of labor in agriculture were women. They are more engaged in informal (and less secure) low skill field work, e.g. harvesting, sorting, and packaging. Women have low access to land, technologies, knowledge and finance, and are less likely to run their own farm. They are paid 35% less than men for their work (11). The Ministry of Agriculture was dominated by men, i.e. 62% men and 38% women (6).
Government support tools in agriculture include low interest rate leasing or lending programmes for farmers to invest in agri-machinery and equipment, technologies (intensive orchards, drip irrigation) and hail protection systems and greenhouses. The Government also leads a programme on promoting agricultural insurance systems (1, 6).
Key bottlenecks in agri-food include prevalence of fragmented smallholders (330,000, with less than 1.5ha each) and low cooperation, low productivity due to low investment in and inefficient farming and marketing technologies and practices, underdeveloped market infrastructure (e.g. low storage capacity), and low use of sustainable practices (3, 21).
Food and Agriculture
The Agriculture Development Strategy 2020-2030 aims at enhancing productivity and market operation in agriculture, development of agriculture data and forecasting systems. One of the key priorities is the promotion of modern facilities and technologies, including farming and post-harvest technologies (e.g. cold storage), modern greenhouses and irrigation, and disaster protection systems (14).
Agricultural Products
Pipeline Opportunity
Agricultural cold storage infrastructure
Establish and operate cold storage facilities to aggregate and store agri-produce, where either (i) farmers or cooperatives invest, own and operate; or (ii) specialized supplier firms invest, own and provide services to farmers; or (iii) a specialized storage construction firm invests, then leases the storage to farmers.
Business Case
Market Size and Environment
< 5%
175,000 tons of cold storage capacity deficit.
Based on assessments of industry experts, Armenia has a cold storage capacity deficit of at least 175,000 tons. This deficit is expected to expand given an expected 4% year on year growth of fruit/vegetable production (21, 27, 28).
Indicative Return
20% - 25%
20% - 25%
A medium-sized company running a cold storage facility achieved an IRR of 22%. A benchmark investee is deploying this business model at 21.5% gross profit margin (21).
Investment Timeframe
Short Term (0–5 years)
According to stakeholder information, a 20-ton capacity cold storage has a payback period of 4 years (21).
Ticket Size
< USD 500,000
Market Risks & Scale Obstacles
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Armenia suffers from high food loss and waste in the agricultural sector, such as 15% in cereals, 19% in roots and tubers, 20% in fish and 23% in the eggs subsector (9).
Armenia's productivity in agriculture lags behind the productivity of many peer countries, and the country's farmer have comparatively low incomes (30).
Gender & Marginalisation
Women have less job opportunities and lower wages compared to men in agriculture (11).
Expected Development Outcome
Reduced food loss and waste, as proper storage minimises agricultural product spoilage.
Reduced costs and improved marketing contributes to increasing the productivity of agri-production. This in turn enhances the performance of the agri-food supply chain, and increases income of farmers and other value chain actors.
Gender & Marginalisation
Better job opportunities for women in storage facilities.
Primary SDGs addressed
2.c.1 Indicator of food price anomalies
2.3.2 Average income of small-scale food producers, by sex and indigenous status
12.3.1 (a) Food loss index and (b) food waste index
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Planet
Corporates
Outcome Risks
Refrigeration units require the use of ozone depleting substances, such as ammonia, chlorofluorocarbon (CFC) and hydrochlorofluorocarbon (HCFC)., which negatively impact on the environment.
If not ventilated properly (and in sealed environments), cold storage facilities can produce nitrogen and carbon dioxide gases, presenting environmental emission.
Impact Risks
Smallholder farmers may have difficulties in following good production practices to ensure consistent quality of produce. This may diminish benefits for storage facility operators and buyers.
Benefits for women may be at risk if wage levels in storage facilities are low.
Impact Classification
What
The enhanced cold storage infrastructure will improve the well-being of farmers, and address market imperfections in agri-food supply chain via low waste, costs and high quality.
Risk
The model is proven and technology for fruit and vegetable storage (as well as grain silos) is readily available and affordable.
Impact Thesis
Increase income and reduce environmental footprint of agri-food supply chain via enhanced agri-food storage and market operation, and reduced food waste.
Enabling Environment
Policy Environment
The Government Plan 2019-2023 promotes the efficient use of and access to agricultural resources to improve food security and increase income from agriculture (1).
The Agriculture Development Strategy 2020-2030 prioritizes the enhancement of productivity and agri-market operations. One of the key priorities is the promotion of investments in modern technologies, including for cold storage to avoid post-harvest losses (14).
Financial Environment
Financial incentives: The Government offers a programme for subsidizing the lending and leasing of agri-foods equipment with an interest rate of 4% (6).
Fiscal incentives: Armenia extends VAT payments deferral of up to three years for imported agricultural equipment and goods within the scope of investment projects approved by the Government, including for storage infrastructure (22).
Regulatory Environment
Cold storage facilities are subject to safety requirements under the Standard (GOST 12.2.233) on Working Safety of Requirements for Refrigerated Storage Facilities, which details requirements on cooling systems, materials and parts (29).
Marketplace Participants
Private Sector
Storage facility operators such as Ice House and ULC; exporters of fruits and vegetables such as Spayka; supermarket chains such as Yerevan City, SAS, Carrefour and Nor Zovq.
Government
Ministry of Economy, Ministry of Environment, State Food Safety Agency.
Multilaterals
World Bank, European Bank for Reconstruction and Development (EBRD), United Nations Development Programme (UNDP), USAID, European Union (EU).
Non-Profit
Farmer groups and associations such as the Federation of Farmer Associations.
Target Locations
Armenia: Ararat
Armenia: Armavir
Armenia: Aragatsotn
References
- (1) Government action program 2019-2023, https://www.gov.am/am/Five-Year-Action-Program.
- (2) National strategy and action program to combat desertification in the republic of Armenia, Ministry of Nature Protection of Armenia, http://www.mnp.am/uploads/1/1551885091anapat_eng-1.pdf.
- (3) Voluntary National Report (VNR) of Armenia, for the UN High-level Political Forum on Sustainable Development, 2018.
- (4) National strategy and action program to combat desertification in the republic of Armenia, Ministry of Nature Protection of Armenia, http://www.mnp.am/uploads/1/1551885091anapat_eng-1.pdf.
- (5) Sustainable Development Report, 2019, https://www.sdgindex.org/reports/sustainable-development-report-2019.
- (6) Ministry of Agriculture, www.minagro.am/պետական-օժանդակության-ծրագրեր.
- (7) State Cadaster Committee, Armenia, https://www.cadastre.am/storage/files/pages/pg_4062968307_22.pdf.
- (8) Intended Nationally Determined Contributions of the Republic of Armenia under the UN Framework Convention on Climate Change (UNFCCC), https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/Armenia%20First/INDC-Armenia.pdf.
- (9) FAO, Food Waste and Loss in Armenia, http://www.fao.org/3/a-au842e.pdf.
- (10) World Bank, Development Indicators, https://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=AM&view=chart.
- (11) Statistical Committee of Armenia, Labor Market in Armenia, 2019.
- (12) Statistical Committee of Armenia, Food Security and Poverty in Armenia, 2019, https://www.armstat.am/am/?nid=82&id=2125.
- (13) Statistical Committee of Armenia, https://www.armstat.am/file/article/eco_booklet_2018.pdf.
- (14) The Strategy of Main Directions of the Development of Agriculture of Armenia 2020-2030, https://mineconomy.am/en/page/1467.
- (21) UNDP interviews with stakeholders, 2019.
- (22) Investment Guide Armenia, Ministry of Economic Development and Investment, 2017, http://uk.mfa.am/u_files/file/invest/investinarm.pdf.
- (23) Agro-investment Guide Armenia, https://www.eda.admin.ch/dam/countries/countries-content/armenia/en/Investment%20Guide.pdf.
- (24) FAO AQUASTAT, http://www.fao.org/nr/water/AQUASTAT/data/query/results.html.
- (25) Tackling the Challenge of Smallness in Agricultural Market, 2016, G. Gabrielyan et al, Center of Agribusiness and Rural Development (CARD), Armenia.
- (26) Greenhouse Crop Supply Chain Review: Armenia, 2016, G. Gabrielyan, Washington D.C. World Bank Group.
- (27) Report on capacities of cold storages operating in Armenia, P. Asatryan Zh. Aghajanyan, 2012, Fund for Rural Economic Development in Armenia (FREDA), http://freda.am/wp-content/uploads/2015/06/51.pdf.
- (28) Logistics Capacity Assessment, https://dlca.logcluster.org/display/public/DLCA/2.6+Armenia+Storage+Assessment.
- (29) Standard (GOST 12.2.233) on Working Safety of Requirements for Refrigerated Storage Facilities, https://www.sarm.am/am/standards/view/133804.
- (30) FAO FAOSTAT, http://www.fao.org/faostat/en/#data/QC.
- (31) The Strategy of Main Directions of the Development of Agriculture of Armenia 2020-2030, https://mineconomy.am/en/page/1467.