Cold chain logistics & storage
Cold chain logistics & storage
Business Model Description
Invest in cold chain logistics systems, including refrigerated warehouse, long haul transportation, distribution center, and last-mile delivery.
There are mainly six modes to provide services: 1) Warehousing services. 2) Long haul transportation services. 3) City delivery services. 4) Comprehensive services that integrate low-temperature warehousing, long-haul transportation, and city deliveries. 5) Traders, mainly wholesalers of agricultural products. 6) Supply chain-driven services.
Expected Impact
Help customers farmers producers and retailers suffer from less loss of agricultural products destroyed due to improper logistics
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
- China: Hainan
- China: Heilongjiang
- China: Xinjiang
- China: Sichuan
- China: Guangxi
Sector Classification
Food and Beverage
Development need
China is confronted with many challenges on its way to sustainable agricultural development. Chinese agricultural sector remains vulnerable and is not resilience to disasters, with homogeneous crop varieties and lack of diversity in livestock and poultry varieties. Under the COVID-19 pendimic, food and beverage safety become significantly important.
Policy priority
In 2017, Rural Vitalization Campaign came out as one of the highlights of the 19th CPC National Congress. Prioritizing the development of agriculture and rural areas are also featured in the Party leadership's proposals for formulating the 14th Five-Year Plan (2021-2025). In addition, the pandemic has brought food security again to policy focus
Gender inequalities and marginalization issues
In developing countries, women farmers are 20-30% less productive than men farmers. Most women farmers lack equal access to agricultural knowledge and technology. Smallholders produce only a third of the total value of the agricultural food supply due to their lack of access to non-staple seeds, land, and profitable markets.
Investment opportunities introduction
Agriculture sector account for 25% of China’s total employment by the end of 2019. Although China’s agriculture shares in GDP declined sharply over time, it is still an important force for the growth of other sectors.
Key bottlenecks introduction
There are about 600 million farmers in China. Over 90% of China’s agricultural sector comprises small-scale farmers with low levels of education and limited purchasing power. The trend that employment flows into to urban areas in young people changed the demographic structure of the agricultural sector. China also struggles with a lack of arable land.
Food and Beverage Retail
Development need
According to China’s Progress Report on Implementation of the 2030 Agenda for Sustainable Development (2019), China’s per capita natural resources for agriculture is below world averages. Moreover, the development of agriculture is key to rural development and raising rural residents’ income.
Policy priority
The 13th Five-Year Plan for National Agricultural and Rural Informatization Development promoted technology enhancement in agriculture. The Technical Guidelines for Green Agricultural Development (2018-2030) urged further R&D, demonstration and application of smart agricultural technologies, including smart sensing and real-time monitoring.
Gender inequalities and marginalization issues
In developing countries, women farmers are 20-30% less productive than men farmers. Most women farmers lack equal access to agricultural knowledge and technology. Smallholders produce only a third of the total value of the agricultural food supply due to their lack of access to non-staple seeds, land, and profitable markets.
Investment opportunities introduction
5 IOAs with the highest potential: “AIoT farming solutions”, “farm machinery and equipment”, and “drone-based agriculture” can scale up production. “New ways of farming through third-party service agencies” alleviates the common problems of fragmented land ownership and labour shortages. “Cold chain logistics and storage” improves food safety.
Key bottlenecks introduction
“AIoT Farming Solutions” is still in the stage of experiment and demonstration, and it will take alonger time to see returns. There are relatively few innovations, startups, and investment activities. Active investors
are mainly foreign PEs and industrial investment players. A large share of the investments in this field flow to agricultural production.
Agricultural Products
Pipeline Opportunity
Cold chain logistics & storage
Invest in cold chain logistics systems, including refrigerated warehouse, long haul transportation, distribution center, and last-mile delivery.
There are mainly six modes to provide services: 1) Warehousing services. 2) Long haul transportation services. 3) City delivery services. 4) Comprehensive services that integrate low-temperature warehousing, long-haul transportation, and city deliveries. 5) Traders, mainly wholesalers of agricultural products. 6) Supply chain-driven services.
Business Case
Market Size and Environment
> USD 1 billion
The market was about RMB339.1 Bn in 2019. It is estimated it will reach RMB550 Bn by 2025
Qianzhan.com, 2020, https://www.qianzhan.com/analyst/detail/220/200629-626725fe.html
Indicative Return
15% - 20%
As per input from 6 experts, the IRR is expected to be about 10%-20%. Experts estimate that the rate of return of cold chain logistics will be higher than that of third-party agricultural services, but lower than that of AIoT farming solutions, farm machinery, or agricultural drones.
Net profit margin of companies listed on New OTC market in 2018 ranges from -2.4% to 8.1%. Net profit margin of cold chain logistics industry is about 3%.
Investment Timeframe
Short Term (0–5 years)
It is estimated by 5 experts that it takes approximately 3-5 years for investors to see cash flow.
Ticket Size
Several investment institutions which invested in Qingdao Hiron Commercial Cold Chain Co., Ltd., a cold chain equipment manufacturer, have achieved an IRR of more than 40%.
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Business - Business Model Unproven
R&D - Techonology
Impact Case
Sustainable Development Need
95% of fruits and vegetables in China are transported and sold at normal temperature. The annual loss of fruits and vegetables within the logistics chain in China is as high as USD8.9 billion, accounting for 30% of total annual output.
Statistics also show an annual loss of 12 million tons of fruits and 130 million tons of vegetables.
Around 25%-30% losses of vegetables and fruits occur along the supply chain from farm picking, transportation and warehousing before reaching consumers. The high rot rate not only brings hundreds of billions of yuan of waste every year, but also brings great food safety risks.
Gender & Marginalisation
Due to the limitation of technology level and economic development level, people in underdeveloped areas cannot receive refrigeration service.
Women working in cold chain logistics is underrepresented.
Expected Development Outcome
Cold chain logistics increases the market efficiency, ensures the quality of food and reduces the waste and loss by keeping food in the specified low temperature environment along the supply chain.
The development level of cold chain networks determines the operation cost. With lower logitsic cost, cold chain logistics will provide farmers with easier access to market.
Gender & Marginalisation
Cold chain logistics & storage can provide complete frozen logistics services for people in remote and poor areas, so that people can enjoy better quality and advanced food or medical items.
The development in cold chain logistics chan bring more job opportunities for women.
Primary SDGs addressed
12.3.1 (a) Food loss index and (b) food waste index
2.3.2 Average income of small-scale food producers, by sex and indigenous status
2.4.1 Proportion of agricultural area under productive and sustainable agriculture
Secondary SDGs addressed
Directly impacted stakeholders
People
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Planet
Corporates
Outcome Risks
It requires heavy asset investment and high-level operations management. Consumers tend to lack awareness of the food safety and food waste issues related to the storage and transportation processes.
Impact Risks
As cold chain logistics needs to be conducted in a low temperature, it consumes more energy than normal temperature storage. Therefore, how to reduce the carbon emission remains to be a challenge.
Impact Classification
What
The outcome is likely to be positive, important and largely intended. The investment increases food safety and help avoid food waste.
Who
Consumers will get agricultural products of better qualities while farmers have less loss in terms of storing and transporting produces.
Risk
It requires heavy asset investment and high-level operations management. Consumers tend to lack awareness of the food safety and food waste issues related to the storage and transportation.
Impact Thesis
Help customers farmers producers and retailers suffer from less loss of agricultural products destroyed due to improper logistics
Enabling Environment
Policy Environment
(Policy document): In July 2019, the construction of cold chain logistics facilities in urban and rural areas was included in the Political Bureau meeting of the CPC Central Committee. Governments of all levels are increasing investments.
(Policy document):Among the national policy documents, 15 of which were related to cold chain of agricultural products.
(Policy document): "No.1 Central Document" issued in February in 2020 (11), outlining guidelines for agricultural and rural work, has made it clear that the government will start the construction project of cold chain logistics facilities of agricultural products storage and preservation.
(Policy document): In June 2020, the State Council issued a document proposing to promote the application of innovative cold chain logistics equipment, such as mobile cold storage.
(Policy document): In July 2020, the National Reform and Development Commission announced a list of 17 national backbone cold chain logistics bases. The selected bases are encouraged and required to further strengthen the transformation of cold chain logistics facilities and equipment.
Financial Environment
Financial incentives: The document of ""Notice on the Construction of National Backbone Cold Chain Logistics Base in 2020"" announced a list of the first batch of 17 national backbone cold chain logistics bases in 2020. Each selected base will receive RMB40 million to RMB50 million of state funding.
Fiscal incentives: In March 2019, the Ministry of Finance and the Ministry of Commerce issued a notice to allocate RMB200 million of subsidy to each province nationwide to support the development of agricultural products processing and cold chain logistics.
Other incentives: In March 2020, Ministry of Agriculture issued a policy stated that each agricultural products backbone cold chain logistics base can get up to RMB 30 million funding and the construction of cold chain logistics facilities can apply for up to RMB 20 million funding.
Regulatory Environment
(Regulation): China’s cold chain logistics sector is still in an early stage of development. The market is not yet standardised, and there is a need to strengthen the legal and regulatory framework.
(Regulation): A report released by the New E-commerce Research Institute at People.cn argues that while over 200 standards related to cold chain logistics have been introduced, supervision and enforcement must be improved.
(Regulation): At present, the lax enforcement of standards makes it difficult for genuine cold chain logistics operators to survive in the market, as other companies are able to operate intermittent cold chain supplies.
Marketplace Participants
Private Sector
In 2018, a Rural Revitalisation and Development Fund was set up in Henan province by China Minsheng Investment Group, Henan Agricultural Development Corporation and Zhongyuan Bank. The Henan fund receives guidance from stateowned agencies, with investment deals led by Minsheng.
Government
Hainan Provincial Department of Agriculture and several companies jointly set up "Hainan Rural Revitalization and Development Fund" in 2018. Cold chain and logistics services infrastructure is one its key investment areas.
Multilaterals
Now that the cold chain logistics sector has been recognised as a strategically important investment area, different levels of government have been setting up guidance funds and co-investment projects.
Target Locations
China: Hainan
China: Heilongjiang
China: Xinjiang
China: Sichuan
China: Guangxi
References
- (21) Woshipm.com, 2019, http://www.woshipm.com/it/2968005.html
- (22) People.com.cn, 2020, http://download.people.com.cn/temp/three15876914701.pdf
- (23) People.com.cn, 2020, http://download.people.com.cn/temp/three15876914701.pdf
- (24) Bao.hvacr.cn, 2020, https://bao.hvacr.cn/202007_2088418.html
- (25) Sohu.com, 2019, https://www.sohu.com/a/321289813_99936581
- (26) Wuliujia2018.com, 2019 http://www.wuliujia2018.com/html/47821.html
- (27) Qianzhan.com, 2020, https://www.qianzhan.com/analyst/detail/220/200629-626725fe.html
- (28) Qianzhan.com, 2019, https://bg.qianzhan.com/trends/detail/506/191225-8b4271d2.html
- (29) Dahe.com, 2020, http://newpaper.dahe.cn/hnsb/html/2020-07/20/content_431821.htm
- (30) Sohu.com, 2019, https://www.sohu.com/a/368165593_608787
- (31) State Council, 2020, "China No.1 Central Document of 2020", http://www.fao.org/faolex/results/details/zh/c/LEX-FAOC192850/
- (32) Gov.cn, 2020, http://www.gov.cn/zhengce/2020-02/05/content_5474884.htm