Energy for Business

The ‘cold chain’ opportunity: Reducing postharvest losses and increasing market access for rural farmers

The uncomfortable truth about hunger and food waste

While the world is producing 17% more food than it did 30 years ago, almost half of that never reaches consumers. More than 815 million people globally suffer from hunger, a figure that is only set to increase as the world’s population is predicted to reach 9.1 billion by 2050.

Attention on food loss and waste is intensifying, as the increased amount of data and analytics on the topic is revealing an alarming scenario.

According to the Food and Agriculture Organisation of the UN (FAO), meeting growing demand will require an increase of 70% in food availability, while climate change and yields well below projections are reducing the opportunities for improving agricultural output. Regions like Sub-Saharan Africa and South Asia are expected to require an increase of 112.4%.

Increasing food availability does not only depend on growing food production, but also on reducing food losses and waste and making supply chains more efficient in matching present and future demand and supply. Postharvest losses (PHL) have begun to attract attention in recent years, but literature on the topic is still relatively thin and factors such as cold chain impact on loss reduction and improving livelihoods of smallholder farmers have not been thoroughly analysed.

In partnership with DFID and Shell Foundation, InspiraFarms explored the effectiveness of first-mile off-grid cold storage and modular food processing facilities in reducing PHL and facilitating access to higher-value markets for agribusinesses and smallholder farmers. The research applied FAO’s SAVE FOOD[1] methodology for conducting an extensive analysis of data-driven cases studies and qualitative analysis from several InspiraFarms’ clients in more than five countries in Africa and Latin America.

Photo credit: InspiraFarms. All Rights Reserved. 2019

About InspiraFarms

InspiraFarms offers certification-ready, small-scale cold storage and packhouses, accompanied by asset financing and technical services, to address the challenges of PHL and limited market access for small and growing agribusinesses and their supplying farmers.

InspiraFarms’ solutions are designed to make small and growing agribusinesses and smallholder-based value chains more competitive and sustainable. The company currently has over 50 units, representing 8,000sqm of cold storage and processing space either in the field or being manufactured. It has units operating in Kenya, Rwanda, Ethiopia, South Africa, Guatemala, Mexico, Colombia, Mozambique and India.

Understanding the impact of a ‘first mile’ cold chain solution

The research team evaluated the efficiency of cold chain on loss reduction and improving livelihoods of smallholder farmers by answering key questions:

  • To what extent can access to off-grid cold storage facilities in rural areas help reduce PHL for growing agribusinesses and their supplying smallholder farmers?
  • Can the use of externally certified, modular cold storage and food-processing facilities enable growing agribusinesses and their supplying smallholder farmers to access and directly benefit from higher-value markets?

Following the SAVE FOOD methodology, the study was performed under the following steps:

  • Screening, by doing literature review and interviews with key stakeholders;
  • Surveys forgathering estimates and observations of food loss or waste;
  • Samples for measurement of actual food losses in the field; and
  • Synthesis, with analysis and conclusions on the research findings.

InspiraFarms has obtained data from agribusinesses, the agri-food industry and public-sector reports about the direct economic losses and opportunity costs small and growing agribusinesses and their supplying smallholder farmers face due to the lack of cold storage solutions. As the case studies contain potentially sensitive information of the agribusinesses that were consulted, they will remain confidential.

Early cold chain significantly reduced postharvest losses by 25-50%

# ftnref5The long distances between harvest and distribution points, the lack of cold storage and poor transportation are the main drivers of PHL. Through the gathered data, one perceives levels of PHL can be higher than 30% as a result of a combination of factors, but a unifying theme is lack of cold chain infrastructure close enough to harvest points and the time lag in between harvest and first cold chain access, which causes high levels of over-maturation and dehydration.

In informal markets, over-maturation is the main reason for food losses, attributed directly to the lack of cold storage and infrastructure. Produce in informal markets usually does not enter into the cold chain (for which produce after harvest remains at 24 to 36ºC per day). This greatly reduces the value and shelf life of produce and therefore the amount of the produce that reaches wholesale and then retail.

Bananas without cold storage can have their shelf life reduced to only five days, rather that up to two weeks if they were in cold storage. This means that produce can lose 95%-100% of its market value within a window of two days while accruing physical losses of 30%-45%.

Formal value chains tend to have lower loss levels, ranging from 12% to 25%, as protocol compliance is required by suppliers. In this sector, the main cause of PHL are quality issues due to levels of dehydration, principally attributed to the lack of appropriate cold chain management. This means it is still common for farmers and agribusinesses to have difficulty in performing appropriate temperature management for specific crops.

Pre-cooling – the rapid removal of field heat shortly after the harvest of a crop – is often omitted or not appropriately performed and this is the main cause of early dehydration. Very often farmers do not have access to pre-cooling solutions or believe standard cooling solutions can be applicable.

For example, as reported by a 3rd party logistic provider, only 30%-40% of avocados are properly pre-cooled before being loaded into containers. This represents a quality issue that can result in rejections and losses further down the chain.

A recognised Kenyan exporter of fruit and vegetables reported that even in formal markets, the risk of dehydration is very high due to the long distances between the farms and the first cold storage available. This is then combined with logistical hurdles that increase delivery time and increase shrinkage and mechanical damage meaning dehydration can claim up to 5% of volumes just between collection points and the peri-urban packing center which in turn generates financial losses of up to $100,000/annum.

In this case the first-mile cold storage with pre-cooling capacity, provides additional annual revenues on the same volumes of up to €22,523 just for shrinkage reduction. Cooling within hours can extend the shelf-life of many fresh products from weeks to months, providing additional flexibility on export schedules, improved consistency and quality and reduced vulnerability to volatility.

A similar situation was reported from two agribusinesses in Kenya and Rwanda, who said that before acquiring an InspiraFarms cold storage, they struggled to maintain desired storage temperatures or control of high respiration rates when using reefer containers, which are not designed for cooling.

In the case of the Rwandan agribusiness, they were obliged to deliver to clients the same day they received the produce themselves. And even with a same-day delivery system, product quality was a major issue, with shrinkage being the top cause of PHL. The cold storage with pre-cooling capacity allowed the company to reduce the level of food losses and helped to increase their capacity and client base, moving from initially one, to then five new high-end hotels in the city, and they were able to start sourcing directly from 13 small farmers groups. The company increased their average monthly revenue by 447%.

The Kenyan company, a fresh produce distributor that was using reefer containers for cold storage and ripening management, reported that they incurred high energy costs to compensate for the standard stability of reefer performance and the lack of relative humidity control. Bananas incurred weight loss from increased respiration and a fall in water content, consequently reducing the post-harvest shelf life of the produce. With the integration of 20 cold storage units with ripening control system, the company reduced the rejection rate to 7.5% and the level of energy consumption was reduced from 62kWh to 35kWh per metric tonne.

Postharvest losses in Kenya - tomatoes lost on a rural road while waiting for transport to arrive. Photo credit: InspiraFarms. All Rights Reserved. 2019

Most fresh produce distributors in East Africa acquires cold storage to be placed close to the production site. Without that, distribution would be extremely complicated and would mean potentially risking 100% of the produce value within a day, with increased transport cost due the urgency to reach the cities.

East African exporters are aware of the opportunity cost that the scarcity of cold storage brings, and are increasingly demanding high quality 3rd party cooling and packing services. Most exporters lack their own infrastructure, and they rent the few, mostly peri-urban packing and cooling spaces available, with contracts based on a container numbers.

In cases in which 3rd party logistic (3PL) companies offer cooling services to exporters, the cooling is not designed for a quick and high temperature drop, which is essential for many export crops, such as avocados, berries and peas.

While this represents an opportunity for 3PL companies, most rented cold chain facilities remain located far away from the farms which means that rather than offering temperature control facilities designed to treat the product, they are only able to hold the already cooled-down batches at a given temperature. If the cold chain facilities were nearer it would enable reduced losses and increase the shelf-life of the produce.

Certification-ready facilities increased market access and income per unit of production by 33-100%

Certification-ready postharvest infrastructure is a key requirement for accessing high-end markets. Facilities that allow aggregation and primary processing activities such as sorting, cleaning, packing and storing the produce in cold storage, allow agribusinesses to offer higher quality produce to retailers on a more stable basis. This is often a pre-requisite without which the access to high value markets is precluded.

For many African fruit and vegetable agribusinesses and exporters, the need for a certification-ready facility is driven by the requirement to comply with the top food handling standards for produce aggregation, sorting and grading, as well as packaging for dispatch.

A Kenyan agribusiness reported that the establishment of a close-to-farm facility allowed them to drastically reduce the number of intermediaries and enabled them to buy directly from more than 200 farmers. This led to better prices being paid to the farmers, and thus added value and increased quality. All these factors help them reach higher value markets with more quality and efficiency.

The level of compliance with strict food safety and handling standards and certifications plays an important role in determining the type of markets an agribusiness and its supplying farmers can reach. One of the clearest indicators of the value of certification-ready facilities is the price difference offered to growers by markets with or without such requirements.

In the case of many Kenyan crops, the farm-gate price difference between informal domestic markets and export markets might be as high as 50%. For instance, the price of fresh beans in the informal domestic market is 20-30 KSH/kg, while in export markets the price goes up to 55-65 KSH/kg when measured during the same week.

At least five InspiraFarms’ clients in East Africa and Guatemala obtained an internationally recognised food safety certification such as ISO-22000 and HACCP after acquiring a certification-ready facility. This is allowing them to access local and international high-end markets and demand higher market prices.

A Rwandan fresh produce distribution company, that acquired a certification-ready small-scale packhouse with cold storage and food processing facility, obtained an internationally-recognised food safety certification (ISO-22000), that allowed it to find new business-to-business customers, particularly in the high-end hotel market. After obtaining certification, the company’s monthly sales have grown on average by 300% and monthly revenues by 477%.

Certification-ready processing facilities are also an opportunity to go beyond simple produce aggregation and perform value-addition, which significantly increases price. Impact can increased when these facilities are placed close to production areas, generating a source for local employment in rural communities.

An InspiraFarms’ client in Guatemala, a lead farmer who acquired a food processing facility installed close to crops of snow peas and sugar snap peas and who sources from more than 60 small farmers, has moved from being a raw produce supplier to now offer food-safe aggregation to export markets, and now is fully dedicated to processing and value-addition (grading, washing, cutting and packing) for leading agro-exporters. His processing capacity has doubled and now handles around 15,000lbs of snow peas and 10,000lbs of sugar snap peas daily. As well as this, the processed produce has increased their income substantially. For example, the price of snow peas price has grown by about 120%. Processing is also able to be done day and night and the facility hosts about 80-90 seasonal workers, of which about 30% are women.

Manual processing of green beans in rural Guatemala, using an InspiraFarms packhouse with cold storage of 120sqm. The facility is own and managed by smallholder farmers and was certified as food safe by Guatemalan authorities. Photo credit: InspiraFarms. All Rights Reserved. 2019

The new case for more investment in cold chain solutions in rural markets

# ftnref6Through a combination of case studies of a number of agribusinesses, including InspiraFarms’ clients in Africa and Latin America, relevant stakeholder consultation and academic literature review, the study demonstrates the growing impact first mile cold chain infrastructure can have on reducing PHL and increasing access to markets.

Early access to cold chain is a key requirement for agribusinesses and farmers to take advantage of the growing demand for fresh produce in both domestic and international markets that require consistent quality, large volumes and high levels of food safety. First mile access to cooling and to certification-ready facilities provides an opportunity for agribusinesses to reduce PHL and to store, aggregate and process produce sourced from a number of different farmers.

Despite this, the cold chain system is still weak or non-existent in some countries. Only about 10% of perishable foods worldwide are refrigerated. In most emerging markets, the cold chain growth is fragmented, usually concentrated in the urban centres and the cold storage capacity for fresh produce principally consists of large pack-houses with cold storage rooms.

In rural areas most farmers in the first mile of distribution lack the infrastructure required for developing the cold chain. As well as this, most farmers don’t have access to cold chain due to their inability to invest capital in infrastructure or due to the lack of cooling facilities close to them meaning they are at a relative disadvantage in the supply chain.

Cold storage solutions in Africa have followed patterns developed in geographies with different food system structures and tend to be large-scale and built in bricks-and-mortar. Besides the cost, these facilities are hard to finance due to their depreciation and require important energy and transportation infrastructures to be built, making it prohibitively expensive and not often possible in rural areas. The urgent need of solutions to create the right environment to effectively reach and serve large numbers of small farmers and agribusiness in the first mile of distribution, especially in terms of physical access and affordability, is boosting innovation in the sector.

InspiraFarm's off-grid packhouse with cold storage in rural Rwanda. Photo credit: InspiraFarms. All Rights Reserved. 2019

The application of modular, prefabricated and mobile components is bringing cost-effective solutions that are more liquid assets and can grow with the growth of producers and agribusinesses. Also cooling equipment has become more efficient and less energy intensive, with possible integration of solar powered systems.

Reducing the amount of energy used and integrating renewable energy sources means a drastic reduction of operational costs that combined with reduced postharvest losses can increase profits of farmers and agribusiness above 50%.

Cold chain business models are being innovated as well. Most countries in Africa lack well-developed cold chain third-party logistics, for which entrepreneurs and technology providers are starting to explore rental-based and on-demand business models to stabilize fresh product at source and increase quality throughout the supply chain.

InspiraFarms has recently launched an on-demand model for its cold storages with the objective of providing universal access to its energy efficient cold chain solutions. It focuses on farmers and agribusinesses operating on- or close to-farm, which require access to cooling, but can have investment or purchasing barriers. The model has been launched in Mexico, and it is being replicated in East Africa with the objective of growing fast in 2020 and 2021, cooling and treating thousands of pallets of produce per year.

It is expected each on-demand cold storage unit will benefit over 200 small-scale producers, with the potential to increase their overall net income by over 30% as a result of significant PHL reduction and increased quality standards.

Automated temperature control in cold storage for banana in Kenya. Photo credit: InspiraFarms. All Rights Reserved. 2019