Farm Irrigation Efficiency

Driven by a global population projected to reach just shy of 10 billion people by 2050, food demand is expected to increase between 30 - 62%, propelled by population increase and as higher per capita food consumption due to increasing wealth and purchasing power. Irrigation will be pivotal to ensuring continued food security, socioeconomic advancement and rural development while limiting habitat conversion.

The problem is, current irrigation technology such as flood irrigation that accounts for 85% of irrigated water, wastes as much as 70% of water. This results in various negative environmental consequences including groundwater depletion; land subsidence; increasing soil mineralization; and eutrophication of rivers and estuaries from excess nitrogen fertilizer runoff. The global average irrigation water efficiency, a measure of applied water utilized by crops, is very low - just 50% and can range from 25% in sub-Saharan Africa to less than 65% in the Mediterranean. Lifting of groundwater is also very energy intensive and releases greenhouse gas (GHG) emissions.

Micro-irrigation systems such as the drip and sprinkler methods deliver water directly to the roots of the plant, thereby boosting application efficiency and crop yield by up to 90%. This form of precision water application allows a reduction in water use by at least one-third. Other technologies such as real time soil moisture sensing and irrigation scheduling, solar-powered irrigation systems can help to reduce water demand while also avoiding the GHG emissions associated with groundwater pumping. As global warming is already adversely impacting precipitation patterns and hydrological cycles, adopting climate-smart irrigation will not only improve productivity but also sustainably manage water and increase system resilience.

Europe and Central Asia, Middle East and North Africa, and South Asia represent the regions most attractive for large‐scale irrigation investments, where there would be substantial benefits with limited negative effects.

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Est. Current Market Size and Est. Market Size in 5 Years: Outlook India/Fortune Business Insight, Business Wire, Spherical Insights

Is farm irrigation efficiency investable today and what is its level of maturity? What kind of investors would be interested in this opportunity?

As water has become scarcer and droughts have increased, investment interest is intensifying. It is our view that this trend will only continue, based on these factors:

• Growing water risk awareness: Large corporations such as General Mills, Kellogg, and Dole Foods have become increasingly aware of the risk water scarcity poses along their supply chains and have adopted measures to introduce water-efficient irrigation. For instance, PepsiCo started a pilot program using N-Drip’s technology – a micro-irrigation system – with farmers in India, Vietnam, and the U.S. The pilot saw improved crop yields with less fertilizer input and a 50% reduction in water use, compared to flood irrigation.
• Meeting food demand with less land: In order to satisfy projected food demand, the World Bank has estimated that the public sector will need to invest $26 billion to $50 billion annually until 2050 to expand irrigation by 32% to 70%.
• Wasting less, saving more: A study of drip irrigation systems in Egypt found that these systems could increase net return per hectare by 67%, compared with non-drip irrigation. The benefit–cost ratio amounted to 1.35, and the internal rate of return was above 25%.

For these reasons, opportunities for public and private funding appear to be substantial, and investors are already taking action.

Investments range from public and private irrigation infrastructure to water efficiency and management technology. In the last decade, agriculture technology (AgTech) has seen an explosion in venture investments, culminating in $30.5 billion in predicted total investments for 2020. Out of 36 deals listed for farm tech M&A and exit deals, irrigation technology comprised 20%.

Technology and services examples include:

• CODA Farm Technologies provides remote monitoring and control for agricultural irrigation. In January 2022, it raised $2.2 million in one round led by Lowercarbon Capital, with Voyager Capital, Arnold Venture Group, and others.
• Saturas has developed a sensor that measures Stem Water Potential (SWP). In its latest investment round, it has raised $3 million from former investors Gefen Capital and Hubei Forbon Technology, as well as from new investor Trendlines Agrifood Fund.
• IRRIOT is a smart irrigation start-up, emerging from the European Investment Bank’s 2021 Social Innovation Tournament. In February 2022, the startup was granted €0.5 million from the EIP AGRI via the Swedish Board of Agriculture, and in January 2022, it closed a €0.55 million investment round from LRF Ventures.
• N-drip is a micro-drip irrigation company with a valuation of $200 million. In over six rounds, the company raised a total of $81.4 million, with its latest Series C round occurring in June 2023.
• Jain Irrigation Systems, the largest micro-irrigation firm, raised $103 million from Mandala Capital in 2015, making it one of the largest tech investments in India’s agriculture sector. -In 2017, Permira, a U.K. investment firm with €44 billion AUM, exited Netafim, an Israel-based drip irrigation pioneer, for $1.9 billion. -Recently, Canada Infrastructure Bank announced plans to invest $1.1 billion in agricultural irrigation projects over the next three years. -In one of the biggest M&A deals in 2020, Temasek acquired a majority stake in Israeli micro-irrigation company Rivulis, in a [$365 million deal].
• Also in 2020, Israeli soil-sensing and data-analytics startup CropX acquired New Zealand-based Regen, a cloud-based, precision effluent and irrigation decision support tool company, in its second acquisition of 2020. CropX closed a $10 million Series B round in 2019 and has raised over $20 million to date. Investors that have participated include AgTech VC Finistere Ventures and Innovation Endeavors, the venture fund of Eric Schmidt, ex-CEO of Google.

What are the required and current capital flows in farm irrigation efficiency? Where are their sources?

As of 2018, 53.8 million hectares used improved irrigation techniques. Despite this progress, over 85% of all irrigation is still done by surface flooding, and approximately 52% of global irrigation is considered unsustainable. With an 8% increase in unsustainable water consumption between 2000 and 2015, farm irrigation efficiency is dire.

The use of advanced irrigation is projected to increase to between 187.71 million and 286.47 million hectares by 2050. This shift toward more efficient irrigation is crucial, as crops like wheat, maize, rice, cotton, fruits, and vegetables constitute 73% of global unsustainable water consumption, according to this 2019 report.

In Asia alone, the annual investment required between 2005 and 2030 for irrigation operations and maintenance is $12.31 billion.

Globally, the drip irrigation market is expected to grow at a CAGR of 10.08% from 2021 to 2030 and reach USD 12.15 Billion at the end of that period.

Where are the opportunities? OECD? Middle Income, developing countries?

Europe and Central Asia, the Middle East and North Africa, and South Asia represent the most attractive regions for large‐scale irrigation investments. A significant growth in adoption is expected in Asia. The continent houses 62% of the total irrigated area globally. Yet, only 7% of this area uses micro-irrigation techniques. Nonetheless, some researchers say that North America is expected to grow the fastest in the Drip Irrigation market.

Areas of unsustainable water consumption include northern China, the midwest of the United States, and the North Sahara in Algeria. The 8% increase in unsustainable water consumption from 2000 to 2015 came mainly from India, Pakistan, Mexico, and China. In the U.S., maize and cotton are significant contributors to unsustainable water consumption. India exports unsustainably produced cotton and rice mainly to China and Bangladesh. In Pakistan, 70% of unsustainable virtual water exports are tied to rice production, mainly going to China, Afghanistan, and Kenya.

OECD countries have the benefits of better governance and higher financial capability – to leverage policy and integrate the more-advanced irrigation systems that come with higher initial costs. In addition to further implementing more efficient irrigation practices, like micro-drip systems, OECD countries should focus on AI and sensors. According to this McKinsey report, “in North America, where yields are already fairly optimized, monitoring solutions do not have the same potential for value creation as in Asia or Africa, where there is much more room to improve productivity. Drones and autonomous machinery will deliver more impact to advanced markets, as technology will likely be more readily available there.” Developing countries have a larger proportion of subsistence farmers who lack the means to implement efficient irrigation systems, due to their high upfront costs. These regions represent crucial targets for investments in efficient irrigation. As Seth Siegel, N-Drip’s chief sustainability officer points out, an increase in yield can be transformative for subsistence farmers and their communities. Netafim has sourced $500 million to invest in large-scale drip irrigation in China and India. In India’s North Karnataka state, the $60 million N-Drip project will cover nearly 30,000 acres, cover twenty-two villages and benefit around 6,700 farms.

As for internet-of-things (IoT) solutions, digitizing irrigation systems would free significant time for farmers, but according to this McKinsey report, it is difficult to pair current physical infrastructure with digital innovation in a cost-efficient way. Thus, the focus should remain on implementing efficient and micro-drip irrigation systems first.

What is spurring growth? What is holding it back?

There are several impediments to growth in this sector:

• High initial costs: Initial setup for standard micro-drip systems are much higher than for conventional irrigation systems ($1,575.86 per hectare vs $671.37 per hectare). Therefore, although the long-term operational cost is significantly lower for micro-drip systems ($151.02 per hectare vs $274.04 per hectare for conventional irrigation) and the total lifetime operational savings would range from $534.6 to $938.58 billion, the initial cost for implementation is so high that farmers cannot access these benefits.
• Policy obstacles: Subsidized or low-cost water for farmers disincentivizes the adoption of efficient irrigation systems.
• Governmental neglect. Technologies such as micro-drip systems are only economically viable if there is reliable water infrastructure. But water infrastructure is most often controlled by governments. The infrastructure provided can be problematic at any level of country development, but is especially so for middle and low income countries.
• Educational gaps: For small-scale, subsistence farmers, transitioning from traditional to advanced irrigation methods requires adequate training and additional follow-up.

Nonetheless, water scarcity and the other issues mentioned above are both potent geopolitical and local problems that increasingly demand solutions. Whether through PPPs at the infrastructure level or purely private investment directed more at farmers, it is inevitable that investment in water efficiency will increase substantially.

Over the past two decades, agricultural expansion has been the primary driver behind 420 million hectares of forests being cleared along with the associated loss of forest biodiversity. Investing in irrigation efficiency that boosts agricultural productivity can reduce the pressure for agriculture-driven habitat conversion, thereby preserving essential ecosystem services and biodiversity.

Freshwater consumption is already nearing its maximum, as evidenced by the increasing prevalence of water scarcity worldwide. Traditional irrigation technology, such as flood irrigation, threatens to deplete freshwater aquifers and rivers because of its inefficiencies - as much as 70% of water is wasted. Aggressive extraction has led to some rivers dying and to land subsidence, water-logged soils, and an increase in soil mineralization, which depletes soil organic matter and decreases nutrient availability. Excess water also causes nitrogen fertilizer to run off into water bodies, causing eutrophication and mass die-offs of aquatic life. More efficient irrigation can help to conserve surface and aquifer freshwater resources, reduce groundwater depletion, and protect aquatic ecosystems from decreasing water table levels and pollution from agricultural runoff. Additionally, with a reduction in fuel or energy required for water pumping and distribution, a decrease in GHG emissions will follow, as is further discussed in the Climate Impact section.

Groundwater abstraction and conveyance for irrigation is energy-intensive, resulting in the increase of GHG emissions associated with food production. Some studies have demonstrated that irrigated systems may generate 45% more emissions than rain-fed systems. For example, in Iran irrigation emissions are estimated to constitute 3.6% of national emissions. In India, the largest irrigator globally, the figure is 6%. The biggest source of emissions comes from lifting groundwater. In China, groundwater pumping accounts for 61% of total irrigation emissions.

Irrigation itself alters the biogeochemical characteristics and structure of soil, which may adversely impact the capacity for soil carbon sequestration.

By adopting more efficient irrigation techniques, such as sprinkler and drip irrigation systems (which reduce water wastage), Project Drawdown estimates that between 1.13 and 2.07 GtCO2e can be avoided by 2050.