Netafim: Grow More With Less

World population is growing. Agriculture, faced with a changing climate, is not keeping up and food scarcity is becoming an issue. Drip irrigation technology, pioneered by Netafim, offers a potential solution.

“We know that a peaceful world cannot long exist, one-third rich and two-thirds hungry.” Jimmy Carter

 

We’re running out of food and it’s getting WORSE.

 

A challenge and an opportunity

World population continues to grow and is expected to reach 9.7 billion by 2050.[1] Demand for food is exploding. Supply, however, is under pressure. Studies have shown that crop yields have been decreasing due to climate change and extreme daytime temperatures.[2] Climate change has also affected the availability of water. Since the 1970s the land area affected by drought has doubled.[3] Arable land is becoming more scarce.[4]

 

Netafim’s vision is to Grow More With Less – helping to bridge the gap between food supply and demand.[5]

 

 

Founded in Israel in 1965, Netafim pioneered the drip-irrigation revolution and introduced the world’s first drip-irrigation system. Based on a revolutionary discovery that slow, balanced water drip leads to extraordinary plant growth, Netafim developed drippers that “adapt to the variations of inlet pressure and clean themselves automatically, maintaining a uniform flow rate regardless of water quality and pressure”.[6] Netafim has since grown and evolved to offer a wider set of products and services ranging from drippers, emitters and greenhouses to crop management technology and irrigation system design and implementation. Netafim is currently the micro-irrigation market leader with 30% market share, offices in 110 countries, 17 factories and over 4000 employees.[7]

 

With micro-irrigation market (drip and sprinklers) projected to grow at 18.3% GAGR between 2016 and 2021, and reach $6.81 billion by 2021[8], the opportunity for Netafim is clear. To seize this opportunity Netafim must face some difficult decisions. What products or services to focus on? Which countries to target? How to employ technology to its benefit?

 

How is Netafim capturing growth?

Locations         Netafim is focusing on entering new markets, especially in developing countries. Last month, for instance, Netafim acquired an irrigation company from Costa Rica, as part of its expansion into Central America.[9] Netafim is also growing organically. In May this year, for example, it opened its first production facility in China.[10]

 

Products & Services    Netafim has been focusing more and more on large projects. For instance, earlier this year Netafim was contracted to provide end-to-end solution, from design, engineering and infrastructure, of water transportation, advanced irrigation systems, control systems, and agronomic consultation for a $200M, 7,000 hectares sugar cane project of the Ethiopian government’s sugar company.[11]

 

Innovation       Netafim focuses on product innovation and on harnessing technology to save water, fertilizers and energy while increasing yields. In 2016 Netafim won the Technical Novelty Competition at FIMA, the International Agricultural Machinery Fair, for its DripNet PC™, a compact integral pressure-compensated dripper.[12]

 

Future possibilities

Moving forward an additional opportunity Netafim should pursue is mobile and digital technological innovation and its application in drip-irrigation, especially in developed countries. Although agriculture represents only ~2% of GDP in developed countries, compared to over 20% in developing countries,[13] developed countries still offer a sizeable opportunity. The U.S. agriculture industry, for example, is valued at $1 trillion,[14] yet as of 2013, less than 10% of irrigated agricultural land used micro-irrigation.[15] As time passes drought will affect an increasing number of developed countries. For example, between 2012 and 2014 California experienced the most severe drought in 1,200 years.[16] As farmers and growers in developed countries turn to drip irrigation to replace water intensive irrigation methods, they will look for user friendly and easy solutions. As they’ve grown accustomed to mobile technologies improving other aspects of their lives such as payments, commerce, marketing and others, so will they expect for their fields and farms. Mobile systems that control irrigation and fertilization remotely, without the need to physically be in the field, are already emerging. As many other industries, drip irrigation too will be transformed by digital and mobile technologies.

 

(Word Count: 626)

 

References

[1] “World population projected to reach 9.7 billion by 2050”, press release, July 29, 2015, on United Nations Department of Economic and Social Affairs website, http://www.un.org/en/development/desa/news/population/2015-report.html accessed October 2016

[2] Source: Intergovernmental Panel on Climate Change (IPCC), “Technical Summary: Climate change 2014: Impacts, adaptation, and vulnerability”, Working Group II contribution to the IPCC Fifth Assessment Report, p. 47, accessed October 2016

https://www.ipcc.ch/pdf/assessment-report/ar5/wg2/WGIIAR5-TS_FINAL.pdf

[3] “UN lays foundations for more drought resilient societies”, press release, March 15, 2013, on Food and Agriculture Organization of the United Nations website,  http://www.fao.org/news/story/en/item/172030/icode/, accessed October 2016

[4] Solomon Asfaw and Leslie Lipper, “Managing climate risk using climate-smart agriculture”, Food and Agriculture Organization of the United Nations (FAO), 2016, p.2

[5] Netafim, “7 Facts About Drip”, YouTube, published January 25, 2015, https://www.youtube.com/watch?v=1R_1rjgVezE , accessed October 2016.

[6] Netafim, “Our Legacy”, http://www.netafim.com/our-legacy , accessed October 2016

[7] Netafim, “Social News Room”,  https://www.netafim.com/news-item/175131 , accessed October 2016

[8] Source: Markets and Markets, Microirrigation Systems Market by Type (Drip and Microsprinkler), Application (Orchard Crops & Vineyards, Field Crops, and Plantation Crops), End-User (Farmers and Industrial Users), and by Region – Global Forecast to 2021,  http://www.marketsandmarkets.com/Market-Reports/micro-irrigation-system-market-566.html , accessed October 2016

[9] Yuval Azulai, “Netafim buys Central American irrigation co RyM”, Globes, September 25, 2016, http://www.globes.co.il/en/article-netafim-buys-central-american-irrigation-co-rym-1001154276 , accessed October 2016

[10] PR Newswire, “Netafim Takes Major Step in Increasing Investment in China”, http://www.prnewswire.com/news-releases/netafim-takes-major-step-in-increasing-investment-in-china-300268983.html , accessed October 2016

[11] “Hapoalim leads $200M finance for Netafim project in Ethiopia”, Globes, March 6, 2016, http://www.globes.co.il/en/article-hapoalim-leads-200m-finance-for-netafim-project-in-ethiopia-1001108162 , accessed October 2016

[12] Netafim, “Social News Room”,  http://www.netafim.com/news-item/228725 , accessed October 2016

[13] Source: World Bank national accounts data and OECD national Accounts data files, Agriculture value added (% of GDP), accessed October 2016 http://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?end=2014&locations=XL&start=2007

http://data.worldbank.org/indicator/NV.AGR.TOTL.ZS?locations=OE

[14] Source: United States Department of Agriculture Economic Research Service, Ag and Food Sectors and the Economy, accessed October 2016 http://www.ers.usda.gov/data-products/ag-and-food-statistics-charting-the-essentials/ag-and-food-sectors-and-the-economy.aspx

[15] Source: United States Department of Agriculture, Census of Agriculture, 2013 Farm and Ranch Irrigation Survey, Tables 6,28,30, accessed October 2016 https://www.agcensus.usda.gov/Publications/2012/Online_Resources/Farm_and_Ranch_Irrigation_Survey/

[16] Griffin, D., and K. J. Anchukaitis (2014), “How unusual is the 2012–2014 California drought?”, Geophys. Res. Lett., 41, 9017–9023

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Student comments on Netafim: Grow More With Less

  1. The opportunity that is offered with micro-drip irrigation is irrefutable, however the cost of implementing of such technology is not mentioned. In the US 88% of farms are small family-owned farms [1] without a lot of revenue to be investing in expensive irrigation technologies when up until recently they have been lucky enough to have access to large amounts of clean water. Drip irrigation has been around for decades, yet few farmers in the US have picked it up. As of 2000 the US Geological Survey shows that only 7% of family farmers were using this technology [2], however after the drought hit California and the issue became more prevalent numbers increased significantly but there are still many holdouts, despite the clear advantages of micro-drip irrigation over the more common spray irrigation [3]. Would a tax incentive encourage farmers to make this investment sooner? What do you think it would take to hasten the advancement of this technology into the US family farm?

    1 US Department of Agriculture, “Family Farms are the Focus of New Agriculture Census Data,” http://www.usda.gov/wps/portal/usda/usdamediafb?contentid=2015/03/0066.xml&printable=true, accessed November 6, 2010.
    2 US Geological Survey, “Irrigation: Drip/Microirrigation,” http://water.usgs.gov/edu/irdrip.html accessed November 6, 2016.
    3 David Cay Johnston, “California Farms are Slow to Adopt Water Saving Technologies,” Newsweek. February 13, 2014 http://www.newsweek.com/2014/02/14/california-farms-are-slow-adopt-water-saving-technology-245516.html, accessed November 6, 2016.

  2. Thanks for a great piece Rotem! This is an important topic and you argue well for its relevancy in the face of climate change. My reaction reading this is that while drip irrigation was novel at the time of its debut and was used to great effect in Israel and other resource-stressed areas, it seems to be an old idea that is easily replicated.

    You have a section titled “innovation” but I’m really wondering what innovations Netafim has made in the last decade or so that will allow it to reduce the burden of climate change over the next century. How will the internet-of-things be incorporated? Is the company able to make sensors smaller and more economical such that they can be used more widely? What about even more controlled systems such as the Food Computer at the MIT Media Lab? see: http://openag.media.mit.edu/hardware/ Is that the future?

    Answering these questions will be important for determining the environmental impact, but also the long-term sustainability of the company. As drip irrigation becomes more of a commodity business what will Netafim do to stay competitive? Great piece!

  3. I found this article very interesting! It really concerns me the fact that world population is increasing pretty fast and the available food sources is getting more and more scarce. This is a snowball problem: higher demand for food increase pressure in suppliers that ended up fostering ways to cope with rising demands: in the vast majority, cheaper and less sustainable ways.

    It is impressive how Israel, such a small country, was able to find a smart solution for a global problem. The country is located in the middle of the desert and water is a precious resource. Nefatim’s solution, I imagine, not only employs the perfect amount of water required to plants to flourish but also optimize the water allocation to avoid unnecessary waste. I’m looking forward to seeing the company next steps; the challenge of micro-irrigation adoption in developed countries is still a barrier, but next generations, I believe, tend to be more sustainable driven and new technologies adoption will be a must.

  4. Great piece Rotem. It is admirable to see how many technological innovations have come out of Israel. Drip irrigation is definitely a technology that will help the world become more sustainable. Its benefits include less water usage, less fertilizer usage and better yields.

    Unfortunately the cost of adoption of this technology is a barrier for many farmers (40-50% more than regular irrigation for CAPEX). Hopefully Netafim can work on a program to help adoption around the globe. http://cornandsoybeandigest.com/equipment/switch-drip-irrigation

    Let’s see how Netafim can provide some innovative financial solutions in order to drive adoption of this great technology! – The innovation can be financing or it can be in lowering the cost of acquisition of the system.

  5. Great job Rotem! The need for improved crop yield technologies is clear, especially as precipitation patterns shift due to climate change. The use of mobile would certainly help farmers manage their irrigation systems in developing countries. One of the trends that impacted the United States during its development was the consolidation of farmland, as the US transitioned into service industries. It would be interesting to better understand how development impacts the consolidation of farmland in developing nations. It seems like governments are driving capital expenditures here – you cited Ethiopia – but I wonder how that might shift customer behavior as countries develop.

    Access to clean water for farming and drinking is a huge challenge that will unfold during our careers. Cool business looking to tackle that!

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