Drip irrigation technology for smallholder farming

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Drip irrigation technology for smallholder farming

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Country

Brazil

Sector

Food and Beverage

Sub Sector

Food and Agriculture

Indicative Return

> 25% (in IRR)

Investment Timeframe

Short Term (0–5 years)

Market Size

5 million Brazilian smallholder farmers who could benefit from the irrigation systems

Average Ticket Size (USD)

USD 1 million - USD 10 million

Direct Impact

Indirect Impact

Responsible Consumption and Production (SDG 12)

Business Model Description

Scale-up distribution of drip irrigation technologies to cooperatives

Expected Impact

Improve productivity and yields by improving efficiency of crop water intake while lowering environmental impact

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

Brazil

Region

Brazil: Alagoas
Brazil: Bahia
Brazil: Ceará
Brazil: Piauí
Brazil: Rio Grande do Norte
Brazil: Sergipe

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Sector

Food and Beverage

Development need
Sustainability Development Report 2019: score of 62.1 on SDG 2 (Zero Hunger), of 60.9 on SDG 15 (Life on Land), and of 91.7 on SDG 13 (Climate Action), with 'Significant challenges remaining' subscores prevalent across indicators (1)

Policy priority
The current administration has made supporting the agriculture sector and boosting its export competitiveness a key government priority (2) (3). Increasing the grain storage capacity, irrigation projects, environmental preservation and empowering agribusinesses have been marked as priorities.

Gender inequalities and marginalization issues
For some crops, smallholder farmers constitute 70% of the food market in Brazil. A large proportion of this is family farming, which can support poverty reduction and food security. Within this outlook, women provide a significant proportion of the agricultural workforce. Approximately 30% of the total rural workforce in Brazil is female. (28)

Investment opportunities introduction
There are various credit lines and incentive programs at discounted interest rates to support investments in agriculture. The participation of foreign entrants was also facilitated through a recent policy announcement (4) (5)

Key bottlenecks introduction
Infrastructural deficiencies, especially in logistics, negatively impacting the competitiveness of freight costs, low levels of land-use efficiency and dependence on imported fertilizers (29)

Sub Sector

Food and Agriculture

Development need
Although agribusiness represents 22% of Brazil’s GDP, 1/3 of all employment and 40% of exports (6), it is also responsible for the consumption of approx. 70% of the water in rivers, lakes and aquifers in Brazil. (7) Despite Brazil’s NDC commitment to restore and reforest 12M ha of forests by 2030, unsustainable livestock production is a key driver of deforestation (8) (9)

Industry

Agricultural Products

Investment Opportunity Area

Drip irrigation technology for smallholder farming

Business Model

Scale-up distribution of drip irrigation technologies to cooperatives

Market Size and Environment

Critical IOA Unit

5 million Brazilian smallholder farmers who could benefit from the irrigation systems

There are nearly 5 million smallholder farmers in Brazil, organized in nearly 1.6K cooperatives (23)

Indicative Return

IRR

> 25%

Benchmarked domestic investors with stakes in drip irrigation post fund-level returns above 30%. Return targets of their LPs are ~25% (24)

Investment Timeframe

Timeframe

Short Term (0–5 years)

Fast commercialization process following capital expenditure. Drip irrigation systems typically can be installed at a rate of 20 ha / day (25)

Ticket Size

Average Ticket Size (USD)

USD 1 million - USD 10 million

Market Risks & Scale Obstacles

Business - Supply Chain Constraints

Limited attempts to negotiate block purchases or distribution agreements with farmer cooperatives

Capital - CapEx Intensive

High upfront R&D costs

Business - Supply Chain Constraints

Fragmented end market may create diseconomies of distribution (e.g., last-mile delivery of drip irrigation hardware)

Sustainable Development Need

Agriculture is responsible for the consumption of almost 70% of the water in rivers, lakes and aquifers in Brazil. Of this water, 50-85% is not efficiently distributed to crops, or is wasted (26)

Gender & Marginalisation

Farmers that use inputs like irrigation and technical assistance generate two to three times the profit per family member of farms than farms of the same size that do not do so (10)

Expected Development Outcome

Lower operation's environmental impact by reducing and optimizing water and land use. Drip irrigation technologies can reduce water consumption by 30-70% (12)

Gender & Marginalisation

Improve productivity and yields for the farming population by improving efficiency of crop water intake (11)

Primary SDGs addressed

2 - Zero Hunger

2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size

2.4.1 Proportion of agricultural area under productive and sustainable agriculture

Current Value

$12,413.78 (agricultural value added per worker) (27)

Target Value

General SDG Target: By 2030 double the average productivity of food producers.

Secondary SDGs addressed

1 - No Poverty

12 - Responsible Consumption and Production

8 - Decent Work and Economic Growth

Directly impacted stakeholders

People

Smallholder farmers

Gender inequality and/or marginalization

One third of smallholder farmers are female (13)

Indirectly impacted stakeholders

Corporates

Cooperatives can act as distributors to smallholder farmers

Outcome Risks

Drip irrigation may reduce employment i.e., moving less labor-intensive production (14)

Construction of drip irrigation infrastructure may make it harder for that area of land to be used for other crops or agricultural activity

Gender inequality and/or marginalization risk: The adoption of drip irrigation may force smallholder farmers to incur in additional costs such as additional wells or water utilization structures (14)

Impact Risks

Unexpected risk given the impact of increased agricultural activity on the environment.

Gender inequality and/or marginalization risk: Unexpected impact risk- Farmers who can't afford new irrigation technologies may be priced out of the market and left at a competitive disadvantage

Impact Classification

C—Contribute to Solutions

What

The outcome is likely to be positive, important and intended because irrigation could improve productivity and save large amounts of water

Who

Smallholder farmers are underserved due to a strong dependence on rainfall, and use of less efficient irrigation systems

Risk

While the model is proven, external factors such as the need for substantial up-front capex may limit the breadth of impact

Impact Thesis

Improve productivity and yields by improving efficiency of crop water intake while lowering environmental impact

Policy Environment

(National Water Security Plan): Brazil seeks to enhance its national capacity in water security, the limit the risk of droughts and promote sustainable water use. (31)

The Ministry of Development is prioritizing irrigation projects in the Northeast, specifically 99 irrigation projects including building dams, adductor irrigation systems, canals and the integration of hydrographic basins through 2035 in the state of Pernambuco (15)

Other irrigation projects are being rolled out in Rio Grande do Sul with strong public backing (16)

Financial Environment

Financial incentives: BNDES has set up Venture Debt I Fund, the first credit instrument dedicated to innovation start-ups in the country (18)

Financial incentives: BNDES Support of Renovation and Implantation of new cane fields (Prorenova) (19)

Regulatory Environment

(National Irrigation Policy): governs the rational use of water and soil resources for the implementation and development of irrigated agriculture. (30)

(2019 Ministry of Regional Development Decree): An April 2019 ministerial decree from the Ministry of Regional Development established the "Irrigated Agriculture Poles Initiative" to develop irrigation projects as part of the National Irrigation Framework (17)

Private Sector

Investors such as SP Ventures, AgTech Valley, Santos Lab (invested in IAI) and Aqua Investimentos. Corporations such as Gamaya, Horus and Monsanto (through FieldView) (20)

Non-Profit

Confederation of Agriculture and Livestock of Brazil (CNA) has formed a committee that will map start-up ecosystems that seek innovation for agribusiness in Brazil (21)