Drone-based agriculture and plant protection unmanned aerial vehicles (UAV)
Drone-based agriculture and plant protection unmanned aerial vehicles (UAV)
Business Model Description
Scale-up plant protection unmanned aerial vehicles. Drones are developed and used for plant protection by sowing, pesticide and fertilizer spraying, and crop and field monitoring. In particular, drones used for cash crops over mountains and forests that address the real pain points for farmers are very attractive. A drone can be purchased or leased through a shared economy.
DJI and XAG provide universal tech and solutions that can be applied in many scenarios (platform-driven drone solutions). Usually, a drone will fly around to assess and monitor the site routes then will be analyzed and designed for the second drone to implement certain tasks (e.g. spraying pesticides or fertilizers). (An investment professional in agriculture)
Expected Impact
Its positive impact includes increasing productivity and saving cost with higher efficient use of pesticides and fertilisers.
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, 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 Agriculture
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, 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
Drone-based agriculture and plant protection unmanned aerial vehicles (UAV)
Scale-up plant protection unmanned aerial vehicles. Drones are developed and used for plant protection by sowing, pesticide and fertilizer spraying, and crop and field monitoring. In particular, drones used for cash crops over mountains and forests that address the real pain points for farmers are very attractive. A drone can be purchased or leased through a shared economy.
DJI and XAG provide universal tech and solutions that can be applied in many scenarios (platform-driven drone solutions). Usually, a drone will fly around to assess and monitor the site routes then will be analyzed and designed for the second drone to implement certain tasks (e.g. spraying pesticides or fertilizers). (An investment professional in agriculture)
Business Case
Market Size and Environment
> USD 1 billion
It is estimated that the market will reach RMB30 billion in 2022.
Applications of drones for spraying fertilisers/pesticides, etc. has been used in around 500 million mu of land in 2020, increased from about 100,000mu in 2015. (Bobing Ren, Baidu Ventures) In China, there are about 2 billion mu of farming land in total, which means there is still more room for the drone applications.
An estimated number of 100,000 UAVs with about 400,000 UAV pilots will be needed by 2020 in plant protection, according to a report by the Ministry of Human Resources and Social Security. (6) However, one investment professional estimated a saturated capacity of this market being about 100,000 drones (an investment professional in agriculture).
Indicative Return
15% - 20%
According to 6 experts, the IRR is estimated to be approximately 15%-20%. Experts hold different ideas on its ROI considering it is easier to scale up but has limited application scenariors.
In terms of drone rental business, Dingfeng Group has an IRR of 18%.
A drone manufacturer in Shenzhen has a profit margin of 50% in 2015 and 10% in 2018 due to the price competition by DJI and XAG.
Investment Timeframe
Short Term (0–5 years)
It is estimated to take approximately 3-5 years to see cash flow, based on 5 experts’ estimation.
Ticket Size
A drone manufacturer in Shenzhen has a profit margin of 50% in 2015 and 10% in 2018 due to the price competition by DJI and XAG.
Market Risks & Scale Obstacles
Capital - Requires Subsidy
Business - Supply Chain Constraints
R&D - Technology bottleneck
Impact Case
Sustainable Development Need
Data shows that 90% of China's agricultural plant protection relies on manual sprayer, which consumers more water and especially don't fit in areas of Mid and Western China.
China uses 30 percent of the world's fertilizers and pesticides on 9 percent of global cropland. A study finds chemicals are often used inefficiently on small farms in China.
Data from the National Statistics Bureau show that every year there are more than 10,000 people die of pesticide positioning due to improper use. Safer ways for pesticide spraying is needed.
Gender & Marginalisation
Labor shortage in remote areas leads to unattended crops in mountains and forests and low income for farmers.
Expected Development Outcome
Drone operation increases the productivity, and scales up the production. It makes the distribution of pesticide and fertiliser more evenly. Reducing cost. Drones have been used over about 500million mu land in China and spraying with drones can save up to 60% of the pesticides.
Compared with traditional artificial plant protection, UAV can save 80% - 90% water and increase the insecticidal efficiency to more than 95%.
Protecting farmers' health. Using drones to spray pesticide and fertiliser reduces the chance of deep contact between farmers and pesticides, therefore greatly reducing the probability of poisoning, so as to protect the health of farmers.
Gender & Marginalisation
Drone-based agriculture and plant protection unmanned aerial vehicles (UAV) can be used for seeding and spraying pesticides in remote areas, saving labor and providing powerful help to farmers.
Primary SDGs addressed
2.4.1 Proportion of agricultural area under productive and sustainable agriculture
2.3.1 Volume of production per labour unit by classes of farming/pastoral/forestry enterprise size
2.3.2 Average income of small-scale food producers, by sex and indigenous status
Secondary SDGs addressed
Directly impacted stakeholders
People
Corporates
Indirectly impacted stakeholders
People
Planet
Public sector
Outcome Risks
The market competition has been fierce, with two big players. The R&D breakthrough is still needed to improve the endurance and load capability of plant protection UAVs.
Impact Risks
The use of agricultural drones may interfere with other aircraft.
Impact Classification
What
The outcome has been proved positive and effective, and will be seen in a larger scale. The investment makes the environment monitoring and plant protection more efficiently.
Who
Farmers who used rely on manual sprayers for plant protection now have new tools that bring higher efficiency and protect farmers' health.
Risk
The market competition has been fierce, with two big players. The R&D breakthrough is still needed to improve the endurance and load capability of plant protection UAVs.
Impact Thesis
Its positive impact includes increasing productivity and saving cost with higher efficient use of pesticides and fertilisers.
Enabling Environment
Policy Environment
(Policy document): Strengthening the development of agricultural aviation was highlighted in the “No. 1 Central Document” of 2014.
(Policy document): In 2015, Ministry of Agriculture and Rural Affairs issued the “Action Plan for Zero Growth of Pesticide Usage by 2020”, which seeks to reduce pesticide loss and waste through the application of modern plant protection machinery.
(Policy document): The “Construction Plan of National Animal and Plant Protection Capacity Improvement Program (2017-2025)” calls for a public-private partnership approach to the procurement of aviation plant protection machinery.
(Policy document): In 2017-2018, the Ministry of Agriculture and Rural Affairs and Ministry of Finance carried out a joint pilot program of subsidies UAVs for plant protection.
Financial Environment
Fiscal incentives: In January 2017, pilot plant protection UAV subsidies was allowed to be carried out in suitable areas, according to the Ministry of Agriculture. For the first time, UAV has been included in the national agricultural machinery subsidy.
Other incentives: In 2017, according to the ""Notice on Carrying out Pilot Work of Standardized Application of Plant Protection UAV Guided by Agricultural Machinery Purchase Subsidy"", Zhejiang (including Ningbo), Anhui, Jiangxi, Hunan, Guangdong and Chongqing were selected for pilot projects.
Regulatory Environment
(Regulation): The construction of a regulatory framework and technical standards for plant protection UAVs in China has lagged behind the technological innovation. The reason for this has been that this sector straddles the domain of several ministries, obstructing coordination.
(Regulation): The first industry standard on agricultural drones, the “Technical Specification for Quality Evaluation of Plant Protection UAVs”, was formally implemented on June 1, 2018. This document mainly includes safety standards.
(Regulation): However, there are only a few technical standards for agricultural UAV, it is still far from a perfect technical standard system, which cannot meet the needs of rapid development. More standards are needed to set up on manufacturing, quality inspection, promotion, and operation.
Marketplace Participants
Private Sector
DJI and Accel jointly launched the world's first UAV fund SkyFund in 2015, which is to provide developers with comprehensive support including capital, technology and other resources, so as to promote the development of UAV ecosystem.
Government
The government is funding drone-based agriculture, which is considered a strategically important industry.
Public-Private Partnership
State-owned industrial capital institution CITIC Agricultural Industry Fund Management Co and leading green technology investment institution Talent Capital have co-invested in the drone startup EAVision.
Target Locations
China: Hainan
China: Heilongjiang
China: Xinjiang
China: Sichuan
China: Guangxi
References
- (21) Sohu.com, 2019, https://www.sohu.com/a/324617865_821386 "22) Stanford University, 2018, https://earth.stanford.edu/news/overuse-fertilizers-and-pesticides-china-linked-farm-size#gs.qmzwci"
- (23) Uav.huanqiu.com, 2017, https://uav.huanqiu.com/article/9CaKrnK66po
- (24) Askci.com, 2019, https://www.askci.com/news/chanye/20191016/1057321153800_2.shtml
- (25) Yuchen360.com, 2020, http://www.yuchen360.com/news/23944-1-0.html
- (26) Mohrss.gov.cn, 2019, http://www.mohrss.gov.cn/SYrlzyhshbzb/dongtaixinwen/buneiyaowen/201906/t20190621_321343.html
- (27) State Council, 2014, http://www.moa.gov.cn/gk/zcfg/qnhnzc/201401/t20140121_3743917.htm
- (28) Ministry of Agriculture and Rural Affairs, 2015, http://www.moa.gov.cn/nybgb/2015/san/201711/t20171129_5923401.htm
- (29) the National Development and Reform Commission (NDRC), Ministry of Agriculture and Rural Affairs, etc., 2017, https://www.cahec.cn/detail/31612.html
- (30) Ministry of Agriculture, Ministry of Finance, 2018, moa.gov.cn/gk/tzgg_1/tfw/201803/t20180319_6138603.htm