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Farm mechanisation and automated farming equipment

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Farm mechanisation and automated farming equipment

Country
Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Beverage
Sub Sector
Most major industry classification systems use sources of revenue as their basis for classifying companies into specific sectors, subsectors and industries. In order to group like companies based on their sustainability-related risks and opportunities, SASB created the Sustainable Industry Classification System® (SICS®) and the classification of sectors, subsectors and industries in the SDG Investor Platform is based on SICS.
Food and Agriculture
Indicative Return
Describes the rate of growth an investment is expected to generate within the IOA. The indicative return is identified for the IOA by establishing its Internal Rate of Return (IRR), Return of Investment (ROI) or Gross Profit Margin (GPM).
15% - 20% (in IRR)
Investment Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.
Short Term (0–5 years)
Market Size
Describes the value of potential addressable market of the IOA. The market size is identified for the IOA by establishing the value in USD, identifying the Compound Annual Growth Rate (CAGR) or providing a numeric unit critical to the IOA.
> USD 1 billion
Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.
With input from 7 experts, the IRR is estimated to be around 20%.
Direct Impact
Describes the primary SDG(s) the IOA addresses.
Zero Hunger (SDG 2)
Indirect Impact
Describes the secondary SDG(s) the IOA addresses.
Industry, Innovation and Infrastructure (SDG 9) Clean water and sanitation (SDG 6) Decent Work and Economic Growth (SDG 8)

Business Model Description

Invest in automated machinery, which are developed to replace human labor forces in plowing, seedlings, planting, transplanting, irrigation, fertilization, harvesting, drying, and transporting on the farm. Equipment can be purchased or leased through a shared economy (Pei Yeing Ong, Shiyu Impact).

Automation can be enabled by two modes - one is facilitated through the installation/plug-in of navigation and devices on traditional agricultural machinery; the other being fully innovative farming robots (an investment professional in agriculture).

Expected Impact

Improve agricultural yield and thereby strengthening China’s food security, attracting younger and higher-educated people.

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

Explore the country and target locations of the investment opportunity.
Country
Region
  • China: Hainan
  • China: Heilongjiang
  • China: Xinjiang
  • China: Sichuan
  • China: Guangxi
Learn more

Sector Classification

Situate the investment opportunity within sustainability focused sector, subsector and industry classifications.
Sector

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/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.

Sub Sector

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/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.

Industry

Agricultural Products

Pipeline Opportunity

Discover the investment opportunity and its corresponding business model.
Investment Opportunity Area

Farm mechanisation and automated farming equipment

Business Model

Invest in automated machinery, which are developed to replace human labor forces in plowing, seedlings, planting, transplanting, irrigation, fertilization, harvesting, drying, and transporting on the farm. Equipment can be purchased or leased through a shared economy (Pei Yeing Ong, Shiyu Impact).

Automation can be enabled by two modes - one is facilitated through the installation/plug-in of navigation and devices on traditional agricultural machinery; the other being fully innovative farming robots (an investment professional in agriculture).

Business Case

Learn about the investment opportunity’s business metrics and market risks.

Market Size and Environment

Market Size (USD)
Describes the value in USD of a potential addressable market of the IOA.

> USD 1 billion

Critical IOA Unit
Describes a complementary market sizing measure exemplifying the opportunities with the IOA.

It is estimated to exceed RMB100 billion by 2020.

Ministry of Human Resources and Social Security,2020. http://www.mohrss.gov.cn/wap/fw/rssj/202006/W020200608534647988832.pdf

Indicative Return

IRR
Describes an expected annual rate of growth of the IOA investment.

15% - 20%

With input from 7 experts, the IRR is estimated to be around 20%. As a field with proven success and mature business models, the rate of return in the agricultural machinery industry is considered similar to the area of AIoT farming solutions.

In the sub-sector of farm equipment stocks, for example, First Tractor Company Limited has an ROE of 0.49% to 4.76%, while Kunming Yunnei Power Co., Ltd. has an ROE of 1.91% to 3.42%.

Investment Timeframe

Timeframe
Describes the time period in which the IOA will pay-back the invested resources. The estimate is based on asset expected lifetime as the IOA will start generating accumulated positive cash-flows.

Short Term (0–5 years)

It is estimated that it will take 3-5 years for investors to see cash flow, based on input from 5 experts. Fortune Capital and Zhejiang Red October Investment Partnership invested in Thinker Agricultural Machinery Co., Ltd. in 2011 and exited through IPO in 2015.

Ticket Size

Average Ticket Size (USD)
Describes the USD amount for a typical investment required in the IOA.

With input from 7 experts, the IRR is estimated to be around 20%.

Market Risks & Scale Obstacles

Business - Business Model Unproven

The lack of large customers and farmers’ reliance on government subsidies is obstructing the development of the agricultural machinery market. Over 90% of China’s agricultural personnel are small-scale peasant households, as land ownership is very fragmented.

Business - Supply Chain Constraints

The scarcity of arable land reduces the potential scope for mechanisation and automation of agriculture outside the regions of the Northern China Plain and Northeastern China. Other areas, such as the Yangtze River Delta, are too diversified for most applications of large-scale machinery

Business - Supply Chain Constraints

While the output quality of China’s agricultural machinery manufacturing industry has already reached a high level, farmers lack the skills necessary to apply this technology effectively.

Impact Case

Read about impact metrics and social and environmental risks of the investment opportunity.

Sustainable Development Need

China's demographic dividend has been disappearing and rural areas are short of labor forces. Due to the urbanisation, a large number of rural labor forces migrate to big cities and meanwhile it also leads to a decrease of agricultural land.

The demographic structure of the agricultural sector has changed significantly;farmers working in the fields now tend to be between the ages of 40 and 60, which poses a problem for an industry requiring intensive physical labour (Lei Liu, Yunnan Green Development Research Association).

Gender & Marginalisation

There are not enough farmers in remote areas, resulting in a heavy burden for many farmers. Many underdeveloped areas do not have access to modern technology and still use primitive farming methods, resulting in low efficiency.

Expected Development Outcome

Farm mechanization and automation increases productivity and scales up the production.

Machinery and automation on farms replacing manual work reduces the reliance on human labor forces.

Gender & Marginalisation

Farm mechanisation and automated farming equipment can improve the output efficiency of agriculture in remote areas, realize unmanned farming, save human resources and improve the economy.

Primary SDGs addressed

Zero Hunger (SDG 2)
2 - Zero Hunger

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

2.4.1 Proportion of agricultural area under productive and sustainable agriculture

Secondary SDGs addressed

Industry, Innovation and Infrastructure (SDG 9)
9 - Industry, Innovation and Infrastructure
Clean water and sanitation (SDG 6)
6 - Clean water and sanitation
Decent Work and Economic Growth (SDG 8)
8 - Decent Work and Economic Growth

Directly impacted stakeholders

People

Farmers do not need to rely on human labor forces to do intensive physical work. Farm machinery and equipment helps farmers increase productivity and scales up the production.

Corporates

Farm machinery will open a new market for agricultral and techonology corporates, bringning new business opportunities and new growth point.

Indirectly impacted stakeholders

People

Customers can get better and cheaper agricultural products due to the improvement of efficiency.

Planet

Farm machinery improves the agricultural yield and thereby strengthens China’s food security.

Public sector

Government benefiting from increased productivity and food security

Outcome Risks

Farmers now rely heavily on government subsidies, obstructing the development of the market. Farmers of less education and training lack the skills necessary to apply technology effectively.

Impact Risks

The scale-up of automated machinery will replace low-skilled labors and cause structural change in labor market.

Impact Classification

B—Benefit Stakeholders

What

The outcome is proved positive and important on a large scale. The investment facilitates the modernisation of agriculture with machinery and significantly increases productivity.

Risk

Farmers now rely heavily on government subsidies, obstructing the development of the market. Farmers of less education lack the skills necessary to apply technology effectively.

Impact Thesis

Improve agricultural yield and thereby strengthening China’s food security, attracting younger and higher-educated people.

Enabling Environment

Explore policy, regulatory and financial factors relevant for the investment opportunity.

Policy Environment

(Policy document): The 13th Five-Year Plan (2016-2020) highlights the need to speed up agricultural mechanisation and includes this field in the national key R&D Program.

(Policy document): The “Made in China 2025” policy identifies agricultural machinery and equipment as important growth areas, and formulates an action plan for their further development.

(Policy document): The National Agricultural Modernisation Plan (2016-2020) includes comprehensive plans for improving the level of agricultural mechanisation.

(Policy document): In 2018, the State Council issued a policy document stating that by 2025, the maturation of the agricultural machinery and equipment sectors should be complete, and the quality of products should be internationally competitive.

Financial Environment

Financial incentives: Since 2004, the central government has invested more than RMB 200 billion into the sector. The annual scale of central-level investment in these subsidies has increased from the initial RMB 70 million in 2004 to RMB 18.6 billion in 2017.

Fiscal incentives: As of October 2019, 37 provinces and regions have provided subsidies for the purchase of agricultural machinery. In 2018, A total of 17.4 billion of the subsidy fund supported 1.63 million farmers to purchase 1.91 million sets of machines and tools.

Other incentives: Starting in 2019, machinery facilitating green development is being preferred in the subsidy programs. This includes equipment used for conservation tillage and residual film recycling, as well as new agricultural machinery products urgently needed by hilly and mountainous areas.

Regulatory Environment

(Regulation): In 2019, the Ministry of Agriculture and Rural Affairs and the Ministry of Finance issued a joint document aimed at strengthening the monitoring of subsidies in the agricultural machinery sector. The purpose of this document is to promote the standardisation of the industry.

Marketplace Participants

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Private Sector

The agricultural machinery sector has attracted some industrial capital. In 2018, Wens Investment, an affiliate of the Wens Foodstuff Group, invested in World Group, a private machinery manufacturing company specialising in agricultural equipment.

Government

Government guidance fund such as Guangdong Agricultural Supply Side Structural Reform Fund, established in 2017 and has an AUM of RMB 44 billion, has included farming machinery and equipment as one of its key investment areas.

Target Locations

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country static map

China: Hainan

China: Heilongjiang

China: Xinjiang

China: Sichuan

China: Guangxi

References

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