Farm mechanisation and automated farming equipment
Farm mechanisation and automated farming equipment
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
- 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/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/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
Farm mechanisation and automated farming equipment
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
Market Size and Environment
> USD 1 billion
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
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
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
With input from 7 experts, the IRR is estimated to be around 20%.
Market Risks & Scale Obstacles
Business - Business Model Unproven
Business - Supply Chain Constraints
Business - Supply Chain Constraints
Impact Case
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
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
Directly impacted stakeholders
People
Corporates
Indirectly impacted stakeholders
People
Planet
Public sector
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
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.
Who
Farmers, especially ageing farmers, do not need purely on physical work in farming, which is of low efficiency.
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
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
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
China: Hainan
China: Heilongjiang
China: Xinjiang
China: Sichuan
China: Guangxi
References
- (21) Ministry of Foreign Affairs,2019 https://www.fmprc.gov.cn/mfa_eng/topics_665678/2030kcxfzyc/P020190924780823323749.pdf "22) Ministry of Human Resources and Social Security,2020. http://www.mohrss.gov.cn/wap/fw/rssj/202006/W020200608534647988832.pdf" "23) UNDP.2019 https://www.cn.undp.org/content/china/en/home/library/human_development/national-human-development-report-special-edition.html" "24) National Bureau of Statistics https://data.stats.gov.cn/easyquery.htm?cn=C01" "25) CGTN,2020 https://news.cgtn.com/news/2020-12-29/China-holds-key-conference-on-rural-development-WCvfHjsyCk/index.html"