Modern Irrigation Systems & Technologies
Business Model Description
Design and install modern irrigation systems and technologies, such as drip irrigation, sprinkler irrigation, and center pivot or solar pumping systems, which optimize water and energy use in agricultural fields benefitting greenhouse farmers, as well as small and medium-sized farmers including fruit and vegetable, grain, and cotton farmers.
Expected Impact
Increase crop productivity by optimizing water use and lower agricultural production costs while ensuring the effective use of water recourses and preservation of soil.
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
- Azerbaijan: Central Aran
- Azerbaijan: Lankaran - Astara
- Azerbaijan: Ganja - Dashkasan
- Azerbaijan: Nakhchivan
- Azerbaijan: Mountainous Shirvan
Sector Classification
Food and Beverage
Development need
Although Azerbaijan's agricultural sector is the second largest employer in the country employing approximately 36.3% of the workforce, it underperforms by only contributing 5.9% to the country's GDP. Over 20% of agricultural lands are affected by varying degrees of salinity and degradation due to intensive farming practices, while more than half of farmers suffer from water shortages due to the country's arid climate (1, 2, 3).
Policy priority
Strategy of Socioeconomic Development of the Republic of Azerbaijan sets the target to increase agriculture-generated value added by 4% per annum for the 2022-26 period. State Programme on the Socioeconomic Development of the Regions from 2019 to 2023 highlights the priorities to increase food security, development of traditional agricultural fields, and enhance production and processing of agricultural products (4, 5).
Gender inequalities and marginalization issues
While agriculture jobs are most frequently held by rural women due to cultural norms, women are primarily involved in backyard farming and gardening. Women farmers demonstrate limited engagement in commercial farming and constitute 48.7% of farmers working in private or family-owned farms (6, 7, 8).
Investment opportunities introduction
Azerbaijan has a significant arable land mass at 54.9% suitable for agriculture activity. The European Union aims to invest EUR 50 million (USD 54.8 million) in an innovative rural development flagship by 2025, enabling sustainable agricultural production and irrigation methods under its Recovery, Resilience, and Reform agenda (9, 10, 11).
Key bottlenecks introduction
Limited application of modern irrigation techniques, lack of experience and innovation in the agri-food sector, absence of modern storage and processing facilities, short distribution channels between producers and buyers, and scarcity of available market data on agricultural production are among the key challenges facing the sector (13, 14).
Food and Agriculture
Development need
Azerbaijan ranked 66th out of 113 in the Global Food Security Index 2022 mainly due to the vulnerability against food price fluctuations increasing by 18.4% during 2021-22, and food products accounting for 43.6% of household expenditure. Farmers continue to suffer from water shortages as merely 5% of agricultural lands are equipped with modern irrigation (15, 16, 17, 3).
Policy priority
Strategy of Socioeconomic Development of the Republic of Azerbaijan between 2022 – 2026 states that the government of Azerbaijan targets to increase the supply of irrigation water from 80% to 90% by 2026. National Pathways to Sustainable Food Systems by 2030 prioritizes fostering food processing and promoting sustainable use of water resources for national food systems (4, 3).
Gender inequalities and marginalization issues
Social norms have led to a gender division of labor in the agriculture sector, with women representing only half of the planters. Most of the planting activities are performed by men, who also make decisions about land use and income-generating activities since they are the ones who plant and sell the products. Smallholder farmers accounted for 90% of the country’s total agriculture production (18).
Investment opportunities introduction
The food-processing sector accounts for more than 38% of Azerbaijan's total manufacturing activity. In 2021, the export of canned fruits and vegetables are reached around USD 9.6 million (19, 12).
Key bottlenecks introduction
Informality in the agricultural labor force, limited number of agricultural experts, regional disparities in access to water coupled by limited data on drought trends, and absence of a national water management strategy for the agriculture sector are among the key bottlenecks (13, 20).
Agricultural Products
Pipeline Opportunity
Modern Irrigation Systems & Technologies
Design and install modern irrigation systems and technologies, such as drip irrigation, sprinkler irrigation, and center pivot or solar pumping systems, which optimize water and energy use in agricultural fields benefitting greenhouse farmers, as well as small and medium-sized farmers including fruit and vegetable, grain, and cotton farmers.
Business Case
Market Size and Environment
38% of arable land in Azerbaijan is irrigable (55).
The country's total land area is more than 8.641 million hectares of which 4.78 million hectares, or 55%, are agricultural fields. 2.06 million hectares of agricultural land are arable, and 1.48 million hectares are irrigated (32, 38).
Of the country's total arable land, 38% is characterized as irrigable land (55).
Indicative Return
15% - 20%
> 25%
The internal rate of return of an irrigation project in Azerbaijan, which received financing from a state-owned concessional fund, experienced an internal rate of return between 15-20% and a gross profit margin of above 25%. Commercial financing may deliver lower returns, as the provided soft loan entailed more generous terms than market loans (26).
Investment Timeframe
Medium Term (5–10 years)
A concessional fund active in the non-oil sectors of Azerbaijan has noted that irrigation investments can produce a positive payback in the medium term. Bankability for commercial loans may be longer, as soft loans have more generous terms (26).
Global case studies indicate that investments in improved irrigation systems produce payback periods between 4 to 7 years, in terms of crop yield payback (27).
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Capital - CapEx Intensive
Market - Highly Regulated
Capital - Limited Investor Interest
Impact Case
Sustainable Development Need
Water shortages are expected to increase due to rising temperatures, increased frequency of droughts and changes in the length of the growing season, lowering crop yields and increasing the requirement for irrigation mechanisms (31).
The agriculture sector is among the most vulnerable sectors to the impacts of climate change. Azerbaijan has traditionally grown water-intensive crops such as cotton, yet 80% of farming activity is carried out in arid or semi-arid regions which are heavily reliant on irrigation (33, 31).
Agricultural development is further hampered by land degradation and salinization due to the absence of proper irrigation systems. Between 50–55% of farmers experience water obstacles. Agricultural land accounts for 4.78 million hectares, yet, only 1.48 million hectares of this land is irrigated (3, 20, 32, 38).
Gender & Marginalisation
Although lands were distributed relatively equally following land privatization reform between 1993-2003, differences in access to water resulted in inequitable opportunities and income (34).
Extreme heat and droughts will disproportionately impact rural farmers who exhibit limited access to well-developed water infrastructure and rely on rain-fed agriculture, disrupting their source of income (31).
Women account for 23% of agricultural sector employment, yet participate heavily in the micro-trade of agricultural products, negatively impacted by water shortages caused by climate change (40, 8).
Expected Development Outcome
Improved irrigation systems will boost agricultural productivity and enable a more efficient use of resources including water and fertilizers (30).
Enhanced use of irrigation systems will lower food prices through increased agricultural productivity, positively contributing to food security (30).
Smart irrigation systems will lower production costs by providing crops with the right amount of nutrients, reducing fertilizer usage, and preventing salinization and soil degradation (39).
Gender & Marginalisation
Improved irrigation yields will enhance agricultural productivity and livelihoods of rural farmers reducing resettlement to urban areas (30).
Women who are involved in micro trading activities in agricultural produce will enhance livelihood opportunities from enhanced use of irrigation systems resulting in improved crop yields (41).
Primary SDGs addressed
6.5.1 Degree of integrated water resources management
6.4.1 Change in water-use efficiency over time
40% (2021) (43).
4,45 USD per cubic meter (2021) (44).
N/A
There is no official target for changing water-use efficiency over time. However, the government of Azerbaijan aims to increase irrigation water supply to 90% by 2026 (4).
2.1.1 Prevalence of undernourishment
2.4.1 Proportion of agricultural area under productive and sustainable agriculture
2,5% (2021) (45).
N/A
N/A
N/A
15.3.1 Proportion of land that is degraded over total land area
11.4%, the percentage of degraded land on Azerbaijan's total land (2021) (57).
N/A
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
Planet
Corporates
Outcome Risks
As Azerbaijan is prone to desertification, improper installation of irrigation systems and over-irrigation can cause further evaporation of the additional irrigation water, accelerating the process of salinization (31, 51).
Increased agricultural production and water consumption as agricultural fields become equipped with irrigation systems may negatively impact land degradation.
Water gathered by dams for irrigation can change the natural flow of water streams damaging biodiversity, where almost 70% of the water diverted from rivers is used for irrigation in Azerbaijan (13, 50).
Impact Risks
Irrigation systems may be impacted by unexpected rainfall by flooding emitters, shifting pipes, or altering the level of soil salt content (30).
Modern irrigation systems including drip irrigation with mechanized production can be challenging to combine since tractors and other farm machinery might damage pipelines, tubes, or emitters (30).
Uptake from farmers in irrigation systems may be limited as technical and knowledge of small-scale farmers are relatively weak, and have limited access to financial resources (3).
Unless women producers are directly targeted, investments in irrigation equipment can disproportionately benefit male farmers who are dominant in agricultural production (41).
Impact Classification
What
Modern irrigation systems in agricultural fields will boost crop productivity while lowering production costs, saving water, and decreasing soil salinization.
Who
Farmers will benefit from improved quality and quantity of crop yields increasing livelihood opportunities, the population will benefit from lower food prices, and the environment will enjoy better optimization of water and soil resources.
Risk
Unexpected rainfall and damage caused by mechanized production inputs such as tractors can negatively impact effectiveness of irrigation systems, weak education and financial access of farmers can limit uptake.
Contribution
In addition to government subsidy programs for irrigation installations, private investments in modern irrigation technology will help boost productivity while tackling soil degradation.
How Much
The use of modern irrigation systems can improve crop yields by 4-6 times as proven in the installation of a drip irrigation system in an orchard field (39).
Impact Thesis
Increase crop productivity by optimizing water use and lower agricultural production costs while ensuring the effective use of water recourses and preservation of soil.
Enabling Environment
Policy Environment
Strategy of Socio-economic Development of the Republic of Azerbaijan between 2022 – 2026, 2022: Outlines the development plan for Azerbaijan over the time period. Reaching 90% of the irrigation water supply by 2026 is among the key targets (4).
Azerbaijan 2030: National Priorities for Social Economic Development, 2021: Prioritizes green development and a clean environment as key areas for national development. To achieve the above, emphasis is placed on efficient water utilization (5).
Strategic Vision and Roadmap for Azerbaijan Agriculture, 2016: Includes long term vision for agricultural development for 2025. Expansion of irrigation systems in Azerbaijan's major agricultural producing regions and investments to construct and improve irrigation infrastructure, are among planned policy actions (51).
National Pathways to Sustainable Food Systems 2030, 2021: Includes intensifying the battle against climate change through sustainable use of natural resources as one of the key priorities, emphasizing the importance of improving farmers access to smart irrigation systems (2).
Mekorat (Israel's national water company) and Azerbaijan Amelioration and Water Management OJSC signed an agreement in which Mekorat will prepare a 30-year plan for Azerbaijan's agriculture's water sector (56).
Financial Environment
Financial incentives: The government of Azerbaijan offers a 20% discount on the initial cost of modern irrigation systems. The state pays for 40% of the equipment, and banks fund the other 40% of the loan over a 5-year term. The farmers pay the majority of the loan over the course of five years (39).
Fiscal incentives: Investment Promotion Document holders benefit from tax exemptions for intensive plant cultivation employing irrigation including 50% income profit exemption, and VAT exemption on imported hardware and duties for seven years. Property tax discounts are also available for facilities deploying irrigation (52, 53).
Other incentives: According to the decisions of the Cabinet of Ministers, dated January 2005, most machines and technical means used in the field of production and processing of agricultural products, including irrigation devices are exempt from import duty and VAT (58).
Regulatory Environment
On Amelioration and Irrigation, 1996: Permitted farmers to establish water users associations (WUAs) under Article 24 in order to organize operation, collect water fee and resolve disagreements that arise during the usage of water (47).
Water Code, 1997: Governs Azerbaijan's legal interactions with regard to the preservation and utilization of water resources. Article 98 regulates water use payments (49).
Law on Environmental Protection, 1999: Regulates interaction between society and nature for enhancing environmental quality, and effectively employing and renewing natural resources. Article 42 includes environmental requirements for the operation of irrigation systems (48).
Ministerial Decree No. 150 regarding validation of the Regulation on regularity of payment for water use in Azerbaijan,1996: Includes the rules for determining tariffs for the water distributed by the producer and the rates of compensation for harm caused by irrigation water shortage (54).
Marketplace Participants
Private Sector
Rivulis Irrigation, Irrigation Az LLC, Agrodrip, Agromarket Services, Solartech, 4S Claas.Xylem Water Technologies, AZPIVOT LLC.
Government
Ministry of Agriculture, Ministry of Ecology and Natural Resources, Ministry of Health, State Committee for Amelioration and Water Economy (SCAWE), Amelioration Irrigation Open Joint Stock Company (AIOJSC), State Agency for Food Safety, Agroleasing OJSC.
Multilaterals
World Bank, Asian Development Bank (ADB), UNEP, International Fund for Agricultural Development (IFAD), Food and Agricultural Organisation (FAO), Japan International Cooperation Agency (JICA).
Non-Profit
USAID, Research Institute of Erosion and Irrigation, Water user associations (WUAs).
Target Locations
Azerbaijan: Central Aran
Azerbaijan: Lankaran - Astara
Azerbaijan: Ganja - Dashkasan
Azerbaijan: Nakhchivan
Azerbaijan: Mountainous Shirvan
References
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