Agriculture accounts for the lion’s share of freshwater consumption—more than 40% in high income countries and as much as 70%, elsewhere. If anything, the scale of water usage is so large that it is often considered too big to even try to manage. Although, change is afoot.
The convergence of external forces, such as more devastating climate-related events (e.g., drought), innovative new technology solutions, and alternative business models has thrust more efficient water management to the top of the priority list in a US$5 trillion agriculture sector, globally. Key decisions that are influencing water are being made in a myriad of settings, from corporate board rooms to kitchen tables.
A Traditional Industry Moves toward Innovation
Of the commonly deployed irrigation methods, more efficient drip systems have grown 19% in the U.S. since 2013. This transition away from more traditional gravity and sprinkler systems towards lower flow, drip irrigation is expected to accelerate, not only in more mercurial, drought-stricken water markets like the western U.S. and Australia but also in regions where groundwater aquifers are under threat to excessive withdrawals.
The water-related hit to the wallet goes well-beyond drought and its pure availability. Energy for pumping (e.g., diesel, gasoline) and purchased water make up approximately 65% of average farm expenses in the U.S. On average, that is more than US$50k per irrigated acre.
Therefore, it is no surprise that the Internet of Things (IoT) and digital water solutions are making inroads into the ag space. Not only because there is a need, but also because innovative technologies are being proven-out in other mature sectors (e.g., electric power, municipal water utilities). Much like engineering consultancies in the utility sector, irrigation resellers (e.g., RDO Water, Laurel Ag & Water) play a crucial gatekeeper role by guiding farmers’ irrigation system design and technology procurement decisions. As such, they will influence the successes and failures of the growing roster of startups (e.g., Ceres Imaging, CropX, Arable) and industry incumbents (e.g., Lindsay Corporation, Valmont Industries, Jain Irrigation) looking to bring cutting-edge precision irrigation, IoT, and data analytics solutions to market.
While innovation in the conventional agricultural space is being accomplished through the implementation of novel irrigation and precision agriculture technologies, indoor farming is making an end-run around conventional producers. New market entrants are targeting consumers directly with attention being paid to energy efficiency, water conservation, and land and labor use. Utilizing specialized watering methods such as hydro-, aero-, or aqua-ponics, indoor (or vertical) farming can be as much as 90% more water efficient than traditional field irrigation systems. Physically, they also bring the farm closer to market, which include extremely water-stressed regions like the Middle East and larger U.S. urban areas like Brooklyn, New York.
The rise of indoor farming has spawned its own ecosystem of providers seeking to disrupt the conventional agricultural system, including OEMs (e.g., HydroFarm, Nelson Pade), systems manufacturers (e.g., Farmshelf, ModularFarms), and growers (e.g., Bowery Farming, 80 Acres Farms). Partnerships with leading distributors (e.g., Whole Foods and Gotham Greens, IKEA, and Urban Crop Solutions) are also beginning to deliver on scale with indoor farms co-located with grocery stores and other retail facilities.
Though far smaller and less mature than the conventional agricultural industry, indoor farming has caught the attention of venture investors. Prominent firms like Bowery Farming and 80 Acre Farms have amassed war chests of hundreds of millions of venture dollars in their bid to transform the way food is produced—and with it, the future of agricultural water management.
Demand-side Shifts Influence AG Supply Chain
Emerging from a niche market position, plant-based meat products are taking hold. This change in consumer behavior also points to improved water efficiencies in the food supply chain—new production facilities and reduced water usage. Driving this wave of activity are concerns about the environment, climate change, and animal welfare. Considering these broader concerns, coupled with the proliferation of corporate sustainability initiatives, new opportunities for water solutions providers are expected to grow.
To date, a reported 800 global firms—both start-ups and well-established players— have developed a range of meat, egg, and dairy alternatives, demonstrating almost two times the sales growth of the broader food & beverage sector, overall. While a range of factors influence the segment’s market growth, water consumption per kilogram of product of plant-based meat is approximately 3,800 liters, or less than 50% of the estimated 8,400 liters of water to produce beef and chicken patties. For this reason, alternative food companies are promoting their reduced water demands as a key benefit.
The Future of Agriculture in a Water Scarce World
Still in its infancy, a technological transformation of the agricultural sector is undoubtedly underway. As such, opportunities abound for a wide range of hardware, software, and service providers. Incumbent irrigation OEMs and resellers are likely to dictate the pace of change, particularly as consolidation picks up in the smart farming space. Even still, outside players, including water management specialists with expertise in the municipal sector or other industry verticals, may have a role to play in creating a more efficient, resilient, and sustainable future for the global agricultural sector.