According to the International Water Management Institute (IWMI), a research center for land and water resource management, one-fourth of the world’s population live in regions that will experience severe water scarcity by 2025. Worldwide, the institute says the worst-hit regions will be in Asia, the Middle East and Sub-Saharan Africa. According to the IWMI, one way to alleviate those issues is to turn to micro-irrigation technologies.
Enter Jain Irrigation Systems Ltd. (JISL), a company positioning itself to tap markets facing a water-strapped future. Relatively unknown outside India, JISL is that country’s biggest producer of drips, sprinklers and other forms of micro-irrigation systems. But since 2006, the company has been expanding abroad, with four acquisitions in the U.S., one in Switzerland and one in Israel. Along with a factory in Turkey, it also has turnkey projects under way across Africa.
Beyond India and South Asia, JISL started a greenfield irrigation business in Turkey last year, which produces drip irrigation pipes and represents other companies in the country. "From here, we are targeting the markets in the Muslim Arabic world, possibly also Europe," says Anil B. Jain, the firm’s managing director. What’s more, the Middle Eastern markets, such as the UAE and Jordan, are ripe for JISL’s food-processing and biotechnology businesses.
In the course of this growth, JISL has become a specialist in providing education and technology aimed at helping farmers increase crop yields, while minimizing the use of scarce natural resources. "When agricultural production is stagnating, water availability is decreasing and the world population is increasing, what options do you have?" Jain asks.
A Global Footprint
He says the foreign acquisitions are helping JISL take its products and services, and the experience honed at home, to similar markets, such as Africa and West Asia, while enabling it to develop new products and markets in India.
Listed in Bombay, Singapore and Luxembourg, JISL first arrived in the Middle East in 2007 when it purchased a majority stake in NaanDan Irrigation Systems C.S., an Israeli drip irrigation and sprinkler systems pioneer. The purchase made JISL the world’s second-largest micro-irrigation company, rivaling Netafim, also of Israel. That acquisition coincided with ratings agency Standard & Poor’s naming it one of eight Indian companies expected to challenge the world’s leading companies in their fields.
The acquisition gave JISL access to NaanDan’s manufacturing facilities in the U.S., Mexico, Chile, Brazil, Spain and Australia, as well as a network of distributors in over 50 countries. It also marked an important milestone in the company’s strategy to gain a bigger share in new markets, such as Africa and central Asia, as well as existing markets, including the Middle East, which are moving up the value chain by seeking more sophisticated products and services.
"Currently, the technology is used globally in a limited number of agri-subsectors by the large, organized players, such as exporters of horticulture products," notes Anup Jagwani, principal investment officer of global manufacturing, agribusiness and services at International Finance Corporation (IFC), which has invested more than US$50 million in JISL. "The potential contribution [to addressing water scarcity] could be enormous as more and more farmers around the world begin to adopt drip and micro-irrigation techniques and equipment."
Africa Most Exciting
In addition to NaanDan, JISL has another strategic link in Israel: A memorandum of understanding signed in 2008 with state water utility Mekorot, under which the two entities bid jointly for projects in India and elsewhere in a range of fields, including desalination, water resource management and municipal water management.
However, it is Africa that Jain is most excited about, given its resources and weather conditions. On the other hand, West Asia and Central Asia are trying to diversify from oil and gas, and have the money to spend on developing their agricultural sectors. All these regions share a concern over food and water security. "A very important factor that makes it possible for an Indian company like ours to transfer knowledge and technology to these countries is that we can send our people there. There are no visa issues like in the U.S.," Jain points out.
David Molden, IWMI’s deputy director general of research, says JISL is in a good position to take technology developed for small farms in India to Africa. Although the company’s presence in Africa is small, it has been growing rapidly there, from US$9.7 million in 2009 to US$17.2 million today. (Overall group revenue for the fiscal year ending March 31, 2010 was US$750 million, up from US$631 million the previous year.)
According to Jain, the company is looking at Africa as its biggest overseas revenue generator in the medium and long term thanks to three main growth areas. The first includes requests from governments to have JISL provide advice and execute projects for them in countries ranging from Kenya to South Africa to Ethiopia. The second is to work with and sell products to Indian companies wanting to get involved in Africa’s agricultural sector. "These companies don’t always know agriculture, which is where our expertise and experience comes in," Jain says. The third is the newest area, and aims to connect with governments, international non-government organizations (NGOs) and multinational companies to carry out corporate social responsibility activities around ethical, sustainable agriculture. In other words, they want "to change the way agriculture is done, maybe source directly from the farmer, help the farmer add value to his produce and so on," Jain notes.
Jain says the company faces stiff competition in Africa, but it is relying on its 40 years of experience gained in India. "We’ve done hand-holding for farmers, helping them through the transfer of knowledge and technological inputs," he points out, adding: "When people want to meet global standards, their cookie-cutter prescriptions are to have large, consolidated land holdings, to remove subsidies and free trade. But we know that farmers are attached to their land, the size of their holdings may be small and resources are limited. We work with those conditions. Not many companies have this kind of experience."
Yet Africa presents its own challenges, in terms of political instability, language and cultural barriers, to transferring knowledge and technology. "If you want to create good infrastructure that will be sustainable without exploiting the locals, the practical conversion of opportunities may take time. While the African opportunity is huge, the time to get in is now — not in five or 10 years," Jain says.
An Integration Strategy
Just as JISL’s Indian experience is helping it explore foreign markets, its foreign activities have helped it create new products and markets in India. "It’s a two-way street," Jain notes, "India’s agricultural production is among the lowest in the world. We are trying to improve that with the help of products and technology from abroad." As a case in point, he cites the company’s onion business. JISL’s acquisition in 2006 of 65% of U.S.-based Cascade Specialties, a firm specializing in vegetable dehydration, spurred the company to increase its onion contract farming. Using Cascade’s technology, JISL has become India’s largest producer of dehydrated onions, the most common general ingredient found in processed foods worldwide.
JISL’s home turf is the fastest-growing micro-irrigation market in the world, thanks largely to the fact that 50% of its arable land is still rain-fed and the growing policy attention aimed at improving the stagnating growth of the agricultural sector, on which 70% of the country’s population is financially dependent, directly or indirectly. Having increased its capacity by 34% in the past year, JISL is poised for more growth in this niche.
Part of JISL’s success in this market is attributable to its strategy to be involved in the entire agricultural cycle as a complete agri-solutions provider. Among other things, that means assisting local farmers at every stage of a crop’s cycle, including selling high yielding and hybrid seed varieties. The company’s food-processing business then buys back these crops.
The overseas acquisitions are part of this strategy. "We are adopting a strategic mix-and-match of organic growth and acquisitions that offer an opportunity to grow the business, bring in new technology and production capacity, and expand our capabilities or geographic reach," Jain says. "We intend to pursue acquisitions related to our key strengths, offer synergies and have manageable integration risks." In 2009, JISL acquired Thomas Machines, a cutting-edge Switzerland-based manufacturer of plastic extrusion equipment. That has allowed JISL to begin importing high-quality equipment at competitive prices, bolstering its fastest-growing business — micro-irrigation, which accounts for more than half of annual revenues.
This strategy is what sets JISL’s plans apart from that of rival Netafim. While Netafim operates primarily as a micro-irrigation company with a worldwide footprint, JISL has related parallel businesses that help mitigate the risk of relying solely on weather-dependent agriculture. For example, JISL has a sizable PVC pipes and plastic sheets business, as well as a growing biotechnology division.
In its home market, JISL is now preparing for competition from big domestic industrial conglomerates, including Tata and Mahindra & Mahindra of India, as well as U.S. agricultural machinery giant John Deere — all of which are said to want to enter India’s micro-irrigation market. "Competition will be good for the Indian market," states Jain, adding that the presence of other large companies will expand the market and create greater awareness of micro-irrigation.
Unavoidable: Food Inflation
In October, Jain traveled to Washington, D.C. to receive a client leadership award from IFC for JISL’s pioneering work in promoting sustainable agriculture and raising farmers’ incomes through efficient water, energy and fertilizer use. Later that month, he was at an Asian Development Bank meeting in Manila. "The buzz everywhere is about food and water security," Jain notes.
Amid heightened concerns about climate change issues, Jain says, "countries will have to learn to live with high food inflation. What governments need to do is concentrate on letting farmers get the prices they deserve, while enabling them to increase production and put in place systems that avoid wastage." One of these systems, of course, is drip irrigation — Jain says it makes water usage in flood irrigation 95% more efficient, compared with 35% using other means.
Bharat Sharma, senior researcher and head of IWMI’s New Delhi bureau, says micro-irrigation has proven to be useful for horticultural, cotton, sugarcane and other crops requiring relatively little water. "Most studies indicate that the technology is suitable for medium to large farmers or sometimes even small farmers with good access to water, credit and markets," he notes. Against the backdrop of climate change and with the potential of more droughts, heat waves and dry spells leading to further depletion of water tables, Sharma calls micro-irrigation a promising solution.
However, Sharma points out that the technology is capital and skill-intensive and limited mainly to non-staple crops. JISL is trying to overcome this barrier and carrying out research for rice cultivation in collaboration with the Philippines-based International Rice Research Institute. The company’s micro-irrigation systems are also being used by Indian farmers growing staples, such as wheat and maize.
For institutes like IWMI, drip irrigation is believed to be a key way to alleviate poverty and generate more jobs. But, as IFC’s Jagwani says, more international organizations need to join the cause. "[JISL’s] example of offering small farmers income stability and growth should provide a model for governments and NGOs to replicate," he says.