Episode Transcript
[00:00:00] Speaker A: 420.
That's how many incidents of water related violence researchers documented around the world in 2024, a record.
In 2000, there were just 24.
Two thousand years ago, the Romans had a word for someone who shared your stream, Rivolis.
That's where we get the word rival.
Two neighbors, one stream, both need the water.
You can see how this goes. And 2,000 years later, we're still fighting over water. From the Middle east to the western US communities much closer to home, it still exists. Everybody's still fighting for water.
I am Rhys Tisdall and this is the Future of Water in which we talk about all the ways, which companies, utilities and people addressing all those challenges and opportunities in water. This is episode 153. That's a 153.
And I'm joined by my colleague Olivia Cranfuss, who's just done a deep dive into smart irrigation. The sensors, controls, software, all these things that decide when, where and how much water goes on to American farms and ultimately onto your dining room table.
Why should the water audience care? Well, irrigation accounts for about 42% of the country's freshwater withdrawals, for one.
And if you want to know where America's water goes, you probably should just start with the farm.
The number that jumps out at me though, in Olivia's analysis is 4 billion. That's what Bluefield expects farmers to spend on digital irrigation or smart irrigation technologies and solutions over the next decade. It's a small slice of an 84 billion dollar market water for agriculture that is. But it's growing at more than four times faster than everything else around it.
So the thesis really is the money in smart irrigation won't go to whoever sells the most hardware. It's probably going to go to whoever owns the decision about where and when the water turns on.
Let's get into it with Olivia and see what she has to say about water for agriculture, but more specifically, smart irrigation.
All right, so I'm joined here for the second time today with Olivia Krainfuss because we had a recording mishap and Olivia, you ready to do this all over again?
[00:02:39] Speaker B: Second time's a charm.
[00:02:41] Speaker A: All right, let's see if we can do this. So trying to. The hard part about this is we had a really good conversation earlier, so we got to make this one good. So in a nutshell, we sort of jumped into, and as I said into the introduction, we're talking about smart irrigation.
You've recently put out a report on smart irrigation in the US Looking at All the digital solutions and tech and so on and so forth in US Agriculture sector in regards to water management. So start with the basics. Most of our listeners, or many of them at least, they live in the world of utilities and pipes, mainly municipal water, industrial water.
Give us a lay of the land for how does American agriculture actually irrigate? Where does the money go when we talk about agriculture and irrigation?
[00:03:31] Speaker B: Yeah, that's a great first question, Rhys.
Farmers use primarily three main systems to irrigate cropland. Either gravity or flood irrigation, pressurized sprinklers, or drip and micro low flow irrigation systems. Over the past 10 years, we've seen that the amount of gravity systems has decreased by more than 15%. And that's mostly because of just how inefficient that form of irrigation is in terms of water use.
And what's taken its place has really been sprinkler irrigation and increasingly drip and low flow systems. So when we think about where that water comes from, most farmers get water from surface water sources on their properties, like ponds and streams, or they pump it from groundwater underneath their properties.
Some farmers also get water delivered from off farm organizations like irrigation districts, something that I'm sure we'll touch on a little bit later today.
Importantly, groundwater accounts for a pretty large portion of where farmers get water on their properties.
So in some regions of the U.S. mostly the western part, there's. That accounts for over 70%. So it's a pretty big piece of the puzzle. And so the combination of the transition from gravity systems to more technical sprinkler and drip systems and relying heavily on groundwater really defines where the money for irrigation is going.
Within the irrigation market, over 62% of operating expenses go towards energy costs for pumping water and labor costs for operating the pipes and equipment that goes into irrigating. And so just those two categories alone, accounting for over half of all money, really shifts where, where irrigation is going.
[00:05:11] Speaker A: All right, so this is a big part of the exercise, right? So this is actually the second report you've put out this year on water for ag. Earlier in the year we did a deeper dive. More broadly speaking, basically water for agriculture management across the spectrum, like how water is managed, where the dollar's going, size that market. I think in the intro I even said it's about an $84 billion a year market.
In this case, you've sort of gotten into the OPEX and the capex for smart irrigation. Well, how do we size that market? What's the methodology?
[00:05:46] Speaker B: Simply put, yeah, for the first report that we worked on we sized the market for on farm water usage from USDA survey data.
This survey is taken every five years. So it's pretty interesting to compare trends in the data across large swaths of time. And from that data, we were able to glean some growth rates and how the market was going to be looking going forward.
And one of those trends from that USDA data shows pretty substantial growth in the amount of money spent on digital technologies.
It's definitely a smaller portion of where total spend is, but the growth is pretty significant and definitely tells where value is heading. And so from there, in this smart irrigation report, Bluefield broke down the digital technologies category from our first report into specific segments that represent the most prominent categories of tools that farmers will use when it comes to digital water management.
And from there, we determine growth rates based on industry research and interviews with experts in the field.
[00:06:45] Speaker A: All right, nice. All right, so those are the basics. And then this analysis you just put out and spent a big chunk of time on is, is really smart irrigation. So when we say smart irrigation, what are we really talking about?
[00:06:59] Speaker B: Right. Well, historically, farmers have irrigated pretty intuitively, so they use things like the feel of the soil or the color of a plant's leaves, or a rigid irrigation schedule to figure out when to water their plants. But unfortunately, these manual behaviors often lead to over watering and inefficient energy use. So smart irrigation is the broad term for both hardware and software that help farmers monitor their environmental conditions, conditions, analyze data, make smarter decisions about when to irrigate and how much, and then actually control the equipment needed for precise watering.
So this can include things like control valves. So hardware that's attached to equipment and automatically turns on and off valves. This can reduce the amount of labor needed to operate those controls and also can shift pumping times to off peak times. The energy prices aren't as high.
This also includes sensors and probes that monitor factors like how wet the soil is or how much humidity is in the air.
And then on the software side, there are these decision support platforms that use algorithms to ingest environmental data and develop precise irrigation recommendations.
And what's interesting is that we've been seeing digital equipment in the irrigation space for quite some time now, but it's more so been used for basic remote control of large center pivot sprinklers. And now we're seeing digital tools being extended to drip and microsystems and kind of have a broader emphasis on how data collection and analysis as a whole can inform more precise irrigation scheduling.
[00:08:34] Speaker A: Yeah, and there's a lot going on. I think your point about, I mean, I think one could argue, right. You know, I think the farmers that have been doing this, generations have been doing this, they have experience, they understand where they are, they understand the properties of the plants, the crops, the soil. I think what you're really getting at, it seems like, is.
And part of this is just the advent of technology, right? Digital solutions, connectivity devices, sensors. What they do allow is it's really for efficiency gains. Right. How do you. How does a farmer or a company maybe more broadly, how do they become more efficient in their water usage? Because there are impacts that influence sort of the cost of crops, the cost of labor, et cetera. So most people would assume, though, that water scarcity is what's driving farmers to go digital, right? I think that's. People just jump right to that, well, there's not enough water, so we need to be smarter and deploy drip irrigation technologies. But your analysis suggests that actually the economics go beyond just the water, particularly energy and labor. Walk us through the findings of the report that you came up with.
[00:09:53] Speaker B: Yeah, absolutely. As you mentioned, water scarcity or water efficiency, I suppose, is definitely a key factor behind more efficient irrigation systems. I think for a long time we saw water as basically a renewable resource, and we're seeing now that aquifers are being depleted and we're experiencing more droughts across the world and the US that's not the case. There's definitely sort of a finite amount of water available that we need to use more efficiently.
But like you said, that's definitely not the primary or the only factor behind the adoption of smart irrigation. So energy and labor, like I discussed a few minutes ago, really are huge portions of the irrigation budget. Over 60% of OPEX.
And over the last several decades, we've just been seeing energy and labor costs just continuing to rise steadily and steeply. Energy prices in particular for diesel and electricity that power water pumps are continuing to spike and often spike in correlation with global conflicts like the war in Ukraine or in the Middle East. And then when you look at labor costs, hourly wage rates for irrigation have jumped pretty substantially over the past 10 years as well. The average was about $10 an hour in 2013, and now we're up to $18 an hour in 2023. So with that jump, labor costs have almost doubled in the past 10 or five years, even when it comes to irrigation. And so these rising input costs really are what's fueling the adoption of more efficient irrigation tech, because farmers just can't afford to be inefficient their energy or their labor anymore. And I think that's why this topic of smart irrigation is so hot right now. The irrigation market as a whole is relatively mature. It's projected to grow at a pretty steady 2.5% CAGR. But Bluefield projects that digital technologies are going to massively outpace the rest of the market, growing at more than 10% over the next five years. So this digital component, it's still a small portion of the overall market, but it's growing pretty quickly. And that's definitely changing how farmers are using it and how companies are developing their products.
[00:12:06] Speaker A: So when it doesn't rain or there's limited snow plaque in a place like Colorado this past year is our expectation. So that's going to lead to drought? I would assume so. Does a worse drought in this case mean more demand? Are we expected to see a spike in smart irrigation solutions and technologies?
[00:12:28] Speaker B: Yeah, this is a really interesting relationship to look at, and one that's a bit counterintuitive. So I think we might expect that as water scarcity increases, the adoption of efficient technology just continues to rise and rise and rise. But there is actually a point where if water gets too scarce, adoption will drastically drop, because in these instances of severe scarcity, farmers have to go into sort of a survival mode with irrigation. So that includes fallowing land, which means just taking it out of production completely so they don't have to water it or flood, irrigating and using up as much water as they can whenever they get that water allocation.
So this interaction between water and the adoption of tech, it's important to be aware of, and it's maybe not as intuitive as we might think.
[00:13:15] Speaker A: Yeah, it kind of makes me think of the discussion about rising fertilizer costs or shortages because of the strata. Hormuz. What do we say the numbers are? What, 20 to 30% of. Is it fertilizer?
[00:13:29] Speaker B: Yeah, I think it might even be a little bit more than that. Yeah, yeah.
[00:13:31] Speaker A: It passes through the straight of Hormuz. And so, you know, people are concerned or, hey, the farmers are not going to have enough fertilizer. But the reality of it is farmers can adapt. Right. They will sort of, at least on the margins. If fertilizer costs are too high or they reach certain levels, they're going to just use less fertilizer.
[00:13:50] Speaker B: And.
[00:13:51] Speaker A: But I think what's interesting is I was learning or listening to a podcast, I think, on Bloomberg, and it was someone talking about the impact of using less fertilizer on crop production, and they weren't speaking to anything specifically, at least crop wise, but the marginal negative, the impact on crop production is minimal. Right. If they just scale back fertilizer 10%, it's not like production drops 10%. It's, it's a fraction of a percent at that point, maybe. So I thought that was pretty interesting. And I think that's kind of what's happening when there's less water. Like you said, farmers start following, they start making different decisions going forward. But agriculture, it's, it's a long term, it's a, it, it, it's mature. Right. And so the, the decision making processes are not fast.
I think that's one of the challenges for actually outsiders looking at the market as a whole. So I mentioned $4 billion earlier. Right. $4 billion on digital spending over the next decade.
Where's that going? How do you, what's a simple way to break out that spending to give the listener some idea?
[00:15:07] Speaker B: Yeah. If we think about smart irrigation in terms of hardware and software, we're really going to see the first bump of growth in the next decade concentrated in the hardware space. Because the first step in smart aggregation is to have that monitoring and automation equipment capabilities in place.
So control tools, for example, they already have a decent adoption rate and can be pretty capital intensive. So they represent a majority of on farm spend just under 60%, but that will continue to grow pretty quickly.
We're looking at a cagr of something close to 10.5% as these tools address a lot of the elements that we've been talking about, the water efficiency side, labor costs, the energy costs.
And there's also now a push to incorporate control equipment on drip line and drip valves as the use of drip irrigation scales.
Sensors are another piece of hardware that are also projected to see pretty high growth. Things like soil moisture probes or weather sensors that collect metrics on environmental conditions are pretty crucial to get those in place for more efficient water use.
And then the idea is that once acreage is properly monitored and equipped for automation, that's when farmers can start playing around with the software side of things to really advance their water use further.
So decision support platforms allow farmers to collect the data from their hardware tools, ingest it, analyze it, see customized irrigation recommendations, and then eventually connect to their control tools. And these platforms. They're pretty capital light. They usually just require a yearly subscription, so they don't make up a large portion of the spend. But they're a really crucial part of the irrigation workflow in terms of bringing together data and making these watering recommendations for farmers.
[00:16:56] Speaker A: All right, so now this is a good segue because this is where I think it's sort of, it's fun and that is the competitive landscape. So big irrigation companies, it's a wide range of companies, which I think I'm going to ask you to break it down. But they're all making different bets, going in slightly different directions, at least as far as groups of companies go.
So some are building software platforms, others are doubling down on hardware.
Who's right, who's wrong, who's up and down?
[00:17:29] Speaker B: Yeah, absolutely.
Traditional sprinkler and drip equipment manufacturers have pretty long dominated the irrigation market.
But the growth of smart irrigation is now creating this strategic divergence between companies.
So we have companies like Lindsay and Valmont, these large sprinkler manufacturers, that have pretty actively been working to build out integrated software platforms for irrigation support over the last decade to work with their center pivot systems. And these companies in particular, they're kind of working off of, like I mentioned earlier, this historic remote control technology that has been in place in pivot systems. But now they're trying to build out those platforms more to offer crop water modeling, automatically water adjustments, remote management, things like that. And then in the dripline space, the two that come to mind are Jan and Idafim. They're really making a pretty big push to get into the software space as well by developing their own platforms that control their own equipment.
But there is another side of that as well. So there are companies that are remaining pretty focused on their legacy hardware side. Rivaless and Hunter are two good examples of companies that are choosing to not take an active role in their own software build out. And on top of that, there's also this massive market of mid sized established tech vendors and newer startups that have a significant market share of the smart irrigation space as well. And these companies have historically focused on technology. So some of the big ones include Crop X, Wyzcon, Zentech, Erebil, Sirius Imaging, creating equipment like soil sensors or crop energy platforms, or these decision support platforms themselves. So now the traditional equipment companies are now competing with tech specialists as well. And then to circle back to your question about which pathway is right, the software or the hardware side, I think that while farmers still need high quality hardware for their irrigation systems and for collecting data, they also really increasingly need a way to be able to understand and use that data effectively to then actually inform their irrigation habits.
And we're seeing a pretty interesting shift in how companies are building out products and marketing their products to kind of match that incorporation of software companies are increasingly moving from offering single point solutions to leveraging the field data they collect with predictive analysis to offer this precise decision support and actionable recommendations.
And a lot of this transition is fueled by internal R and D and proprietary platform build out. So that example of Lindsey and Valmont that I mentioned earlier, but a lot of it is also stemming from cross company partnerships, Companies opening up, APIs, accelerating M& A. Anything that really brings together disparate data sources or streams from various companies into cohesive interfaces.
[00:20:29] Speaker A: Yeah. So one thing that I think is really interesting about this, when you look at the roster of companies, the value chain is you've got the more if you want to call traditional. So we'll call that pivot. Now would we call. I mean pivot is, you know, there's gravity, but that gravity is pretty, what I would call mechanical, I don't know, pretty analog.
[00:20:53] Speaker B: Analog, yeah.
[00:20:54] Speaker A: Manual, yeah, very analog. Whereas you get the sort of pivot irrigation companies and you get these irrigation companies like Valmont or Lindsay, you know, they've got, they've built up relationships. Right. And so these are companies that have been in the space for a while. They've got big brands, they're global in nature.
That relationship with a farmer is critically important. Really important. Right. Whereas I look at some of the software companies and it's really an advent of sort of a more connected world, Internet of things. You know, you can. Develops companies have developed the software startup, some of which are.
And they're just appending that to existing systems or as packages. So the barrier to entry for them in some respects is a lot lower. And so that's why when you mentioned partnerships, it makes me think like is there, to what extent is there M and A or is there this sort of these relationships even across the supply chain that are coming together to provide a package of solutions to these farmers. And I think that's really critical and it seems to be that's kind of the way the market's evolving a little bit. I think one thing, and you and I have talked a lot about this, like Crop X is a company that we've been interested in. They're pretty active across the space. But one of the companies that invests in them is Lax's Ventures.
[00:22:22] Speaker B: And
[00:22:24] Speaker A: they're a pipe company at the end of the day. Right. Their venture group puts money into different solutions and technologies which they think that there's growth and maybe it all comes together as one ultimately.
But obviously ally access and alliances ventures see some opportunity in that. And Maybe they, you know, because Aliaxis and Orbia would be the other. With Netafim, their pipe company, they acquired NetFM.
Now, there's a whole backstory to that that's changing, but that's where I find that the market or the competitive landscape, really interesting is that movement across the value chain, whether it be through partnerships, through M and A or even greenfield development, does that make sense? Am I crazy?
[00:23:12] Speaker B: No, that absolutely makes sense. I think we're seeing a lot of equipment manufacturers and ag tech providers connecting their complementary capabilities. So, like you were saying, partnership is a really big part of that. One that comes to mind is the Lindsay PESSL Instruments partnership.
So Lindsay is basically incorporating Pessl's monitoring capabilities from their soil probes into Lindsay's fieldnet Advisor platform. And so that's definitely something that we're seeing more of. And a company that I mentioned earlier, rivaless. They're more on the hardware side, but they have kind of an interesting place in the market because they shifted away from digital agronomy when they were acquired by Temasek and then they sold their software platforms to fitech, which is another hardware soil moisture probe company. But they now have this partnership with fitech. So even though they're really focused on their legacy hardware, they're still tangentially involved in the software space through that partnership. So I definitely think that cross value chain collaboration is increasingly important for capturing the most value.
[00:24:25] Speaker A: Yeah, I mean, you mentioned hardware and software, and that seems like a obvious place to do it. That is going to lead to M and A as well, or consolidation, potentially.
All right, so let's Fast forward to 2036.
Who decides when the water turns on? The farmer, the agronomist, the equipment company, or maybe just an algorithm. What do you think?
[00:24:47] Speaker B: Yeah, that's a great question, Rhys. I think the answer is, honestly, a little bit of everything.
Algorithms are becoming increasingly important for determining the most efficient, precise method of watering crops. A lot of these are now being powered by AI and are very useful in improving water efficiency.
And so companies that figure out a way to own the irrigation workflow as a whole by controlling data collection, analysis and scheduling support, will eventually control the decision points.
But human involvement is still very important to farmers. They actively want to see what's happening in their fields. They want to be in control of their operations.
And they're also increasingly calling in help from agronomists, seed consultants, educational programs to understand how to best use digital tools as they keep evolving and advancing financing.
So there still needs to be Consideration for human touch points and involvement in the automation and digital process.
I think essentially I see it as these digital tools are helping farmers figure out when the water needs to be turned on and then a lot of cases doing so automatically. But I think the farmers still want to ultimately be in control of the final decision.
[00:26:00] Speaker A: All right, that makes sense. And so looking forward, what could move the forecast one way or the other? We've talked a little bit about tech, about water scarcity. What do you think?
[00:26:11] Speaker B: Yeah, there's a couple different factors, but I think I want to touch on the water scarcity one one more time because I think there's an interesting relationship. So as I mentioned, as water scarcity becomes too great, digital tool adoption actually falls pretty quickly. I think Nebraska is a pretty good example of that dynamic playing out in real time and how water availability is very regional and even localized. So even across the same state or across the same irrigation district boundary, there might be. Even across the same field, there might be some different water use and digital adoption playing out.
You see, the west side of the state in Nebraska is substantially more arid and dry than the east. The west is over the Ogallala Aquifer, which is pretty depleted at this point. So farmers typically have the luxury of choosing how much water to apply and they kind of have to apply whatever they can when they get it. So in a case like this, the value proposition of advanced digital technology is really low when farmers are struggling to get enough water to begin with. And so I think that if water scarcity continues and gets really extreme in a lot of different parts of the country, we might actually see a decrease in the amount of digital technology that farmers are using because they just like I said, the value proposition just isn't there.
But I think on the flip side, something that could bolster the forecast is definitely compliance regulations.
We're seeing that more and more now across certain states. I mean, SGMA is obviously a very well known in California.
The first 10 or so years of SGMA were really about putting the governance in place to enact the laws. But now we're seeing a little bit more regulation take place in terms of pumping restrictions and water use efficiency mandates. And so as these government regulations tighten and things like water usage and monitoring are really being restricted, I think that will drive the adoption of efficiency solutions on farms and could be a bit more reliable in terms of, if you're looking at water scarcity, energy costs, those things are fluctuating all the time. But tighter government mandates I think are a lot more reliable and could definitely drive growth in the forecast.
[00:28:35] Speaker A: Let me throw this at you. Do you think that what's happening with the Colorado river will have an impact as far as governance, regulatory shifts, and sort of who gets allocations?
Is that going to have a big impact, do you think?
[00:28:49] Speaker B: Yeah, I mean, similar to Sigma, the Colorado river is almost like an elephant in the room in every conversation you have about water, especially in the West. But I do really think that it is going to be impacting water usage over the next five, 10 years.
The situation is really dire. The Colorado river is very, very low, and that's where some massive states for agricultural production get their water from. So Arizona, parts of Southern California, Utah, these states really need water for their agricultural production. And if they just don't have it because that water is restricted, it's definitely going to impact and shift maybe what farmers are growing, how much water they can use, what types of technology they use.
And just in the past couple months, the federal government had to step in and put down some mandates about what states they would be cutting water from because the states themselves couldn't decide.
It's too big of a problem really, for the seven Colorado river basin states to decide on something together. So I definitely think that depending on where water cuts are coming from, which states are going to see the highest water cuts, that will definitely impact irrigation practices.
[00:30:02] Speaker A: Yeah, it feels like, you know, at an individual level, farmers are less likely to do it unless they see some direct economic benefit. Right. That would be, I need to lower my energy costs, I need to lower my labor costs.
So using smart irrigation solutions.
But I think collectively, I think that's where state and, or, you know, BLM or whomever, you know, the federal government maybe, and no one likes regulations, but at some point the government is there to protect us from ourselves. Right. And I think that's really the challenge with the Colorado, like the, I mean, the state, the seven basin states, upper and lower basin, you know, they all can't agree or hardly agree.
And, but then when you even get within the state at the individual local or farmer level, maybe even the districts, the, the, the, the approaches vary so widely, unless there's guidance about what to do, then ultimately it's the tragedy of the commons. Right. We're all going to suffer. So, yeah, I just thought I'd throw that out there because you're right, it. Colorado river is the elephant in the room. We've been talking about it forever.
We've been talking about solutions forever. It's only recently that we're making some slight Adjustments. So we'll see what happens. Well, you've unpacked a lot here, Olivia. So what have we left out? What's important to the story that we haven't talked about?
[00:31:32] Speaker B: Well, we've spent most of the time so far talking about what happens on the farm. I think that's a really interesting space in terms of the innovation, the company strategies that are happening there. But there is another piece of the market that's equally interesting. The irrigation districts and organizations that actually deliver water to farmers if they don't have enough on their own properties.
So this is a pretty important part of the farming infrastructure in the Western U.S.
i'm based here in Boston, so are you, Rhys. And we don't have irrigation districts up here in terms of where farmers get their water. They're really not relying on off farm water deliveries. But in the west, that's a huge part of the irrigation puzzle out there. Over half of all water is supplied from off farm organizations in the West. So it's a pretty big, pretty big part of.
And these districts, they operate pretty similarly to utilities in their government and procurement patterns. And that also extends to how they've been investing recently into digital technologies.
In the report, we characterize digital technologies at irrigation districts into five categories.
So that includes flow monitors, level monitors, telemetry, automated gates, and the SCADA systems that control all these digital components.
And a lot of this adoption really stems from water efficiency. So, for example, flow monitors, I think are a pretty interesting story.
They're projected to be the fastest growing segment of the off farm market. And it really stems from the fact that irrigation districts are increasingly constructing buried pipelines to deliver their water to farmers. And they're trying to replace these open, unlined canals that they've had in place for decades that can lose a lot of water due to seepage and evaporation.
So within those pipes, districts often purchase and install level monitors to figure out what's going on inside.
And then automated gates are another pretty fast growing and interesting segment.
If a gate is automated, it's just much more efficient and precise at delivering water as compared to manual gates.
So digital, similar to off or similar to on farm digital is still a pretty small part of overall district budgets. It's only about 5%. But it's also increasingly the focus of state and federal level grants because that water efficiency piece is really key, especially in these western states like the Colorado River Basin states. So I think there's actually an important opportunity for equipment manufacturers and digital players going forward in the off farm market.
As districts continue to push modernizing their conveyance networks.
[00:34:06] Speaker A: Nice. All right, well, that was a good one because, yeah, I think one of the key breakouts in our original report first, you know, earlier in the year was on farm off farm forecasts. In this case, you've sort of taken the smart irrigation piece and looked at both of those again as well, and they are two different. Even sizing those markets, the methodologies to get at the, the base or core of those sort of segments on farm off farm are a little bit different. So I think you've done a great job in doing that. So.
All right, well, with that, I really appreciate it. And if you just joined us, which I hope you haven't, because it's going to be pretty short from here on out. This is take two. So Olivia gets full credit and extra credit for coming on and doing this twice because I screwed up a recording switch on my end. So, Olivia, thanks a million for joining for the second time.
[00:35:07] Speaker B: Yeah, no worries. Glad that we were able to redo and I always love talking about ag, so happy to do it twice.
[00:35:14] Speaker A: Awesome. All right, we'll talk again soon. Thanks a million. Take care.
[00:35:17] Speaker B: All right, thanks, Rhys.
[00:35:20] Speaker A: All right, so it's great to have Olivia on the podcast for the second time. I'm a little embarrassed. I'm not going to lie. This rarely if ever happens. But couple takeaways. When I think about it, you know, why are we looking at smart irrigation specifically? One, we've already looked at water for ag size. That market put together, you know, bottom up analysis, sizing that market.
But smart irrigation really kind of gets at a couple of different things. One, it sort of addresses the agriculture sectors, adoption of technology, digital technology. Right. 10, 20 years ago, these technologies didn't exist. But there's their adoption and rate of adoption is increasing dramatically. And the ag sector is no different, particularly as it tries to address efficiency to that point.
Look, energy prices are up. It's in the news. Everybody's talking about it. Whether it be straight or moves, whether it be Ukraine, there have been these spikes that have impacted not only natural gas prices, but also oil prices and diesel.
So that's having an impact and kind of changes the, the math a little bit. Right when the, when the operating costs climb, farmers are hopefully more likely ultimately to find ways to just be more efficient. On the labor side, immigration or lack thereof definitely is not helping.
So labor rates, as Olivia said, have what did they double over the last five years?
So prices on the farm for labor are really high. Then lastly, I mean, we're going into, what is it, October now?
Colorado, for instance, you know, parts of the Colorado Basin, there was not a lot of snow. And so climate is a factor, Right? And from year to year, whether it be low Colorado river, low snowpack or no snowpack, it does elevate the question about what are we doing to be more efficient with water. Because if there's no water runoff and state river projects, and in state river, state water projects are not allocating water to farmers, then they're going to start drawing from groundwater. And if they're drawing from groundwater, there's going to be land subsidence and ultimately will those reservoirs even be recharged? So there's a real concern there.
So those are a couple things I just want to tie together. But before we wrap up, as I do, I got something that caught my eye this past week.
So water is 7% of Axiona's revenue. Acciona is the engineering company out of Spain, but water seems to have just gotten promoted. I was looking at Smart Water magazine this past week and it reported that Axiona is pulling water out of its infrastructure unit and making it a standalone business.
So it'll be reporting to the chairman. And this is for the first time since 2013. So most people will read this as, ah, it's just a company restructuring, changing the matrix around or product categories. But it's more than just an org chart change. I read it as something that is a little bit different in that companies don't just give 7% of their business its own seat at the table unless they think it's worth more than 7%.
So obviously Axiona sees growth and it may not be in Spain. In fact, I suspect they're even in the Middle east facing some headwinds. But in Bluefield's ranking of engineering design firms, which we put out a month or two ago, and I had Caroline Voclain on two episodes ago talking about this. But only four companies make more money from water in that ranking than Axiona and all the others are in North America.
So Axiona is a little bit unique. And quite honestly, as everyone knows, I can't get enough of Spanish engineering firms, where they are, where they're going globally, how fast their strategies are evolving.
I'm always interested to see what they're up to because they are global players. And one thing I couldn't shake is its water construction backlog has shrunk in the past year. So what does that mean going forward? It obviously sees something that I don't at the same time, one Brazilian concession it picked off added 36 billion euros. If that's correct. That seems like a lot as far as my notes. Hopefully I'm not misreading that.
That single contract is more than a quarter of Axiona's concessions portfolio. So even a 230 farmer irrigation contract in Zaragoza is the same move. Axiona Engineering and construction company. It's not just building, it's now starting to run and operate, or at least it's putting more focus on that.
It's not reorganizing necessarily as a. As a division. It's also partly refocusing on what kind of company the water business is. You know, after all, contractors get paid once operator, operators can get paid for 35 years.
So my kind of bet, or as I look forward, I think the next big water valuation story in Europe, it's probably not going to be a utility. It could be a contractor. Again. Spanish engineering companies have ridden a roller coaster over the last two decades up to the Great Recession. They recovered, they captured renewables. Maybe that's part of the reason I like Acciona, because I covered them in renewable energy over a decade and a half ago and I find them to be really interesting. But also, like I said, they're global. They're not big in the US but they're definitely big presence in Europe, Southern Europe in particular, Middle east, the diesel plants. And then lastly, Latin America sort of lines up with where they're going, maybe a little bit in Australia as well.
So that's what caught my eye. Super interesting.
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Of sam.
