Tuesday, Oct 24, 2017
Agriculture | Middle East | Israel

Agricultural Innovation

“If you have the right product, in the right place, with the right service, then you can grow”


2 years ago

Ran Maidan, CEO of Netafim
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Ran Maidan

CEO of Netafim

Netafim is an Israeli pioneer of drip and micro-irrigation products for agriculture, greenhouse, landscape and mining applications. It holds an over-30% share of the global drip irrigation market, and is recognized as the world-leading provider of drippers and dripperlines. Ran Maidan, CEO of Netafim delves into Israel’s inherent culture for innovation, the global-mindedness of the country’s businesses, and the incredible success of the company itself around the world. 

 

The Israeli economy ranks among the fastest performers in the world. The figures for this year and the predictions of the IMF put Israel among the first economies way ahead of the US, or Germany, of heavyweights on the world economy. I would like to know in your opinion which are the factors that explain this resilience and this success of the Israeli economy?

I think it’s a combination of maybe three or four key elements based on our spirit and culture as innovators and entrepreneurs.

The first element is that we try to be very creative. We want to move forward; we want to change. We have a spirit of change, and are not afraid of making change.

Second and somewhat related to the first element is that Israel undergoes many changes. Security and non-security related changes take place every day. People are continuously moving away from and returning to the country. Nearly all of our parents or grandparents moved to Israel from foreign lands. We’re not afraid of change.

In order to accomplish things, you often need to dare. What is dare? It’s to have the guts to take a stand and make change. To be innovative and invent something, you need to dare. Most people know what needs to be done to make change, but often see the risk involved. Israelis, however, often see the opportunity. All of this goes into what I would call a spirit of entrepreneurship, a culture of innovation, not being afraid to make change, not being afraid to dare.

The third element is also very important. We have a small local market. To give you some perspective, Netafim’s sales in Israel are just three percent of our global sales. If you open a business in the US, you can work there for dozens of years and build up a nice market. If you open a business in Spain, you have a good-sized local market or you can easily export to Europe. If you have a product or business in Israel, you need to think globally from day one, because in two, three or four years the local market will be exhausted.

This is the case with nearly every company; even big companies like Strauss, Israel’s largest food producer. There’s no food producer in the US that thinks about export. I’m not talking about PepsiCo, but about a typical dairy. Strauss started out as a dairy company maybe 50 years ago with several plants in Nahariya, in northern Israel. But even then they understood they would have to export in order to grow.

 

Exporting far away. It’s not exporting to the country nextdoor, which is not possible…

Yes. We’re like an island. If you want to export, you have to do it by plane or boat. It’s as simple as that. You need to think globally. Our growth isn’t based on the growth of our local market as is the case with an American company. Some US companies might grow a bit more than the country’s rate of growth, some a bit less. Our growth, however, isn’t even based on overall global growth, since we have to decide which markets to focus on.

About 40 years ago we exported to Europe, and then we started to export to the US. Now we’re exporting to China and India. We’re looking at the fastest-growing markets, and trying to export our products or establish a presence there. Our growth is based on the markets that we’re selling to, as is the case with most companies, whether it’s Strauss or Lumenis.

Think about high-tech companies like Mellanox. Immediately after they started, they said, “Okay, I need to export. I need to merge.” You think globally from day one. The same is true about Netafim. In 1980 we said, “Okay. We need to see how to export to the US.” Naty Barak was one of our first workers to go to the US. He was sent to California and had to start selling. Dressed in sandals and with suitcase in hand, Naty, a kibbutznik, said to himself, “Now I need to go to an American farmer and convince him to buy drip irrigation, which he knows nothing about and never saw before.” Think about the American farmer who doesn’t know anything about drip irrigation, and then there’s Naty, from somewhere in Israel’s desert, telling him that we invented something that’s good for him.

 

And it works!

It works, and then we say we’ll give you even more. The farmers said, “What do you want from us? Are you crazy?” And that relates to another element. What you call Israeli chutzpah. We don’t take “no” for an answer, but we do it in a positive way. I’m sure that Naty got rejected a hundred times, and he could have said, “Okay, I’m in the US, and things are different there. Maybe drip is good for Israel, for our deserts, but it doesn’t work for big US farms.”

Naty could have returned to lsrael, three months or six months later, and said, “Okay, I didn’t succeed.” But he didn’t give up. One company after another said no, and pushed him out of the door. But he kept on coming back, and eventually was able to convince US farmers and penetrate this new market.

Israeli chutzpah helps you find a way to do things in a positive way. It’s not that we’re impolite. We’re very polite. Naty, I’m sure, was very polite. Over dinner he would ask farmers, “Just give me a chance. Let’s try to find a niche.” That’s chutzpah -- not taking no for an answer. I think that such an attitude is also highly ambitious and helps us succeed.

It’s a combination of being ambitious, not taking no for an answer, and thinking globally from day one. Understanding that is crucial, otherwise, we won’t become a big company. How much do we sell in Israel? It’s a limited market. You have to understand from day one that you have to go global. Otherwise you won’t succeed.

And, of course, the culture of innovation and daring, changes that are happening in Israel, and army service help us adapt to change fairly easily.

 

You were mentioning creativity and R&D. For many people that don’t know Israel, don’t know Netafim, for example, I would like you to explain a little bit the importance of R&D for this company. In the factory what we saw, the drip irrigation system, how it was working in terms of production, which seems very easy when you see it. Then when you see it properly, how it’s produced, and it’s really impressive. I would like you to explain a little bit the importance of this creativity and R&D for your company.

When you want to sell, you need to look for a competitive advantage. Now let’s see what our competitive advantage is in Israel. You can start with cost. But we don’t have any competitive advantage in that. Producing in China or India gives you an advantage. Maybe we had a competitive advantage in cost 50 years ago, but that’s not the case today.

The second competitive advantage might be the local market. If you are a German company, you have a big local market. The same is true if you’re a US company. Here we don’t have a big local market, so that’s not a competitive advantage.

The third potential advantage is global location. If you’re in China or a place that is growing, you’re in a good location. If we look at a map, Israel appears to be in the middle of the world. But in reality we’re not in the middle. It’s only a map. There aren’t many things happening around Israel, and to get anywhere you need to fly or take a boat. That’s not a competitive advantage.

So what can our competitive advantage be? Innovation. To be able to deliver something that someone else can’t. Of course, after creating something we need to be cost effective and efficient in production, and we need to scale globally and know how to market. Our core competitive advantage has to be something that someone else can’t have. And you need that advantage in each of your activities. It doesn’t matter if you asked Mickey Federmann, who needs to come up with a unique defense system, or Ofra Strauss, who needs to come up with a new idea for coffee in Brazil. Everyone tries to find a way to do things differently. Innovation is not only a different product, but also a different business model. It’s a go-to market approach. It’s something that you have that someone else can’t have. But usually the differentiation is most apparent on the product side.

Netafim is not only about the product. You only saw our drippers, but today we’re way beyond that. It’s our design capabilities and tools, our agronomic support, our service, our technology for monitoring and control systems. At the end of the day, it’s all about offering a system that produces more yields with less resources. It’s also about providing the right software. Think about drip irrigation as a delivery system. It’s not only about water. We started with just water, but now it’s a delivery system that will take your water, fertilizer and crop protection products directly to the plant’s roots in the most efficient manner. In the end, I’ll put in the software to automate it. All you have to do is plant your seeds, and you’ll get the best yields you ever had, while using 30% less resources. Less crop protection products, less fertilizer, less labor, less water.

This is the next step in the drip evolution. The dripper is like the engine, and now we’re selling the entire car. In fact, we’re not even selling you a car, but rather transportation services. We’re selling you something that’s different.

 

A full system…. That’s what I would like to connect with you, on two sides. On the one side, the big scale projects that you are mentioning now, the big systems, the big crops. Also the family drip, which we saw, we saw a video on that, and this maybe also can help to the communities, to the small-scale market…

Today we have sales of more than $100 million in India. For over 80% of these sales, the average value is $1,000. That’s how much a very small system costs for a farmer with half a hectare or one hectare. Think about it. I’m an Indian farmer with one hectare. There are heavy rains once a year during the monsoon season, so I can plan to plant once a year. I hope that the rains will be good, and I’ll have one crop cycle.

Now think about it. I come to him and tell him I’ll do something. Let’s imagine for a minute. It’s not a dream but something we’re already selling. He doesn’t have electricity, but we can generate power with a solar pump. There are a lot of aquifers in India, and we can pump water that is 10 meters deep in the ground. We can pump water from 10 meters, 20 meters, 30 meters. We can pump the water and intsall a small system. From one crop cycle per year, he can have three cycles. And each cycle will have at least 20 or 30 percent more yield.

Now let’s see what happens. Suddenly we give him something that will increase his income by a factor of three or four. And the payback on such a system is 6-to-12 months. The system can last for 5 or 10 years. It works immediately, in the first cycle, and with the credit terms that I offer him, he’s already paid for the system. Now think about what happens to India’s economy. That’s why Indian Prime Minister Narendra Modi is willing to give a subsidy and say, “Give me the system. I’ll pay 80% for it.” He understands.

There’s also government support. In order to introduce something new, we need to work with governments and convince them that it’s good for them. Some governments give more than others. In the US it’s not the case, since people can take a loan from the bank and pay it back. But for a farmer in India, $1,000 is a lot of money. If the government gives him good credit terms, he can put up $200. And the following year his income will rise from $1,000 to $3,000 or $4,000. Suddenly he turns from being a farmer who made very little to one who’s making a living.

With a drip system, he’ll be able to do everything himself. We offer a very simple system, which can be connected to a cellular phone, that tells him how to irrigate and how to add fertilizer and crop protection products. Everything is automated. This is a game changer. And it’s why we can execute a 10,000 hectare project in Peru, Brazil, Africa or India, as well as a one hectare project.

Our vision is to drive mass adoption of drip irrigation, and in order to make that happen, we need to be able to work on big projects as well as on small projects with smallholders.

 

We read that in the world right now there is between five, seven percent of drip irrigation, still around 80% of flood irrigation, and the rest is by aspersion The room for growth is huge.

Yes, the potential for drip is almost unlimited. Let’s get back to what we were talking about earlier. How can a company like Netafim grow in Israel? If you have the right product, in the right place, with the right service, and the right people then you can grow. Our growth is not connected to Israel’s growth, and it’s also not connected to the growth of the global economy. Furthermore, it’s not even related to the growth of the global agricultural sector, since we’re introducing something that is evolving. We’re changing the rules of the game.

I came from Adama, a company that sells crop protection products. It’s a very good generic company. But a company like Netafim or Check Point wants to change the rules of the game. I come to a farmer and tell him, “Now you have one crop cycle per year, but if you buy Netafim’s system you’ll have three. Each one will use 30% less water and cost 30% less, and you’ll get 30% more yield.” Your productivity will be three or four times more than in the past. The profit is enormous.

 

The investment is not so big, not compared to the benefit…

The payback is short, and then you own a system that lasts for a long time. So if you were to ask me why the growth in Israel can be high, it’s because there are other Israeli companies with a high growth rate. Take, for example, Check Point, a global IT security company. It’s the world’s number one firewall company. Their growth is not related to the growth of Israel or the global high-tech sector. Then there’s Eyal Waldman of Mellanox. He found a niche for a great product, and the company can grow by 40% or 50% in a year. Then, of course, he’ll have to add more personnel and pay more salaries, which will push him. And maybe one of his engineers will develop an idea that will lead to a new start-up. That’s how it fuels the process.

 

Many companies claim themselves as very responsible, sustainable, and very committed to their corporate social responsibility. I can say, from what I’ve seen, that Netafim is one of the real companies committed to that because of the product and the business itself. I would like you to expand a little bit on that. How are you tackling new markets?

I’d first say that we “walk the walk.” If we believe in it, we do it. If we don’t believe in it, we don’t do it. I tell our agronomists that if someone comes to you and asks for a solution that we don’t have, don’t sell to him. Tell him that our system is a good enough system and is what you need. The principle is that what we do is good for the entire cycle, starting with the farmer.

I also think it’s important to understand our values. That’s what we believe in. Our core purpose is helping our world grow more with less. Many people come to us and ask, “Is it going to help the world? How are we going to grow more? How are we going to use the resources?” If the answer is yes, it’s going to help the world grow more with less, then we’ll continue. If not, then it’s not for us.

We have four values. If you were to ask our 4,500 employees about our values, 95% of them would immediately tell you what they are. First we want to Dare. This is part of the Israeli culture that we support. This is the culture of creating a revolution. If you want to create a revolution, if you want to grow, you need to dare. If you can’t dare, then you won’t make a change. In every decision there’s a risk, and we embrace change. We embrace people who take risks. Of course, it’s a calculated risk. I want people to say, “Yes, I believe in this country, and I believe that we can get this project. We will work on it for two years, maybe we’ll get it, maybe we won’t. If we try 10 times, at least one or two will succeed.” This is an example of not taking “no” as an answer. We’re trying hard.

Our second value is Make it Happen. At the end of the day you need to get the work done. You need to make sure that it will happen.

Our third value is Create an Impact. We want to think big. We want to create an impact on society. We don’t want to sell $5 million or $10 million. What’s important to us is did you create an impact? Did you deliver something different? Did you change something? Sales are important, but you need to create an impact. Create an impact is taking place in California. Naty can go back to California now and smile, because 80% of California’s high-value crops are drip irrigated, whether it’s vineyards, orchards, pistachio, or almonds. Think about what would happen in California today without Netafim’s systems.

The fourth value, one that is very strong, is Partner for Success. We don’t want to do everything by ourselves. We don’t believe in that. Our number one partners are our employees, our society, our customers. Our partners are the farmers who use our products, the dealers who sell to the farmers, and our employees. We believe that despite our culture, we’re sharing success with others.

 

You were mentioning right now 80% of the vineyards in California, for example, are Netafim irrigated. Allow me to ask you about the market itself, the American market. We are publishing in the US with Newsweek and I would like you to tell us how the company is developing its activities, and I suppose that it’s a very big market for you in the United States.

We believe that we have the solution. Let’s take a step back. You had mentioned that 70% of the water in the world goes to agriculture. If you want to save water worldwide it won’t be through the industrial or municipal sector. My kids want to save water, so when I’m shaving they always tell me, “Close the water, we don’t want the water to run when you are shaving.” That’s important; it’s part of our education. But it’s peanuts. Most of the water, 70%, goes toward agriculture. If you want to create savings, that’s where you have to look. And 80% of the 70% that goes to agriculture is flood irrigated.

This is where the big saving is. If we increase the penetration of drip in areas like California, Texas, Arizona and other places in the US, the impact of water saving will be enormous. In Israel we don’t have a problem with water anymore, and we’ll never have a problem again. There’s no risk of running out of water. Maybe that was the case 10 or 20 years ago. We’ve increased our supply and use water very efficiently. In Israel you won’t see one flower grow without drip irrigation.

In Israel, drip is responsible for about 80% of all agricultural irrigation, leading to average water savings of 40%. Think about the fact that you save 30% of all the water being used from the first day after installing a system.

We use drip irrigation everywhere in Israel. Things changed because suddenly we changed demand. It’s an issue of supply and demand. Usually demand is 10% more than supply. With drip you can irrigate the same crop with 40% less water. You change the balance in one day. That’s what we did in Israel. And we also desalinate water.

One of the core strengths at Netafim is technology. What is technology? It’s thinking about an idea, thinking about what’s going to happen, thinking about the market. You don’t think when you conduct R&D. You say, “What do we need to solve?” We need to be able to provide water for a growing cycle.

Then you say I need to develop a system. I need to have drippers that won’t clog. I need filters in order to deliver high enough water quality for eating an apple or an avocado. If you think this way, then you’re coming up with a solution. You say, “I’ll need different filters, different drippers, different irrigation methods. I’ll need to place it at this height.” That’s why we are strong agronomically. We need to change the nutrition that we use, since there’s more nutrition in wastewater.

We need to change. We embrace change, and we’re not afraid. That’s where the market is heading, and now we need to bring a unique solution to support it. It’s not the same dripper or the same filter. It’s not the same protocol for growing a crop.

 

When we met Mr Barak he was telling us that many people think that Netafim doesn’t have competition. He said, “In fact we have competition. Of course we have competition, but our way of approaching things isn’t what makes us different.” That’s how I would like to conclude this interview, asking you personally, you been here heading this company now for some time. I would like to ask you, in the near future, in the following 5, 6 years, how do you envision the company, and how do you assess this comment of Mr Barak?

First, of course there’s competition. From our point of view that’s fine. It will help us create a revolution. Competition is good. We’ve been leading the way for the last 50 years, and we want to continue to lead for at least another 50 years. To do that you need a clear strategy of going forward. The first part of that startegy is our strong backbone, our strong company culture. It’s very simple. Every employee understands that our puprpose is to grow more with less and that we need to follow our four values. He needs to dare, think big and make it happen, create an impact, and partner for success.

The second part of the strategy is that this is only the beginning. We’re still just a fraction of the irrigation market. We need to develop new markets such as China and Africa. The US is huge, and we have great potential in the country. We also have great potential in Africa, in India and in China. In emerging markets as well as in established markets.

The next part of our strategy is differentiation. If you want to be the leader, you always need to be two steps ahead in innovation. What’s the next type of dripper? It’s not just a dripper. It’s about peace of mind that you give the farmer so that he will grow more with less. Or it’s about bringing more automation, more technology and more software into the business. Not only hardware, but also also software. It’s about our uniqueness and comprehensive solution. That’s what will generate differentiation.

We combine everything together -- investing in growth engines, investing in differentiation, creating the right culture, having the right people -- and continue to maintain a strong passion within the company to create a better world, a better company, and a better product for our farmers. By doing that we’ll continue to win.



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