Latest / The Productivity Podcast with Fexingo: Output, Efficiency, and Long-Term Economic Growth / How Israel Built a Desert Irrigation Productivity Revolution
Transcript
- Lucas: I want to start today with a number that stopped me cold when I first saw it: Israel today gets about three times more crop yield per unit of water than it did in the 1960s. That's not a theoretical model — that's real, measured agricultural output from a country that is about 60 percent desert. Luna: Three times more yield per drop — that's staggering. And I assume this wasn't just luck or good weather. Lucas: No, it's the result of a deliberate, decades-long national investment in water productivity. And the centrepiece of that story is a technology that most of us have probably seen but never really thought about: drip irrigation. Specifically, the company that commercialised it — Netafim. Luna: Netafim — that's the Israeli company founded on a kibbutz, right? I've heard the name in agtech circles, but I don't know the origin story. Lucas: Exactly. The company was born in 1965 at Kibbutz Hatzerim in the Negev desert. The founding insight came from a water engineer named Simcha Blass, who noticed that a tree near a leaking faucet was growing much bigger and healthier than the others around it. That observation — that slow, targeted water delivery at the root zone could be far more efficient than flooding a whole field — became the core of drip irrigation. Luna: So the original 'leaky faucet' became a global industry. How did that translate into the productivity numbers we're talking about? Lucas: Well, before drip irrigation, typical surface irrigation — flooding rows of crops — had an efficiency of maybe 40 to 50 percent. Meaning more than half the water evaporated or ran off. Drip irrigation, by contrast, can achieve 90 to 95 percent efficiency. The water goes exactly where the plant needs it, in small, frequent doses. That means you can grow more food with far less water — and in Israel's case, that allowed farmers to grow high-value crops like tomatoes, peppers, and avocados in the desert. Luna: And that's not just a theoretical yield improvement — it changed the economics of farming in a water-scarce country. Did the government step in to accelerate adoption? Lucas: Absolutely. This is where the productivity story gets really interesting, because it wasn't just the technology. Israel's government created a national water utility, Mekorot, and implemented strict water pricing and quotas. Farmers paid a rising marginal rate for water — the more you used, the more it cost per cubic meter. That made drip irrigation not just agronomically smart, but financially necessary. By the 1980s, nearly all irrigated farmland in Israel used drip or micro-irrigation. Luna: So the policy created the incentive, and Netafim provided the tool. But what about the broader economic impact — did this spill over into other parts of the economy? Lucas: Hugely. Today, Israel's agtech sector exports about $3 billion worth of irrigation equipment and know-how annually. Netafim alone has operations in over 110 countries. And the water productivity gains didn't just help farmers — they freed up water for the rest of the economy. Israel's total freshwater consumption has actually stayed flat since the 1990s, even as its population grew by more than 50 percent and its GDP tripled. That's a textbook case of decoupling resource use from economic growth. Luna: Decoupling — that's a key productivity concept. So Israel essentially broke the link between water input and economic output. But I've also heard that Israel now desalinates a huge share of its drinking water. Is that part of the same story? Lucas: It's connected, but it's a separate chapter. Desalination — which provides about 80 percent of Israel's domestic water now — came later, in the 2000s, and it's energy-intensive. The drip irrigation revolution was about using existing freshwater far more efficiently. And there's a fascinating economic lesson in the timing: Israel invested in water productivity before desalination became cheap. They made the most of what they had first, then added new supply when the cost came down. Luna: That sequencing is smart. Could other water-stressed regions — say, India's Punjab or California's Central Valley — replicate this? Or are there barriers? Lucas: It's not simple. In India, for example, groundwater is often free or heavily subsidised, so farmers have little incentive to invest in drip systems. But there are success stories — in the state of Gujarat, a public-private partnership with Netafim helped smallholder farmers increase cotton yields by 40 percent while cutting water use by 50 percent. The key was combining the technology with reform of water pricing. Without the price signal, the technology alone doesn't get adopted. Luna: Right, because if water is free, why would you spend money on efficient irrigation? So the policy environment is at least as important as the tech. But let's talk about Netafim itself — how did a kibbutz-based startup scale into a multinational? Lucas: That's a classic innovation-economics story. Netafim was initially owned by the kibbutz, which gave it patient capital and a long-term horizon. They didn't need to show quarterly profits to impatient investors. They spent the first decade just refining the drip emitter design — the little nozzle that delivers water at a consistent rate without clogging. That engineering focus gave them a durable moat. By the 1990s, they were expanding globally, first in Spain and then in the US and India. Luna: And they're still the market leader? I know there are competitors now — Rivulis, Jain Irrigation — but Netafim is still the brand that comes to mind. Lucas: They're still the largest, with about 30 percent of the global drip irrigation market. But the interesting productivity angle is that competition has actually expanded the total market. As more companies entered, prices came down, adoption increased, and the overall economic benefit — more food grown per drop — has spread globally. That's a classic example of how a cluster of firms can drive sector-wide productivity gains, not just firm-level ones. Luna: We've been talking about the technology and the policy, but I want to come back to the people. The kibbutz model — does that still play a role in Netafim's culture today? Lucas: It's evolved. Netafim was sold to a Mexican conglomerate, Mexichem, in 2017 for about $1.5 billion. But the kibbutz still owns a minority stake, and the original values — long-term thinking, collective problem-solving — are still part of the company's identity. And the broader Israeli innovation ecosystem — which includes strong government R&D grants, a culture of military-derived technical training, and a willingness to fail — all contributed to making drip irrigation a globally scalable solution. Luna: So this is a case where national productivity wasn't just about one invention — it was about a system of incentives, institutions, and a bit of geographic necessity. Before we keep going, I wanted to mention something. One reason we can dive deep into stories like this, without rushing or squeezing in ads, is because we keep the show listener-supported. We don't run commercials. If you find value in understanding how productivity really works — not just the headlines but the mechanisms — and you want to support that, there's a simple way. Buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No tiers, no perks, just a way to keep this ad-free. And it genuinely helps. Lucas: Absolutely. We're not going to pitch you anything else — just that link if the show matters to you. Now, back to the desert. Let's talk about one more specific metric that I think really crystallises the productivity gain. Luna: Let's hear it. Lucas: In the 1950s, before drip irrigation, Israel's agricultural output per cubic meter of water was about 0.5 kilograms of crop yield. By 2020, that figure had risen to over 2 kilograms per cubic meter. That's a fourfold improvement. And it's not just because they switched to higher-value crops — the physical efficiency of water use went up across the board. That kind of sustained, measured productivity growth is rare in any sector. Luna: Four times more food from the same amount of water — that's almost unbelievable. And it's not a one-off — it's a trend that continued for decades. What drove the improvement year after year? Lucas: A lot of it was incremental innovation: better emitter designs, computer-controlled scheduling, fertigation — injecting fertiliser into the drip lines so nutrients are delivered precisely with the water. Each of those steps added a few percent improvement, but compounded over 50 years, they added up to a revolution. And the measurement itself was crucial — Israel's agricultural research stations, run by the Volcani Institute, rigorously tracked water-use efficiency and published the data. That transparency helped farmers and companies see what worked. Luna: So the feedback loop — measure, innovate, adopt, measure again — was built into the system. That's the kind of infrastructure for productivity that most countries lack. Lucas: Exactly. And I think that's the bigger lesson from this episode. It's not just that drip irrigation is a great technology — it's that Israel built an ecosystem around it: public research, water pricing that incentivised efficiency, a cooperative business model that allowed long-term R&D, and a culture of sharing best practices. Any one of those pieces alone would have done much less. Together, they created one of the most impressive productivity transformations in modern agricultural history. Luna: So if a policymaker in a water-scarce region asked you, 'What's the first step to replicate this?', what would you say? Lucas: I'd say: start with the price of water. If water is free or heavily subsidised, no amount of technology will get adopted at scale. Make water cost reflect its scarcity, even if you have to phase it in gradually. Then invest in public R&D and extension services — show farmers the data on what drip irrigation does to their bottom line. And then make sure the financing is available, because the upfront cost of drip systems can be a barrier for smallholders. That's what worked in Israel, and it's what's working in parts of India and Africa today. Luna: And that brings us back to the core of the productivity podcast: it's not magic, it's design. Good incentives, good data, and good technology — applied persistently over decades. Lucas: Exactly. And that's the kind of design that can turn a desert into a garden.