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Guest blogger Sasha Dichter is Director of Business Development at Acumen Fund. Before joining Acumen, Dichter held senior positions in the corporate citizenship departments of GE Money and IBM. He earned a B.A., M.A., and M.B.A., all from Harvard University.

By Sasha Dichter Today, we had the pleasure of meeting with the MicroDrip team to discuss their drip irrigation systems being rolled out in the Thar desert region of Pakistan. Dr. Sono is the visionary founder of the Thardeep Rural Development Program (TRDP), which is incubating MicroDrip as a for-profit to serve poor farmers living in the desert. TRDP, the non-profit, provides support services, like education and training, to these farmers.

This is my second chance to meet Dr. Sono, who spoke at Acumen Fund’s 2007 Investor Gathering and Celebration last November. Dr. Sono was joined at the meeting by Saqib Khan, the COO of Micro Drip, and Javaid Chaudhry, MicroDrip’s Technical Sales Manager.

MicroDrip is a for-profit company that sells and distributes drip irrigation systems to farmers in the Thar region. Acumen Fund has supported the formation of MicroDrip as a for-profit company and is making a US $500,000 loan to support their growth.

Acumen Fund has been working with drip irrigation since 2003, when we first funded International Development Enterprises India (IDEI), an NGO that had the ingenuity to engineer drip systems that were inexpensive enough to make economic sense for farmers making as little as $1 a day. MicroDrip now buys these systems from Global Easy Water Products (GEWP) in India, a recent Acumen Fund investment in scaling the domestic and international distribution of affordable irrigation technologies available to smallholder farmers. This is a powerful partnership across the India/Pakistan border.

Drip systems are deceptively simple. Rubber tubing with tiny holes delivers water directly to the roots of plants. These systems can more than double farming yields, especially in parched areas, while requiring less water and fertilizer than flooding. Drip also allows farmers to plant three crops in a year instead of one, and has the potential to pay back the farmer’s investment in the system in one growing season.

So why is it so hard to grow MicroDrip and improve the live of hundreds, if not thousands, of smallholder farmers? Like Saiban, MicroDrip is creating a new market–one whose customers are some of the poorest people in the world–and this requires an amazing amount of experimentation and iteration.

The drip systems, though much less expensive than their predecessors, still cost about $500 an acre, a significant investment for the farmers. Plus, to work properly, they must be connected to a consistent, reliable source of water. In the Thar desert, this means that most farmers need pumps–diesel, electric or solar–which requires another capital investment and potentially high operating costs (especially for diesel).

Most challenging, the farmers need to learn new farming techniques. This means a shift in mindset, and the willingness to change practices that have been in families and villages for generations. Javaid, the Technical Sales Manager, described it as akin to “asking people to switch from tea to coffee,” a wonderful analogy. The change seems so simple, but the shift gets to the core of identity, practices, and culture.

As Saqib Kahn explained to us, MicroDrip has been focusing on creating a handful of successful demonstration pilots over the last 12 months, to showcase the impact of the systems and also to understand how to have the greatest impact on farming livelihoods.

The early results speak to MicroDrip’s potential. A farmer named Naran was one of the demonstration clients. Before getting a drip irrigation system, Naran had planted only one-half of an acre out of the six acres he owned, choosing instead to earn his livelihood as a laborer. After training on the use of the system, Naran planted the full six acres with sunflowers, a crop he had never planted before.

Saqib Khan, MicroDrip’s COO, spoke eloquently about what set Naran apart. “He has been meticulous in the care of his fields,” Saqib said. “Naran walks up and down his fields with his shirt pocket full of seeds. Whenever he finds a spot where a plant had not taken hold, he digs up the seed and replants. This takes hours under the hot sun, walking up and down the rows of sunflowers, which are spaced one-and-a-half feet apart across the six acres.”

Drip requires this kind of shift in mentality, from farming the entire field to caring for individual plants, and the farmers who seem to be most successful are the ones who will take this level of care to learn new practices. The before-and-after pictures of Naran’s fields are stunning. Before, the picture is of parched, cracked earth in the dessert. Just four months after, Naran is dwarfed by radiant, seven-foot tall sunflowers that extend in a sea of yellow heads to the horizon. This harvest alone paid back the cost of the drip system and all the inputs (seeds, pesticides and fertilizer), and Naran will be able to plant two more crops this year, with the expectation of higher profits.

As exciting as Naran’s example is, scaling up MicroDrip is not going to be easy. Not all the farmers have been as successful as Naran–some because of bad weather; some because their sunflowers were hit with “head rot” that can strike in a matter of hours and destroy part or all of the crop; and some because they didn?t take the time and effort Naran did.

But the big issue is water. Water storage is very expensive, and canals are not reliable for the poor farmers who are downstream and are the last to get water. So most of the plots require some sort of water pump, whether electric, diesel or even solar. With the cost of diesel skyrocketing, alternatives are looking more attractive, and Naran received a free solar system to power his pump, subsidized by TRDP as part of the demonstration pilot. As the price of diesel has skyrocketed, solar panels have become more economically attractive. But this is one additional investment the farmer has to make, and when you add the need for pumps (and potentially fuel) into the mix, it becomes clear that some sort of real shift will be required to make it viable for a large number of farmers to adopt drip systems.

The shift could be a technical innovation. When you see clean, modern solar panels in the middle of the dessert–where temperatures regularly hit 50 degrees Celsius–it feels like there must be a way to make solar more economically viable in this environment. On my flight from New York to Pakistan last week I flew through Dubai, where developers are building palm-tree shaped islands with hundreds of million-dollar condos on what was once the ocean. Compared to this, harnessing the power of the sun in the middle of a desert should be a walk in the park.

Or the shift could be a smart subsidy. In an increasing number of our investments, Acumen Fund has seen that subsidies can be incorporated in ways that spur market growth and adoption of new products and practices without causing significant distortions. Dr. Sono tells us that there is a good chance that the government of Pakistan will provide a significant subsidy to support small-scale farmers, and that MicroDrip could leverage this subsidy to sell tens of thousands of drip systems. This could be the large-scale demonstration effect that is needed to tip the balance on this innovation.

In the meantime, the MicroDrip team soldiers on, iterating on every part of their business model–especially pricing, distribution, product specifications, sourcing, and after-sales support. They are learning from the market, and in the case of this particular product–where cycles are measured by the length of the growing season–it is going to take time to get all the pieces in place. In the meantime, Naran’s field of sunflowers in the dessert reminds us of the potentially bright future for smallholder farmers in Pakistan and around the world, if we can bring the right resources to bear on this challenge.

Editor’s note: This post first appeared on the Acumen Fund blog.