Vertical Farming: New Layers of Innovation
Contents
Introduction
Background and benefits
Market forces
Regulations and other hurdles
Investment opportunities
The potential scope of impact
Market segments
The layers of vertical farming
Impact
Environmental & socio-economic
Market movers
Leaders & fast followers
Investors
VC / PE / Funds
Final Thoughts
Can innovation overcome costs?
Farming gets a high-tech makeover
A new way to tackle food security challenges
From converted steel factories in Newark, N.J. to ex-warehouses across the Hudson River in New York, vertical farming’s trajectory is both physically and financially upward. If you need proof, AeroFarms’ facility in Newark, 69,000 square feet in a brownfields zone, fetched $21 million in 2021.
Since Columbia University professor Dickson Despommier coined the phrase “vertical farms” in 2010, the industry has soared, with some expecting it to grow into a $10 billion industry by 2026.
Vertical farming may answer many concerns about the global agricultural system’s contributions to global warming and its ability to feed the world. Pandemic-influenced and war-impacted supply chains jeopardized global food security and quality. Beyond these extreme circumstances, we can expect frequent climate impacts — hotter temperatures, shifting rainy seasons, droughts, worsening bouts of destructive insects and crop disease.
In contrast, vertical farms offer independence and carbon-footprint-friendly solutions. Indoor farms require fewer resources, no harmful pesticides, less land, and more accurate monitoring. The result? Higher yields at a reduced cost, all year long. The promises of indoor vertical farming to industrialize the high-value crop production have created a window of opportunity for investors seeking to deploy capital in an environmentally impactful way.
Using hydroponics, aeroponics, and aquaponics, vertical farming can tackle major global issues concerning food supply, water scarcity, and biodiversity, all the while delivering fresher and healthier greens to our tables.
Vertical farming’s trajectory is both physically and financially upward.
Market Trends: Facts, Figures, Forces
Market FORCES
Global food demand, prices, and quality all threaten food security
Between 2010 and 2050, global food demand is expected to increase by as much as 56%.
Moreover, sales of organic food reached a new high in 2020, reaching $61.9 billion.
Packaged salad is a $36 billion industry.
Grocery prices rose 10% by from March 2021 to 2022.
Food travels an average 1,500 miles before reaching the dinner plate.
Existing concerns
Conventional agriculture dries up more than 70% of global water consumption.
According to the NRDC, North American fruit and vegetable losses are 20% during production, 12% during the distribution and retail processes, and 28% due to consumer losses.
Higher temperatures are bringing more crop pests.
The CDC finds that foodborne illnesses cost the US more than $15.6 billion.
Vertical farming introduces an interesting, and in most cases, cost-cutting value proposition:
A controlled environment, independent from land, less water use, no pesticides, controlled (if any) fertilizer use, easier automation, optimized working conditions, high density output, improved productivity
Square Roots’ CEO Tobia Peggs says retailers were “kind of interested” in controlled environment agriculture (CEA) 5 years ago. Now, interest is “infinitely higher” and multi chain stores are communicating CEA’s value to the end consumer.
In 250 stores, including Whole Foods Market, FreshDirect, Morton Williams, Busch’s Fresh Food Market, etc.
All Natural (Light)
This farming facility in Worcestershire, England is completely indoors but does not use any artificial light
Investment Opportunities
Venture capital invested $51.7 billion into agri-food technology in 2021 – marking an 85% increase since 2020, a year which already saw increased interest due to the pressures of COVID-19. As agri-food tech grows, so will vertical farming.
Vertical farming companies require a generous upfront investment, between the technology and relatively high energy demand. Furthermore, a variety of industry accepted models currently flood the market, varying due to the different geographical challenges, political acceptance, agricultural market, and product. Clearer zoning laws and new business rules can help spread vertical farming, to eliminate food deserts and develop sustainable city spaces.
On the flip, vertical farms in Wyoming already supply entire local cities with their greens. Not only do vertical farms offer solutions to food deserts, but they also extend shelf lives without the hours in the back of a truck.
While nearly every aspect of vertical farming is more inexpensive and less taxing on the environment, vertical farms still can’t qualify as carbon neutral. When the consumer pays for produce from vertical farms, they are paying energy costs from LEDs and water pumps, on top of an organic premium. Maintaining the same farm structure, farm to farm, helps reduce costs, says Bowery’s CFO. LEDs need to become cheaper and more efficient, but some scientists have expressed skepticism – LEDs are already 70% to their theoretical maximum efficiency. Certain crops also require differing levels of electricity – strawberries require double the electricity than tomatoes do, which themselves require double that of lettuce. However, solutions could be around the corner. Some vertical farms are experimenting with only showing particular wavelengths like blues and reds, while others guarantee 100% use of renewable energy.
Vertical farm profitability is no guarantee. The 2019 Global CEA Census Report found 15% of shipping container farms and 37% of indoor farming have been profitable. Capital costs have ranged from $150-400 per square foot, and yet, venture capital will continue to support the industry to drive costs down.
Market Segments
Modular Tech
Shipping container farms tout their ability to bring local food to the global market by empowering anyone to grow food for their community. Companies like Freight Farms are pioneering the turnkey container farm with products like Greenery, an advanced shipping container farm that uses two designated hydroponic methods to optimize water delivery to plants at different stages of growth. Plant panels and adjustable rows maximize space in the farm to improve yields and unlock new farming styles, in part due to an automated system that changes temperatures, humidity, lighting, etc. Google is a customer of Freight Farms, using its products to supply its Googleplex. Seeds are harvested within 3 weeks, and one shipping container can supply the Googleplex for a week.
A Berlin-based company called Infarm is bringing vertical farming tech to grocery stores and restaurants aimed at taking the food closer to the consumer with a ‘pick it yourself’ option. The modular distributed system is designed to be infinitely scalable: for more food, you simply add more modules. The system is also cloud-based, meaning the farms can be monitored and controlled from Infarm’s central connected control center.
Proprietary Technology
The founders of AeroFarms claim that its technology, which includes a technique for indoor farming that uses 95% less water than field farming, can be profitable. A key advance in the company’s patented technology is a new growing medium: rather than grow in dirt, these crops grow in a reusable cloth made from recycled water bottles. Instead of being doused with water, the crops are hydrated with a gentle mist. AeroFarms has already produced crops like kale and arugula at scale, selling to big grocery chains, restaurants, and airlines.
Aquaponics
Aquaponics consists of a closed-loop system that relies on the symbiotic relationship between aquaculture and agriculture for fertilization. While fish waste accumulates in the water and provides the nutrients necessary for plant growth, the plants naturally clean the water. Brooklyn-based Upward Farms leverages aquaponics technology and a deep understanding of plant microbiomes to cultivate baby greens and microgreens. Edenworks claims that it is unique in its ability to be cost competitive with field production of plants growing in California. In an industry where most companies have production costs of 2x-10X conventional agriculture, this is particularly attractive.
A Layered Industry
The levels of impact of vertical farming are reflected by the number of components required.
Impact
When compared to other farming methods, vertical farming has significantly higher environmental and social benefits.
Environmental impact
Vertical farms use greater than 90% less water than traditional vegetation farms and greenhouses.
Vertical farms can yield 20x more lettuce than agricultural fields.
A tenth-of-an-acre plot can produce 100,000 pounds of produce a year.
Growing seasons are not limited.
No excess fertilizer run-off.
Vertical farms lower overall CO2 output by 67-92% compared to greenhouses.
Square Roots products grown in Kenosha, Wisconsin will have up to a 14 day extended shelf life in Chicago and Milwaukee stores due to shorter travel distances. Local production and harvesting of crops greatly reduces the amounts of “food miles”, which lowers both travel costs and carbon footprint.
Socio-economic impact
Britain imports 46% of all food. Vertical farming in Gloucestershire will allow them to be independent in the soft fruit, herb, and salad arena by the early 2030s.
Vertical farming can minimize the prevalence of food deserts.
CEA guarantees a stable supply chain, price stability (to some degree), long term contracts.
CEA offers a potential solution in water-poor regions.
Market Movers: Current and Future Heavy Hitters
Market Leaders:
Plenty (San Francisco)
Boast 350x crop yield compared to traditional farming.
Vertical farm under construction in Compton, California, on a 95,000 square foot repurposed warehouse.
Raised more than $900 million to date, recent $400 million Series E round, investors include Walmart, Eric Schmidt, Jeff Bezos, Driscoll’s, Finestere.
Freight Farms (Boston)
Farms built within shipping containers intended to feed small communities or businesses.
Product, Greenery S, uses IoT management software to monitor growing conditions.
Bowery Farming (Manhattan)
150,000 square-foot-farm on the site of a former steel plant in Bethlehem, Pa.
Raised $472 million from investors including Fidelity Management, Temasek, GV; Tom Colicchio, Jose Andres, David Barber at a $2.3B valuation.
Upward Farms (Brooklyn)
Partnered with Greenpoint Fish and Lobster to offer its hybrid striped bass from aquaponics systems to restaurants.
250,000 square foot warehouse on six acres in Luzerne, PA.
Series B $134M.
AeroFarms (New Jersey)
Growing systems displayed in cafeterias of Google, American Express, Citibank, Audible.
$100 million in late stage funding in 2019.
Square Roots (Brooklyn)
Wisconsin facilities capable of producing a couple million packages of lettuce/herbs per year.
Sold through Fresh Direct, Whole Foods, Morton Williams.
Infarm (Amsterdam, Netherlands)
Valuation of $1 billion.
Produces 500,000 plants per year in the equivalent of a soccer field worth of crops.
Intelligent Growth Solutions (Scotland)
Tower automation platform, HVAC and modular irrigation systems, LED usage that only delivers light to plants when needed.
A vertical farm built in a shipping container via Freight Farms
Venture Capital/PE and Other Fund Investors
Silicon Valley/Singapore based venture firm investing in local founders in social/internet, enterprise, and smart tech.
$9.2 billion under management, seed-to-growth.
High growth stocks, 450 different stocks in portfolio.
Early stage VC that invests in visionary funders in agriculture, supply chain, the life sciences, transportation.
Helping founders in agriculture and food.
Final Thoughts
Vertical farms allow unprecedented repeatability and control over the growing environment. However, plants are expensive to produce and costs worsen barriers to entry at mass market scale. Indoor vertical farms have proven to be great for growing leafy green – a dangerous food in terms of illness from food contamination. Operational risks pose a potential food safety challenge, with many vertical farms neglecting root health in their quest for growth and optimization.
From an investment perspective there are still many aspects of the business model that need improvement. The sector has seen many failed startups because of the high costs of initial investment into the facilities, and high labor and operating costs, including energy to power LED lights and ventilation. Vertical farms have to be competitive on price to the consumer. Overall, the vertical farming industry presents an attractive opportunity for investors if costs can be reduced over time to be competitive with conventional agriculture.