Sowing season for vertical farms

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rowing fresh produce in a controlled indoor environment using technology inputs has, in some cases, been around for almost two decades. But it has only recently started to gain traction linked to climate change and sustainability concerns. However, can it be profitable and competitive?

Indoor or controlled-environment farming is a niche yet expanding sector, but questions have been raised over whether these operations are profitable, and are able to compete with traditional field-grown crops, given the capital-intensive nature of the industry.

Much, however, depends on individual operations, and the objectives in terms of scale – whether it be targeting mass-market consumers or local buyers, the geographical location, etc – whether the farm is in a hot or cold climate, along with the types of crops grown and, most importantly, the technologies employed to replicate the natural environment at the lowest cost possible.

Vertical farming, per se, is the most popular system where crops are grown on stacked units in a warehouse, underground tunnel, or even in shipping containers, requiring artificial lighting, usually through expensive LEDs to mimic sunlight. But some operators, particularly in hot countries such as the Middle East and Asia, are growing crops in high-tech greenhouses using mostly natural light.

Nonetheless, even the companies in those hot climates need LED lighting to supplement the daylight hours, and, generally speaking, all operators within controlled-environment farming are similar in terms of the inputs such as labour, ventilation, irrigation, and cooling. And all require huge capital investment to purchase land, build the farm, put in the appropriate technology, and run it.

Despite the costs, indoor farming is viewed through a longer-term lens to address environmental concerns like the decreasing availability of land, unpredictable weather patterns and climate change, and the limited resources on hand to feed the world’s growing population.

Fraser Black, the CEO of UK-based Crop Health and Protection (CHAP), one of the country’s Aagri-tech centres and funded by Innovate UK, a government-backed agency, gives his interpretation of the current landscape.

“I think it is going to be a while before you see millionaires in vertical farming,” Black says. “It's still at that point where you are justifying the costs and developing the market.

"I think there are enough people around now that are breaking even and starting to become profitable, but we are not there yet. Look at electric cars, we are sort of following that same trajectory.”

Controlled-environment farming comes with advantages: less water than regular agriculture and without the need for pesticides, and higher yields linked to year-round production. And, from the consumer perspective, better-quality produce because the nutrient inputs can be controlled, and freshness, because the crops tend to be grown close to source.

For food importers like those in the Middle East and some parts of Asia, the technology offers food security, too.

All those benefits stack up through the eyes of private-equity and venture-capital funds, which are ploughing vast sums of money into the sector.

This is no doubt in the hope of reaping profits when indoor farming has reached scale and matured beyond the current leafy greens and herbs – although soft fruits such as strawberries and blueberries, and tomatoes, cucumbers, and mushrooms, are starting to emerge.

Black also addresses the consumer angle and how controlled-environment farming is likely to develop over the coming years.

“The first decades are going to see people getting involved, learning how to do it, and leading the charge, and it will be niche. But, as they learn and as they build, and they learn how to get the costs down, and control the costs, the more mainstream it will become, and then more people pile in and the bigger the scale.

“There are other points of differentiation people are picking up on, which I think will project it forward until such time that the volume is big enough and people recognise all of the benefits that it will become profitable like other systems. 

“Trying to compete with the major growers and put it all in the major supermarkets right now is more difficult because they don't have the volume. But I think those sort of trends are starting to shift.’”

Sky Greens in Singapore is one of the oldest vertical-farming businesses in Asia, founded in 2012 by Jack Ng to grow leafy greens under glasshouses using hydroponic systems and natural light. While Ng points out that labour is the biggest operational cost, he also says that Sky Greens saves money by not employing LEDs, enabling the business to focus on yield and productivity.

“Our energy use is similar to traditional farming, so we can save about 75% on labour,” Ng says. “Our running costs are cheaper than traditional farming, the only thing is the investment cost. Because our output is ten times higher than traditional farming, the investment costs average out.”

He adds: “We have proven in Singapore that we can grow and sell mass-market vegetables. The reason many vertical farms aren't competitive is because they are using artificial lighting, which is a high energy cost, so your payback is high and your overheads are high, plus you have the replacement costs because LED lights only have a two to three-year lifespan.”

Nonetheless, the chief executive of Intelligent Growth Solutions (IGS) in Scotland, a tech-firm that designs and patents controlled-environment platforms using artificial intelligence and robotics, with a particular focus on productivity and efficiencies, is critical of the sums being raised relative to the individual revenues generated, and the technologies employed.

IGS CEO David Farquhar says that many of the vertical-farm operators “are still a long way from being profitable”.

“The first important thing is to get our positioning in the market right. There are a lot of very big and noisy companies that have had to raise a huge amount of money because they are trying to reinvent the wheel,” he explains.

“There is no one magic bullet that makes these things economically competitive. It is a combination of about six subsystems. There are two major costs in commercial agriculture in an enclosed environment.

"One is energy and the other one is labour. If you can take the labour out, and we've managed to reduce it by about 80%, that is a major cost saving and will make you much more economically efficient.”

Farquhar argues that there is no need to have numerous people tending to these farms, as is depicted on many a website, if AI technology and robotics are employed, which reduce costs and ultimately helps with profitability.

He continues: “We give recipes of weather to the AI and the computer does all that work and the mechanical handling system does all that work. Once you have put the seed into the substrate, in the inserts that go into the growth trays, there is really no need for human intervention at all.

“And if you don't put humans in, you are not going to introduce bugs and disease and things, and therefore you don't need to use fungicides and herbicides, whatever. That means you don't need to wash the crop, which means that you are saving more money but also you are going to increase the shelf life by about 50%-100% and you are also going to reduce waste.”

In the Middle East, Pure Harvest is growing tomatoes and strawberries in high-tech glass houses using natural sunlight and only uses LEDs to a small degree because they have more daylight hours and more intense sunlight than other parts of the world.

The business, founded in 2016 in Abu Dhabi, is about to move into leafy greens, with capsicums, cucumbers, and other berry fruits in the pipeline.

Majed Halawi, the vice president for growth at Pure Harvest, says that “it's completely uneconomical” to use artificial lighting, although LEDs are used for “control and steering… but only to supplement the natural light”.

However, Pure Harvest doesn’t use stacked units like vertical-farm operators, and the company is very different in its objective, which is mainly to address food security and reduce the Emirates’ reliance on food imports.

“Where we compete and where we position ourselves is that we are this local, very high-quality product that is at a discounted price to what comes from Europe and outside of the market,” Halawi explains.

“We have a lot of similarities to a vertical farm in terms of climate management, however, our operating strategy and our set up of the greenhouses and the facilities is different. We find we have a more efficient set-up.

“Vertical farms bank on selling their produce at a very high cost, assuming the customers would pay them a premium for the fact they are grown on a vertical farm.

"However, what we find in this market in the Middle East is it doesn't make any sense to be growing using vertical farms because firstly, the consumer is very price-conscious, so you need to be able to compete with your traditional farms and imports, and, secondly, we have such an abundance of natural light.”

AppHarvest’s Webb believes that controlled-environment farming has a bright future, given the unpredictability of the weather and climate change, and will eventually become a necessity to ensure the long-term supply of fresh produce. As the sector expands and scales, the cost of borrowing is likely to come down too, he says.

“We feel we are really at that tipping point. Over the next ten years, our estimation is you will see tens of billions of dollars flood into controlled-environment agriculture globally, and it's because of the need. You will see scale and you will see profitability immediately because the industry can be profitable if you design the right facility in the right region.”