Vertical farming has garnered significant attention in recent years as a potential solution to the pressing challenges of traditional outdoor farming. So, what is exactly is vertical farming? Vertical farming is a method of cultivating crops in stacked layers or vertically inclined surfaces, indoors, in controlled environments, using artificial light and precise environmental controls. This approach maximizes space efficiency and can enable year-round crop production while minimizing input costs. Proponents will focus on the improved yields per SF per year, reduced negative environmental externalities, water and fertilizer efficiencies, and the ability to grow crops closer to market – but why are so many vertical farm companies failing recently?
As with any innovative concept, it’s crucial to critically assess the technology’s feasibility, long-term sustainability, and learn from the early pioneers in the industry. Despite early promises, vertical farming in practice may be too early to market in solving conventional agricultures problems – particularly in comparison to greenhouse controlled environment agriculture. As outdoor industrial agriculture, energy, and transportation continue to be heavily subsidized, and escapes being held responsible for the negative environmental externalities they create, it is the innovators who solve problems not yet reflected in their competition’s price, who will suffer.
Though indoor systems use significantly less water compared to traditional farming methods, making them more environmentally sustainable, they in turn use astronomic levels of electricity. Complete elimination of natural light offers exceptional control over specialty crops flowering and growth cycles, but at a great cost. Other benefits include reduced need for pesticides and herbicides and the ability to employ symbiotic biologicals effectively instead, promoting cleaner and healthier food production. In juxtaposition to electricity consumption, however; CEA facilitates the cultivation of crops in urban areas, reducing the carbon footprint associated with long-distance transportation and ensuring a fresh and local food supply by eliminating the need for premature harvest, artificial ripening, and generally breeding for shelf life over quality. These advantages collectively contribute to the effectiveness and sustainability of controlled environment agriculture, but their value to the consumer has been poorly reflected in the price they are willing to pay.
One of the foremost concerns surrounding vertical farming is its energy-intensive nature, primarily due to the need for artificial lighting. Indoor vertical farms often rely on high-intensity LED lighting to provide plants with the essential light for photosynthesis. The cost of acquiring, operating, and maintaining these lighting systems is substantial. In many cases, the energy expenditure significantly outweighs the benefits of reduced transportation distances. As LED technology improves, indoor growers hope to reach price parity, however; without a corresponding reduction in electricity costs and an increase in transportation expense – indoor growers will struggle to ever achieve price competitiveness.
To achieve profitability from an energy front, vertical farms must either innovate to reduce energy consumption, transition to stable off-grid energy sources, or produce an extremely high volume or valued crop year-round. The reality is that energy efficiency improvements and renewable energy adoption may never fully offset the comparative efficiencies of sun grow crops but the lack of control over energy (often the grower’s biggest expense) will continue to cripple growers of low margin crops.
Limited Crop Variety
Vertical farming is best suited for specific crops, particularly leafy greens and herbs, due to their compact growth habits, lower light consumption, and short growth cycles. While this specialization can yield impressive yields for these crops, it may miss market opportunities from flexible production and the broader spectrum of food production soil based farming enjoys. Market stabilized crops like corn, soy, and grains are unlikely to ever be cultivate in vertical systems. As more producers enter the leafy greens industry, a significant growth in the market will have to correspond. A producer’s ability to grow niche crops for a predictable market would yield significant benefits to the producer.
Scale & Cost Efficiency
The role of scale as a solution to vertical farming’s business model remains a subject of debate. Critics argue that trying to achieve competitiveness from scaling vertical farming operations without being able to achieve profitability at smaller scale is a fools errand. The initial capital investment required for vertical farms, including construction, lighting, and climate control systems, is prohibitive. An over reliance on variable rate debt for buildout and a low margin product without an equally variable price, is a recipe for pain in the Post-Covid inflationary economic environment. Companies should figure out how to achieve consistency before they scale themselves in the position of being one total crop failure from bankruptcy.
Further, the relationship between land price and market proximity plays a crucial role in determining the cost-effectiveness of urban agricultural ventures. In general, land prices tend to increase as you get closer to urban or developed areas, where there is greater population and demand for real estate. This means that land situated in close proximity to markets and cities, is often more expensive to purchase initially. So, whether the price being paid to be closer to market is worth the transportation savings needs to be closely evaluated. Access to favorable tax conditions as an agricultural endeavor must be carefully considered as well.
A focus on market incentive programs that offset the cost of proximity, would yield beneficial results. Many difficult to reuse properties offer incentives and pricing more amenable for the underlying business model of vertical farms than that of the greenfield development projects being developed.
Too Large To Quick?
The bankruptcy of companies like AeroFarms underscores several key failures in the vertical farming industry. One major issue has been the overestimation of financial viability and overly aggressive expansion plans. High initial capital investments in infrastructure and technology, along with operational costs, have strained these companies’ financial resources. Furthermore, increased competition within the industry has led to pricing pressures, making it challenging for companies like AeroFarms to achieve profitability.
Another significant factor has been the difficulty in scaling up operations profitably. Many of these companies looked to find profitability at scale in their controlled environment endeavors, instead finding that scale has brought a whole new host of problems. These challenges include maintaining precise climate control, managing energy-intensive lighting and irrigation systems, debt interest squeeze on an inflexibly priced product, and inability to achieve consistent crop yields. The bankruptcy of AeroFarms and similar companies highlights the importance of sound financial planning, realistic growth strategies, and adapting to the complexities of the agricultural technology sector.
Soil vs. Hydroponics
Many vertical farms employ hydroponic or aeroponic systems, where plants grow with nutrient-enriched water without soil. While hydroponics can enhance growth and yield, it can also be higher risk and prone systematic crop failure. Soil-based farming, in contrast, benefits from a more independent relationship from the other crops in the field mitigating some risk.
Living soil farming leverages the richness of natural soils, benefiting from complex interactions between plants, microorganisms, and the environment. This natural synergy contributes to soil health and long-term sustainability, making it a valuable aspect of traditional agriculture.
It is essential to address the risk of total crop loss due to power outages and pests in hydroponic or aeroponic systems. Hydroponic farms heavily rely on technology, including pumps, lighting, and climate control systems, which makes them vulnerable to power disruptions. In the event of a power outage, maintaining the optimal conditions for plant growth quickly becomes problematic. If not managed promptly, it can result in crop stress or complete crop failure.
Furthermore, while hydroponics offers better control over pests and diseases, it is still susceptible to infestations by specific pests that are more easily managed outdoors through natural ecological balances. It is crucial for entrepreneurs to seek design and operational expertise in hydroponic systems to mitigate these risks effectively and ensure a reliable production in controlled environments.
The sustainability claims of vertical farming are often based on reductions in land and water usage. However, the environmental footprint of vertical farming extends beyond these metrics. The energy consumption associated with artificial lighting and climate control systems can result in a substantial carbon footprint. Additionally, the production and disposal of specialized equipment and non-renewable materials, such as rockwool should be accounted for as adverse environmental impacts.
Transportation is another key role in vertical farming. Having to haul these large light fixtures and shelving material takes heavy duty trucks that omit a large amount of transportation, on top of the transportation to just get these crops from indoor farm to market. According to the Energy Information Administration, “Transportation sector emissions increased by 11%, or 185 MMmt, due to increased travel.” To compare this to transportation, let’s consider the carbon emissions associated with driving a car. On average, a gasoline-powered car emits about 2.3 kg of carbon dioxide (CO2) per gallon of gasoline burned. If you were to drive a car that gets 25 miles per gallon, it would emit approximately 0.092 kg of CO2 per mile traveled. So, to consider large heavy duty hauls they are certainly not helping the equation in areas where vertical farming is exactly necessary.