Earlier this year, many vertical farms, especially hydroponic farms and their investors received a cold shower after an EU decision. Although hydroponic farming offers high-quality, pesticide-free, green, nutrition products it hasn’t been acknowledged by the European Parlament’s Committee on Agriculture and Rural Development (AGRI) as “organic”.
Losing many benefits
“Agriculture technology progressed at a break-neck speed in the last 3 to 5 years, and we are only at the beginning of the trend,” says Marcell Kovacs, founder and CEO at Maxellco an innovation agency. “The next EU budget will unleash millions of euros for the agriculture sector in the form of grants or investments for a more sustainable and greener sector. This is the time and place to witness the revolution for the next 5 to 7 years.”
The technology in novel growing solutions, such as automated vertical farms, hydroponics and aquaponics, often fitted with Private Equity and Venture Capital investments, resulted that these products hit the market at scale. However, production at high-tech facilities is expensive as labor, electricity and heating are major cost factors that need to be managed. Due to high CapEx and OpEx it is crucial for the sector to sell products at a premium price to keep the business afloat.
According to Marcell, one solution could be to classify indoor farming products as officially ‘organic’, using the approved logo set by the EU across all 27 countries.
The organic logo (Source: European Commission)
It appears that the labeling, such as ‘bio’, ‘organic’, ‘eco’ or ‘locally produced’ are crucial to justify a higher price for produce. The organic label has become an immediately recognizable statement for quality. “We track retail prices in several regions in the EU and we can clearly demonstrate a 30% or even in some cases a 50% price premium for organic labeled products, fruits, vegetables and greens,” Marcell says. “Therefore, the label is clearly a powerful designation and producers have a strong incentive to be included under the organic umbrella,” he adds.
Why rejected?
“It was unrealistic to assume that the Parliament would approve hydroponics as organic at one go says Marcell. He says that the European agriculture sector is one of the most heavily regulated and subsidized sectors. Only a handful of experts understand the entire Common Agricultural Policy (CAP) to its full extent. It took years of negotiation, industrial influence and compromise to develop the organic label followed by a decade of heavy marketing so the brand could easily be recognized by (potential) customers. It is a sacred protection tool to prevent European citizens from buying low-quality and unhealthy food from sources other than inside the EU,” Marcel affirms.
“Technology always progressed faster, whereas legislation and regulation followed the progress five to 10 years later to catch up with trends. The new agriculture is surely disruptive, but this is not a get-rich-quick scheme,” Marcell warns. “Farmers should embrace themselves for years of continuous investment in technology and marketing.” In order to pursue these classification goals, the AgTech sector must unite and push for legislative change together, or try to develop a new label as a standard for hydroponic and indoor farming production. Even with the best efforts, the process might take years, and maybe even decades for it to pass. So why not spend this effort in customer education instead?” Marcell suggests.
Photo 17690284 © Panpote | Dreamstime.com
Customer engagement
“We’re living in a time where environmentally-conscious decisions are imperative,” says Marcell. The change is not only a peak of the political centrum, but it’s present in industries, companies and customers. Customer's habits are now changing as many are becoming more environmentally conscious and are set to pursue a healthy diet. They prefer high-quality products as they’re able to afford it. Marcell says that the green aspect is part of the customer’s decisions as they want to become part of the story and have an emotional attachment to the food. Questions will arise such as, Where did come from? How was it produced? What is the environmental impact of this one?”
Marcell states that customers have the power to decide the future of the planet and the agriculture sector. On the other hand, producers have the chance to engage with customers across the supply chain, to better inform, educate and assist them to maintain their choice of lifestyle. Companies and producers should explore this field to begin developing a long-term customer relationship.
“An armada of digital tools are available for companies to take advantage and lead the changing customer habits. Think of QR codes to track down the source of vegetables (from Farm-to-Fork), or mobile apps to track eating habits or gamified waste collection. These are all easy to go answers and an important piece of this extremely complex situation.”
For more information:
Maxellco
Marcell Kovacs, Founder and CEO
marcell.kovacs@maxellco.com
www.maxellco.com