Indoor vertical farms are the new kid on the block, with commercial production farms being less than 15 years old. One vertical farm's startup has raised over $250 million, and another has a valuation of over $1 billion. Are vertical farms hype, urban legend, or a good investment?
Here are a few points to consider when evaluating an investment in a vertical farm.
A good business model is a start to creating a profitable vertical farm. The model should include: where the farm will be located, who is the anchor customer, what crop will be grown and what volume, how produce will be packaged, how it will be distributed, and how it will be sold. In addition, it should speak to the type of farm that will be built- a turnkey operation "seed to supermarket" vs. a grow farm that purchases starter plants to grow to maturity, and the harvested produce sent to a packing house.
After you have developed the winning business model, you need the team to create and execute the business plan. Vertical farming has been around for a while, and now making it easier to find people with experience operating these types of farms. The C Suite should consist of professionals experienced in business administration and a technical team with horticultural production experience. This includes a senior grower, production manager, food safety manager, chief ag engineer, and sales manager.
The produce market is very competitive and is referred to as "a pennies business" with tight margins and profit being made on large volume. Shrink kills the profitability of a vertical farm. The worst thing for any operator is throwing away crop and shrink can happen at each point of the growing chain - seeding, germination, nursery, growth, harvesting, packing, and shipping. In addition, produce is perishables having a short shelf life of 2-3 weeks. The best way to reduce shrink is to grow high-quality produce that is pre-sold. This will also yield the highest price. Having an experienced sales team with deep relationships with produce buyers from grocery stores, produce companies and institutional kitchens are paramount to success.
What technology will be used in the growing operation? Will the farm be designed and built by the management team, or will they contract an experienced vertical farm builder? Will they use a proven hydroponic, aeroponic, or aquaponics growing system or build something new?
A well-designed farm will include a seeding area, a germ room, a nursery, a growing area, a parking area, and a cooler. It will require the Temperature (T), Relative Humidity (RH), and air circulation to be monitored and controlled in each area. At a minimum, it will require specialized equipment to control the climate, fertigation equipment, nutrient water treatment system, CO2 enrichment system, and LED lights.
In addition, the farm should have adequate sensors, a central data collection system, and automated vales, so the delivery of all inputs can be precisely controlled by a computerized system. Capital is the grease that lubricates the wheels of innovation. Many investors are exploring opportunities in the vertical farming market. Investors are (aware, and there is a lot of hype in this market and much nuance in running a successful vertical farm that does not show up in financial projections or business plans. However, with a working business model, a good management team, and a proven growing technology, a farm can be profitable.
Green Sense Farms
6525 Daniel Burnham Drive, Suite B
Portage, IN 46368-1793, USA