Insights from Tom Debusschere, CEO at Urban Crop Solutions at the CEA 4.0

When will vertical farming become profitable?

Today the CEA 4.0 conference was kicked off virtually. Many vertical farming companies or related parties are joining today’s event. Many topics were discussed around the strategic context of current, future programs and developments within CEA. Other topics discussed are financials, standardization, sustainability processes, energy use, R&D and so on.

“By now, after all the investments, the biology works, the technology works, but the financials need to work as well for vertical farming to become truly sustainable,” said Tom Debusschere, CEO. He introduced the topic of profitability during a session at the CEA 4.0 event.  According to Tom, there are four drivers for a successful vertical farm. Firstly, the indoor biology know-how. This is where the technology is built on. Third, sales and marketing skills in ‘fast-moving consumer goods’. Lastly, the skills to run a lean and well plant factory 24/7.

Ever since 2016, Urban Crop Solutions offers solutions for indoor vertical farming. Based on many years of research and trials in their research facility, the company helps growers to select the right plant varieties alongside a tailored growth recipe. 

It’s expensive!

Vertical farming is expensive Tom said rather specifically : it requires a large investment at €2750 per m2 harvest surface. Compare that with latest generation greenhouses at €700/m2.  When comparing this to land, which doesn’t depreciate, it’s difficult for growers to compete in areas with long growing seasons in a suitable climate. Also, “Why should you pay for electricity when the sun shines for free?” Tom said.

The brutal truth is that it is very difficult to build a profitable business in Vertical Farming. “You can quickly find out if you ever have a chance at making a profit in your city. Most retailers run at 50% gross margins, so take the selling price in the store, divide that by 2 and that’s about your selling price as a vertical farmer. We want you to find out quickly if your idea is feasible. We offer a complete ‘feasibility calculator’ which simulates your margins, based on your mix of crops, selling prices, labor and electricity costs.    

Calculating €/kg
“We stick with our customers, helping them to become more profitable,” Tom affirmed. During his presentation, Tom presented detailed full cost calculations based on several real life cases, such as lettuce and basil, produced in Europe by Urban Crop Solutions customers in a 1st generation Container Farm – the ‘FarmPro’

It can be seen that labor contributes to 41% of the total crop cost at 8,1 eur/kg, whereas electricity only covers 8% of the cost which is quite minimal, Tom noted. 


Photo courtesy of Urban Crop Solutions

Another remarkable outcome is the €11,5/kg (11,5 euros per kilogram). These production costs make it difficult to compete against traditional growing methods.  


Prices for Romaine lettuce (Photo courtesy of Urban Crop Solutions)

For Genovese Basil, the full cost at €19/kg is still high for a European market, but starts getting competitive in Asia and the USA. 


Prices for Genovese Basil (Photo courtesy of Urban Crop Solutions)

Vertical farming is a niche market
“This can be achieved by reducing the investment cost per m2 of harvest surface. Therefore, we redesigned every sub system to reduce labor and by constantly improving yield.’


Click here to zoom in on the photo. (Photo courtesy of Urban Crop Solutions)

Urban Crop Solutions has been able to reduce CapEx through its ModuleX. The company makes use of a patent-pending bench carousel, which brings any bench to you within 90 seconds. This is a system with benches instead of gutters, allowing planting in a checkerboard pattern which results in higher plant density. The ModuleX added 25% harvest surface, increasing it from 69m2 to 86m2. Eventually, the most important factor comes in: “We’ve lowered the costs per harvesting surface from €2250/m2 to €1950/m2,” said Tom.

Better €/kg
Tom demonstrated that with the ModuleX the full cost for basil decreases by 50% from €19/kg to €10/kg. This by adding 25% extra growing surface and with a 24% higher planting density. “We’ve been able to reduce costs by half!  I think that at €10/kg you can become profitable in many areas in the world.


Click here to zoom on the photo (Photo courtesy of Urban Crop Solutions)

So when stepping into the market, said Tom, growers first have to think of the following: What will you produce? What is your pricing? Is your price different winter versus summer?

Urban Crop Solutions’ Feasibility calculator helps future growers to make simulations at their own desk. “When it looks like you have a winning formula and a good business, we will help your startup, we will help you throughout your first harvest. Our delivery lead time is 3 months, so you can deliver the first crops to your customers within 5 months,” said Tom.

“The next steps for vertical farming would be continuing improvements for factory engineering, reducing CapEx and OpEx,” said Tom. “Secondly, the true step-change will be Plant Biology. Many seed manufacturers are taking notice and are now investing in developing the right seed genetics and improving yield. Here is the good news: with improving yields, we are a just few years away from the real breakthroughs of the Vertical Farming industry.”

For more information:
Urban Crop Solutions
Grote Heerweg 67, 8791 Beveren-Leie (Waregem), Belgium
800 Brickell Avenue 1100 Suite, Miami (FL 33131), USA
+32 56 96 03 06
info@urbancropsolutions.com
sales@urbancropsolutions.com
urbancropsolutions.com
 

For more information:
CEA 4.0
Jonathan Martin, Director 
jm@tech40.net
www.tech40.net  

 


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