The outbreak of COVID-19 once left some grocery store shelves empty. For some stores there was not a single roll of toilet paper or box of cereal left standing when the world went into lockdown in early 2020. Nearly two years later, again some grocery store shelves are still showing signs of scarcity, this time it is not because of panic buying, but instead due to disruptions to the supply chain- from the farm to retail stores.
The global supply chain is a complicated issue that has been further exasperated by the Russian attack on Ukraine. Farmers worldwide are facing rising input costs. The price for fertilizers, substrate, and labor were already on the rise before the pandemic, and now farmers are struggling to afford these inputs as prices skyrocket. In addition, getting supplies to arrive on time to begin the growing season are equally challenging, impacting already tight profit margins. This leaves farmers no choice but to raise the sale price with often little or no increase in profit margins.
Despite the challenges, the ingenuity of growers is legendary as they figure works arounds to supply shortage to get crops planted and harvested. Another challenge is getting the crop from the farm to the consumer without it spoiling in trucks. Rising freight costs, and challenges in finding truckers to deliver produce on time is creating the perfect storm for the agriculture industry. Every challenge creates an opportunity, and the pandemic has created an opportunity to develop a new business model that makes the supply chain more resilient. Can vertical farming be part of that solution?
There is no consistency when it comes to vertical farms, they can be built in an industrial building, shipping containers or standalone structures. They can have a large or small footprint, be tall or short, regardless of the variation in the shape and size vertical farms do have some areas of commonality. This includes racking systems, grow trays, LED lights, indoor climate control, and fertilizer mixing that can allow for the recirculation of a nutrient solution. We have all heard the mantra – that vertical farms can grow free of pesticides, recirculating water and fertilizer producing a consistent year-round, high-quality crop at a competitive price.
The vertical farming market can be broken down into two sections: large well-capitalized farms and everyone else. There are less than 10 large well-capitalized farms in the US that are focused on gaining a share or the national supermarket chains. These farms follow the large greenhouse model and focus on volume production to achieve lower unit production costs, located close to existing transportation hubs on the edge of urban areas where land costs are less.
The smaller vertical farms use a local or hyper-local business model. They grow specialty produce that is fresh, close to the consumer, reducing the impact of transportation on the environment and minimizing distribution costs. These farms resemble the microbrewery model. Focusing on quality and service, artisan growers that produce hand crafted crop with a loyal following. These farms often with higher unit production costs due to lower volumes.
Which model works best? The answer is that both can work if executed properly. The key to success strats with a well designed and constructed farm, efficient and well thought out operating procedures and a good business model. As the CEA industry matures so will business models as they adapt to ever changing market conditions. The pandemic brought many challenges to the food supply chain, the lack of growing supplies and labor shortage is only the beginning of issues farmers are faced with. Climate change, water scarcity, and soil degradation also threaten food production and distribution. While the vertical farming industry continues to grow and tackle some of the current challenges in food production, the existing food supply chain as we know it cannot continue to meet future demand in quantity and quality.
For more information:
Green Sense Farms