Vertical farming (VF) is a method of indoor agricultural production involving stacked layers of crops, utilizing technologies to increase yields per unit area. However, this emerging sector has struggled with profitability and a high failure rate. Practitioners and academics call for a comprehensive economic analysis of vertical farming, but efforts have been stifled by a lack of valid and available data as existing studies are unable to address risks and uncertainty that may support risk-empowered business planning.
An adaptable economic analysis is necessary that considers imprecise variables and risks. The financial risk analysis presented users with a first-hitting-time model with probability bounds to evaluate quasi-insolvency for two unique vertical farms. The UK farm results show that capital injection, robust data collection, frequent cleaning, efficient distribution, and cheaper packaging are pathways to profitability and have a safer risk profile. Diversifying revenue streams like tours or education reduce the financial risk associated with yield and sales for the Japanese farm.
This is the first instance of applying risk and uncertainty quantification for VF business models, and it can support broader agricultural projects. Enabling this complex sector to compute with uncertainty to estimate financials could improve access to funding and help other nascent industries.
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Baumont de Oliveira, F.J.; Ferson, S.; Dyer, R.A.D.; Thomas, J.M.H.; Myers, P.D.; Gray, N.G. How High Is High Enough? Assessing Financial Risk for Vertical Farms Using Imprecise Probability. Sustainability 2022, 14, 5676. https://doi.org/10.3390/su14095676