New research has been diving into the financials of a vertical farm by assessing the risks using imprecise probability. As stated in the paper, "Practitioners and academics call for a comprehensive economic analysis of vertical farming."
Researchers Francis J. Baumont de Oliveira, Scott Ferson, Ronald A. D. Dyer, Jens M. H. Thomas, Paul D. Myers, and Nicholas G. Gray found that efforts have been stifled by a lack of valid and available data. They pointed out that, "existing studies are unable to address risks and uncertainty that may support risk-empowered business planning."
Therefore, they decided to take on the challenge and various farms were analyzed to outline the variables and risks involved with a vertical farming business. Depending on their different market, system, products and outlets, the results were unlike.
UK-based farm Jones Food Company
What are the opportunities and risks?
In order to evaluate the variables, risks and opportunities were lined out whereas the failure rate appeared quite significantly. Due to issues in cash flow, labor costs, knowledge, inefficiency, low profitability margins, sources of investment, regulations, equipment failures and poor decisions around pricing, crop selection and location.
On the other hand, as innovations have risen in the sector to address the challenges mentioned earlier, these are set to improve unit economics. Meaning that various opportunities have advanced at the same time. The report refers to a vertical farm in Japan that reduced its production costs by improving farm practises, labor and electricity efficiency. At the same time, they increased their annual sales.
Meaning that various opportunities arise if we go through every process, cutting various elements, and increasing efficiency to keep costs low.
Financial viability requires demonstration and comparative financial data to have scientific validity. According to the researchers, a significant obstacle to profitability is knowledge acquisition on how to design and run an efficient VF business A real-life case study that shows clear profitability is required in future work to prove or disprove the claim that vertical farms can be profitable.
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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