How will the vertical farming model develop?

Between now and 2050, the world will have to feed 10 billion people. However, food doesn’t grow efficiently all over the world, and the same holds true for distribution. As a result, growers have been looking at different ways to be able to grow food more efficiently and closer to consumer areas. In addition to open field, greenhouse-grown produce is expanding, and more recently, vertical farming has emerged.

“Vertical farms produce much higher yields, use 1 percent of the water that open field uses, and are able to better preserve nutrition as the produce is consumed close to the growing facility, resulting in a more positive carbon footprint,” says Sonio Lo. She’s a venture capitalist who got into vertical farming 6.5 years ago and was one of the keynote speakers at last week’s SEPC Southern Exposure event in Orlando, Florida.

Although the model sounds promising, Lo describes the challenges. Due to the capital intensity, many venture capitalists have invested in vertical farms, and that brings the first challenge. “There is a major capital disconnect for venture capitalists. Vertical farms don’t offer the desired 150 times the returns, but more like three times the returns,” she added. “There is a big disconnect between farming and technology. Until that is solved, vertical farms won’t create venture-level returns. Ultimately, farms that aren’t profitable will die, and I expect a lot of venture capitalists will lose their money.”

The proximity to consumer areas gives produce grown in vertical farms a different nutritional value. “However, there need to be changes in the energy infrastructure in order to move the needle,” said Lo. Right now, 28 acres of solar panels are needed to make a 1.5-acre farm (60,000 sq ft.) energy neutral.

Another challenge with vertical farming is the price of the products. “In terms of economics, the vertical farming industry has a long way to go. The most efficient farms are able to offer leafy greens at $4.50 per pound, which is a much higher number than open field,” commented Lo. Talking about leafy greens brings Lo to the next point of concern. Most vertical farms in North America focus on growing leafy greens. “In my view, the crop portfolio needs to expand as we can only eat so much lettuce.” Berries are one of the crops offering opportunities.

Hybrid model
Will there be a future for vertical farming? Yes, but Lo expects a hybrid model will develop in the coming years. “Vertical farms just can’t rely on venture capital forever.” Some of the larger open field growers in North America are looking at CEA to diminish volatility. “I believe that’s where great combinations will come from in the next five years,” she said. There is a huge opportunity for smaller footprint farms, the size of a Starbucks location. When looking at the European continent, a lot of berries are grown outdoors, and growers are looking to make the shift to glasshouses, which are capital intense.

“We’re seeing small footprint-covered berry farms emerge in Europe, and I think that’s what we will see in North America as well. Indoor farming will expand, but through a hybrid model, controlling the capital expense.

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