Sign up for our daily Newsletter and stay up to date with all the latest news!

Subscribe I am already a subscriber

You are using software which is blocking our advertisements (adblocker).

As we provide the news for free, we are relying on revenues from our banners. So please disable your adblocker and reload the page to continue using this site.

Click here for a guide on disabling your adblocker.

Sign up for our daily Newsletter and stay up to date with all the latest news!

Subscribe I am already a subscriber
Savills: "Beyond water and electricity, how to choose your farm site wisely"

Site selection for vertical farms is more complicated than it seems

“As global real estate consultants, we work with clients to identify important inputs for our client then challenge these to make sure that our client is considering as much as possible to select a site that will stand the test of time,” says Rick Drescher, Corporate Managing Director, Technical Services for Savills USA.

Savills is a global real estate company that has more than 160 years of experience in advising clients who occupy the property but are not in the property business, as their website states. Savills has amassed a portfolio of complex projects wherein they consulted clients looking to make big moves in their businesses, literally and figuratively.

“Our team at Savills does location benchmarking based on the drivers communicated by the client. Once you plant your flag in a location, you are there for the long haul and need to come into its eyes wide open so that you can pick locations that make sense,” explains Rick.

Rick Drescher pictured at the Indoor AgTech in New York

Which comes first: the consumer base or the site selection?
In recent years, Savills has taken on an increasing number of greenhouse and vertical farming clients, many of which start from the noble goal of addressing food security and environmental sustainability but can overlook key elements of site selection along the way. As Rick explains, finding an appropriate site for food production is as much about where your consumers and distributors are as it is about where the infrastructure makes the most sense. And so another challenge facing vertical farms is access to consumers.

From his experience with vertical farming companies, Rick notes that not all vertical farms begin with a defined offtake partner, whether it be a wholesale, grocery, or hospitality partner. Without these deals in place beforehand, it can be challenging to address the distribution/consumer piece of the puzzle. This begs the question, why do some vertical farms start before signing offtake agreements? As far as Rick can tell, the market’s hype has contributed (and continues to) strongly to this.

“When vertical farming first took off, there was a lot of hype in the industry, huge investments were being made, and speed to market mattered. However, the approach behind the speed to market can be detrimental to the business, especially if it develops quickly with a technology that isn’t scalable or with a crop that will never be profitable because you’ve built so far from your consumer base,” Rick says.

As such, many vertical farms are built on conjecture or verbal commitments to partner once the farm demonstrates stable yield and quality. This “chicken-and-the-egg” situation is risky and can result in a vertical farm being built further from its consumers than intended, incurring unanticipated transportation costs and potential impacts on crop quality.

Photo taken at Elevate Farms in New Jersey

Not just about where you plug in, but to what?
As previously mentioned, access to infrastructure is hugely important, particularly access to water and electricity. Taking it one step further, Rick notes that it isn’t enough to simply find a site with access to electricity. Growers also need to consider the source of energy, its long-term potential, and its alignment with their sustainability goals. For example, a vertical farming company may be considering a site located in a green-energy state whose long-term energy strategies include carbon neutrality. In such a state, the utility company will become one of the biggest allies in the farm’s development path.

Alternatively, another state that remains unconvinced about carbon neutrality may be able to provide a farm with cheap energy, but not necessarily from clean energy sources. This can put growers in a tricky position for marketing and ESG reporting, as their sustainability efforts are overshadowed by dirty energy sources. And beyond that, the massive push towards green energy could eventually displace less eco-friendly energy sources and increase the farm’s energy prices. Whereas other industries could transfer some of these increased costs to consumers or clients, the same is not exactly true for agriculture as consumers cannot be expected to handle these additional costs singlehandedly, while marketers typically don’t absorb them. As a result, growers often find themselves with their hands tied when dealing with shifts in the energy markets, from local through to global markets.

“When you don’t have clarity on the 10-15 year outlook for energy policies, you’re taking on a lot of long-term risk that you have little to no power over. With 60-80% of your operating costs tied specifically to the location, it is important to get it right,” says Rick.

Labor markets key to site selection
A lesser-discussed element of site selection is that of the local labor markets. For some CEA operations, site selection was partially predicated on the fact that there was an unaddressed labor market. For example, part of Greenhouse AppHarvest’s decision to build in Kentucky was based on the fact that the downfall of the state’s coal industry meant there was available labor. However, this is not the case everywhere. As Rick explains, vertical farms need to consider which other companies are located near their potential sites and the impact these companies could have on their recruitment.

If a vertical farm is expecting to hire unskilled labor, the presence of well-established companies with higher salaries, benefits, etc., can throw a wrench into these plans. An obvious alternative would be to focus on automation if the availability of skilled and unskilled labor is limited, but this, too is risky given the high purchase cost and the limited availability of standardized, proven equipment for vertical farming.

Create competition – select multiple sites
When asked if site selection is about identifying a single site and going for it, Rick explained that it is more nuanced than that. Rather, the goal is to identify a handful of sites to create competition and push the local jurisdictions to incentivize the project. As farming operations create opportunities for economic development in the region, it is often in the region’s best interest to incentivize the project and make themselves a clear choice. For example, a state or city/municipality could offer to assist with zoning and permitting, the extension of utilities, land leveling, etc.

“The goal is to have a site that is as ready for the grower as possible, as growers don’t necessarily know how to develop the site, yet they are the ultimate user. Our team looks through these sites and puts as many known values as possible to help with the decision-making,” says Rick.

Photo taken at Btac

Green vs. brown builds: are retrofits truly the way to go?
For many vertical farms, the first sites they consider are vacant buildings as a way of being close to consumers, improving land use efficiency, and reducing construction costs. While the desire to find alternative uses for vacant space is valid, its use for vertical farming can be misguided.

Before choosing to go down the retrofit road, businesses should consider that buildings are constructed for a specific use, and if the previous use differs from the proposed use, there is a high likelihood that the building will not match their needs. For example, the transformation of an office building into a data center or growing space would require a complete rethinking of the HVAC system at a minimum. Although retrofits are typically proposed as a way of saving time and money, Rick points out that this often is not the case.

“Selecting an existing building for a vertical farm is often impractical as it was not designed for that use, so you are already working with a non-optimized envelope. It is possible to find a site with a building and still replace that building with one designed for your use case,” says Rick. “At the end of the day, that site still has the same traits whether you knock the building down or not: utilities, water, and the distribution network. That is not tied up in the building itself.”

Could vertical farming follow in the footsteps of data centers?
Given his team’s extensive experience with data centers, Rick notes that he sees many parallels between the rise of data centers and the rise of vertical farms, with data centers having found their footing while vertical farming is still working on it.

“I think that vertical farming can learn a lot from the trajectory of data centers, in that data center projects needed to identify locations with stable access to electricity and connectivity, as well as infrastructure built for high-level cooling,” says Rick. “In CEA, we still need access to electricity (albeit less than data centers), and the connectivity required is in the form of distribution networks.”

Looking back 25 years to the earliest data centers, Rick also notes that the price to operate ranged from $18-20 million per MW. Fast forward to today, and that cost has dropped to $7-9 million per MW. This price drop was driven by process standardization and overall improvement in efficiencies, among other things.

The parallel with data centers seems to ring true for the greenhouse industry, where regional markets tend to have very high concentrations of greenhouses, such as Leamington-Kingsville (Ontario), Westland (Netherlands), and Almeria (Spain). Further, the greenhouse industry has honed its practices over the decades, and while every grower can apply different strategies, much of the technology in high-tech greenhouses is similar. For every input or piece of equipment, there are a handful of suppliers who have honed their craft over the years.

Given its youth, vertical farming has not reached that point. The industry has not developed to the point of having such dense hotspots (and it may not), but the industry also lacks standardization as many companies aim to have their “secret sauce,” whether it be a custom-designed production system, sensors, and control software designed in-house or customized lighting. And while this secret sauce contributes to the “wow factor” when seeking investment, it can also become a business’ weakness.

“If vertical farming relied more on previous CEA experience, notably by the Dutch in the greenhouse space, they could figure out how to be an integrator of technologies, not an inventor of all of them. The “special sauce” can make you more attractive to investors, but they need to go into it with their eyes wide open. That said, the earliest investors didn’t necessarily know exactly what to look for, and the industry learned some hard lessons fast,” Rick explains concerning the recent string of vertical farms experiencing financial difficulties.

Despite its infancy and recent hiccups in the industry, Rick remains optimistic about vertical farming and growers’ ingenuity.

“There may be stories of failures, but these are the growing pains of the industry. Vertical farming and CEA are long-term endeavors that we need to get right, and I am optimistic that humans will figure it out.”

For more information:
Rick Drescher, Corporate Managing Director, Technical Services
Savills USA