After a couple of tumultuous years for Vertical Farming, the industry is starting to show signs of recovery and re-organization. One thing that will be forever changed, however, is the source of investment. Vertical farming remains an emergent technology that requires financing to get off the ground. However, while the early days of vertical farming were dominated by venture capital, the future is a completely different type of strategic investor.
"I believe the next wave of vertical farming will see the large retail chains play a much larger role as primary investors directly in vertical farms," says Dan Nielsen with Seasony on Linkedin. "At the end of 2023, we saw one such investment as Coop in Norway, which announced their partnership with local systems provider Avisomo to develop a new plant."
Coop joins the ranks of other retailers that are or have actively invested in vertical farming in recent years. A few examples include UK-based Ocado, which invested in both Infinite farms in 2022 as well as Jones Food Company in 2019 and 2020, Walmart who invested in Plenty in 2022, and Belgian Colruyt Group, which launched their co-developed system with MechaTronix this year.
There are a few good reasons for retailers to be good investors in vertical farming. Firstly, to ensure year-round supply. These last winters have shown how global supply chain shocks and weather issues have disrupted the supply of greens, for example to Northern Europe, leaving shelves empty or exposing large variance in quality.
Secondly, Offset higher costs with margin. In general, the higher cost of vertical farming crops needs to be offset somehow in the value chain. Either through higher prices to the consumer or because the input is a small part of the final price, for example in high-end restaurants. Vertical integration by retailers allows them a slightly larger willingness to pay as they absorb the margin otherwise taken by the vertical farm supplier. It’s not much – but it is a benefit.
"Lastly, a differentiated product offer: The original promise of vertical farming holds. Cultivation of unique, high-quality crops like year-round strawberries and specialty leafy greens, produced locally for the consumer. I had the best strawberry of my life in October at a vertical farming convention – consumers are willing to pay for that," says Dan.
Will we start to see a trend of retailers investing in vertical farming already during 2024?