Turbulent times for indoor farming, but experts remain bullish

High-tech leafy green indoor farming is facing a moment of reckoning, Rabobank Research says in a recent report. Self-inflicted wounds, systemic risks, competition with conventional agriculture, and untimely demand-related trends are the main factors behind recent setbacks, according to the report. Industry experts, however, remain somewhat bullish on high-tech leafy green indoor farming.

Since the end of 2022, the high-tech indoor farming industry has seen several closures and financial struggles among its heavyweights and early movers. AppHarvest, AeroFarms, and Kalera have filed for Chapter 11 bankruptcy.

Indoor farming industry has seen several closures and financial struggles

Other big names such as Infarm, Upward Farms, Fifth Season, and Iron Ox have either closed or scaled back their operations and reduced their labour force. While the companies affected were predominantly in the vertical leafy green farming sector, there were also greenhouse companies impacted, such as AppHarvest, Local Garden, and Urban Seed.

Infarm was once Europe’s largest vertical farming company, but it has been declared bankrupt in the Netherlands as of September 19. The company has been struggling with financial problems for some time. It shut down operations across its key markets of the UK, France, Germany, the Netherlands and Denmark over the last year. It is unclear what the bankruptcy in the Netherlands means for the future of Infarm. Industry experts told AgFunderNews that it is considering a move to Qatar.

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Underlying causes

Prominent player AeroFarms filed for bankruptcy earlier this year. But AeroFarms managed to survive. It announced on 18 September a successful completion of its restructuring process, and exit of its business from Chapter 11.

The restructuring, supported by investors, substantially strengthened AeroFarms’ balance sheet, injecting the necessary funds to reach profitability at its flagship operation in Danville, Virginia. The Company has eliminated spending on all projects that do not contribute to the ramp-up of the Danville Farm, thereby accelerating its path to profitability.

Since the Danville Farm began shipping product to customers in September 2022, revenues have continuously climbed to meet growing demand. More recently, the completion of several automation projects has further increased the throughput and efficiency of the farm. The Company targets completing the ramp-up of its Danville operation by the end of 2023 and reaching profitability at the farm soon thereafter.

But what are the underlying causes for the financial struggles of the sector? Cheap money and the rush to take advantage of it have led many operations to focus less on how to build a robust fresh produce business model and more on the technology itself, Global Strategist Fresh Produce and Farm Inputs Cindy van Rijswick at Rabobank Research emphasises.

Breaking even with outdoor production

Systemic risks – macroeconomic conditions, energy costs and supply, and supply chain disruptions – are also a major cause. “Higher interest rates and energy prices, as well as increased construction costs and delays, have negatively impacted growth plans”, Ms Van Rijswick says. “Particularly as most companies still needed to grow in size to take advantage of the strong economies of scale associated with this high-capex business model.”

Ms Van Rijswick points out that in the US, many Silicon Valley-type startups, despite their cutting-edge, high-capex technologies, are effectively competing with the Salinas Valley’s low-cost conventional leafy green production.

Only a handful of vertical farms have managed to break even with conventional outdoor production

“This sobering realisation has come at a huge cost to many who have learned firsthand that marketing their expensive leafy greens under costly brand names and complex corporate management style is not as straightforward nor easy”, she says. “Consolidated retailers often seek low price points and a wide selection of offerings in negotiations with suppliers. Only a handful of vertical farms have managed to break even with conventional outdoor production.”

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Cautious optimism

But there is cautious optimism among industry experts. The current correction is viewed as a healthy shake-up that will eventually make the industry much more resilient. Profitability and sustainability are within reach. The industry’s focus on the future, is on collaboration, benchmarking, and rallying behind successful business models and operators.

“There are still many bright spots for the future of indoor pre-packaged leafy green products”, Ms Van Rijswick says. “Demand for indoor-grown pre-packaged leafy greens will recover as inflation subsides. In addition, many successful farms offer other incumbents and new entrants hard-learned lessons about what to do and what not to do to be successful.”

Dr. Kai-Shu Ling, a research plant pathologist with the US Vegetable Research Laboratory in Charleston, believes that vertical farming has tremendous growth potential as environment control, automation, and crop production technologies are improved and energy costs are reduced.

“It is hard to predict how this industry will grow in the future, but I believe that it’s possible that vertical farming can take over approximately 50% of leafy green markets in the US and some small portions (5%) of small fruit and tomato markets in 10 years”, he says.

Plenty of support

Despite all setbacks, indoor farming still has plenty of support, and big names are involved. German technology conglomerate Siemens, for example, supports US indoor farming company 80 Acres Farms in a project that helps 80 Acres Farms digitalise and scale their indoor farms.

The focus of the project is on developing the loop platform on which all the farms of the Ohio company are based. Siemens provided power distribution equipment and energy and building management technologies that monitor the fire, security, and power distribution systems via a single interface. Siemens also offers 80 Acres its automation and digitalisation solution, to help optimise the indoor farms’ cultivation and harvesting processes.

Despite all setbacks, indoor farming still has plenty of support

Robotics and automation optimise production, while edge devices and human-machine interfaces monitor crop management and control the environmental conditions. 80 Acres Farms says that it can produce 300 times more food per square meter than a comparable piece of agricultural land using traditional arable farming methods. Compared to conventional agriculture, the plants require 95 percent less water. Of course, indoor farming consumes significantly more energy than growing in an open field.

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A transformative approach

“80 Acres Farms’ use of technology is modelling the path forward for a transformative approach to food production, says Siemens USA President and CEO Barbara Humpton. “In this moment of change and disruption – and in a world becoming increasingly ‘glocal’ – what I see at 80 Acres Farms represents both the purpose and the power of the industrial technologies now readily available to us: the capability to invent anywhere, then to scale our world-changing solutions everywhere.”

Mike Zelkind, co-founder and CEO of 80 Acres Farms explains that standardising its technology and infrastructure enables the company to scale worldwide rapidly and effectively. “By building a network of committed global partners like Siemens, we can feed tens of millions more people in a matter of years”, he expects.

Australian company Stacked Farm is another example of how vertical farming can be successful. The company is currently in the planning stages for large scale commercial farms in each capital city of Australia. Stacked Farm is growing a diverse range of leafy greens and herbs. Additionally, it is in the trial phase with the aim of commercially supplying fruiting varieties, including blueberries, strawberries, tomatoes, and capsicums.

In the US, Bowery Farming is leading the way with crops that are grown in special palletised trays. By going up 40 feet in its warehouse, Bowery Farming gets 30 times the amount of crop from its space compared to traditional farming.

Shipping directly from farms to customers

Bowery Farming preserves the freshness of the product shipped to customers like Whole Foods, Walmart and Albertsons, and the facilities are located within 400 miles (644 kms) of the markets served. Crops are directly shipped from its farms to the customers.

Many countries around the world are still embracing vertical farming

Many countries around the world are still embracing vertical farming. Dutch company Growy will be joining a number of international and local companies that have sunk their roots in land-scarce Singapore to research and develop vertical farming.

Growy’s vertical mega farm in Singapore is to produce up to 500 tonnes of leafy greens. Its vertical farm in Changi Logistics Centre starts production later this year. The company already has a farm in Kuwait that produces up to 550 kg of fresh salads and culinary herbs daily to supply supermarkets, restaurants, and food delivery services.

Future space missions

According to a recent report from Benzinga Research, the global vertical farming produce market size was valued at US $ 2 billion in 2022 and is expected to expand at a compound annual growth rate of 28.19% during the next five years, reaching US $ 8,83 billion by 2028.

But indoor farming is not limited to Earth. UK-based Vertical Future will partner with Axiom Space, Saber Astronautics, Cambridge University, and the University of Adelaide to kick-start the development of an autonomous controlled environment for plant growth to support future space missions.

Phase one of the project will focus on researching the design requirements for a fully-autonomous agriculture system that can be monitored and operated remotely or using AI and will be used to support space explorations including future Moon-to-Mars Artemis missions.