What Are the Keys to Success for Vertical Farms?

The indoor farming industry in the United States is undergoing a period of significant transformation, according to the 2017 State of Indoor Farming Report from Agrilyst, a Brooklyn-based agricultural software company. Once dominated by greenhouse crop production, the industry is witnessing an increase in alternate growing systems driven largely by decreasing technology costs (such as LEDs) and rising consumer demand for fresh, local food. Of these alternate systems, indoor vertical farms are by far the most popular: of the more than 150 indoor farms featured in the Agrilyst report, 30% are fully enclosed vertical installations (47% are glass or polycarbonate greenhouses).

It’s not difficult to see why the vertical farm concept has gained momentum so quickly. After all, vertical farms can allow for optimal crop yields and reliable harvests, year-round production, optimal energy use, lower labor costs, more efficient use of unused space, and a greatly reduced need for long distance transport. Despite the many advantages, it can still be difficult to make vertical farms successful: only 51% of the indoor vertical farmers who responded to the Agrilyst survey said that their operations were profitable.

Why are so many vertical farms struggling? A recent article from the grower education platform Upstart University suggests that many new vertical farmers may have failed to properly consider a number of key issues, which include the following.

Location

Experts agree that location is by far the most important factor in the success of a vertical farm. Before launching a new venture, all vertical farmers should ask these three location-related questions:

What am I growing and who am I growing it for?: This is the most fundamental question to ask before launching a vertical farm. Remember that the whole point is to better meet demand for fresh, local food by growing crops closer to market. However, if there is no demand and no market, the idea of a vertical farm is unfeasible from a business perspective. A vertical farm is not only about being able to grow things, it’s about being able to sell them. That’s why thorough market research, which includes answering questions such as what products are missing from the market or what the market needs more of, is an absolutely essential part of choosing a vertical farm location.

What is my distribution plan?: If matching crops to market demand is the first location question to ask, the second is about how the crops will physically get from the growing facility to customers. Again, market research is key here in determining both who and where those customers are. For example, if farmers use a direct-to-consumer selling model through a community supported agriculture (CSA) program, it’s important to be as close as possible to the community being served.

Does the building meet the farm’s needs?: Once an appropriate geographic area has been selected, the next step is to find the right facility. It’s important to remember that most vertical farms require a substantial amount of power and that many existing buildings may not necessarily have sufficient electrical capacity to power equipment such as lighting, pumps, HVAC systems, automation equipment, etc. Farmers also need to think about long-range plans and decide whether a building could support a scaled-up operation in future.

Pricing Strategy

New vertical farmers often require coaching about how to price their products based on value. While many vertical growers simply price their products to compete with the average price in grocery stores, experts argue that this is fundamentally the wrong approach. Instead, it’s important to consider the true value of products from vertical farms. Unlike grocery store produce that is often full of unknowns, ranging from where it was grown to how long it sat on the shelf, produce from vertical farms comes with a greater degree of transparency and trustworthiness. These are qualities that today’s consumers value highly, and so the products should be priced accordingly.

Labor Costs

One of the main reasons why new vertical farms struggle is that farmers consistently underestimate the true cost of labor. This is not to say that farm workers shouldn’t be paid a fair wage, simply that many farmers tend to overlook the way in which their growing techniques help to make their workers more or less efficient. For example, a tiered system of multiple layers of horizontal grow beds that reach to the ceiling requires farm workers to spend time traveling up and down on a scissor lift to undertake tasks such as planting, maintenance, and harvesting duties — not the best use of their time and energy. On the other hand, farms that use a vertical plane growing setup allow employees to access any row without bulky equipment and make it easier to accommodate multiple employees at once. And while automation is increasingly promoted as a solution to many farm labor issues, the fact is that the large capital investments required to build and maintain such operations are usually not feasible for most farmers who are just starting out.