The Promised (Farm)Land

What is it and how do we get there?

Conventional farming isn’t as glamorous as it once was. The hours are long and grueling, farm expenses are on the rise, and farm incomes have dwindled despite consumers paying higher prices at the supermarkets. This creates razor-thin margins for farmers. As an early employee at a startup, I get how hard it is to take that risk and why many young people aren’t attracted to the business model of farming. In fact, the average age of farmers in the US is 58.

Without a resurgence of young farmers, we are seeing a real disappearance of small farms. It’s becoming more and more common that investment groups are buying up small farms when farmers become unsatisfied with the work and no family members take up the helm of operating the farm.

One example of the budding resurgence comes from a client based in Indiana building and operating vertical farms. Through training, he is passing that operational intelligence to the younger generation of farmers. I come across numerous examples of this so-called passing of the torch and with it, continue to be hopeful that the average age will lower considerably.

Here’s the good news: Everyone eats. So, farming isn’t going anywhere. We’re seeing a tremendous uptick in interest in modernizing agriculture, from the growing techniques to the technology powering farms. This interest isn’t just from Silicon Valley investors and startups; farms are investing in technology too.

Justin Dautoff, the President of Rocket Farms (the largest grower of indoor flowers, fresh cut herbs and potted edibles in the country) said in a recent report: “Go work on farms. Come and visit. We’re looking for solutions. We know that innovation is the key, so if someone from outside the industry is interested in coming in and learning, listen and understand that’s great.”

The big, successful players are modernizing and they recognize that data is key. In the 2016 State of Indoor Farming report, 90% of farmers believed they could increase yields with data.

I hate the word data. It’s one of those words that has lost its meaning over time. If data is the key, what’s behind the door it unlocks?

Successful farms in the future will produce high quality, safe food, profitably. This requires operational intelligence and a resurgence of young people entering the industry. Young people are beginning to farm again as farming moves to a more high-tech field. But without the first piece, operational intelligence, farms will either go out of business or be sold to investment firms and consolidated.

What do I mean by operational intelligence? To borrow from one of my favorite entrepreneurs, Marcus Lemonis, success comes with 3 P’s — Product, Process, and People.

Product

Products are differentiated two ways: price or quality. Indoor farms growing on 10,000 square feet are not going to be able to price at a level that competes with something that is grown across 500 acres. So instead, growers should focus on quality as a differentiator. Building nutrient and climate recipes to adjust taste, smell, and color helps growers produce the highest quality crops. Quality not only drives superiority against competitor products, but also demands higher pricing, helping growers increase revenue and margins. That quality and the underlying recipe now become the farm’s brand. In the end, farmers aren’t selling food, they’re selling high-quality nutrition, and there’s certainly a premium to pay for that.

Process

While a quality premium is a must, prices have a certain ceiling (no person I know is going to pay $20 for a head of lettuce). To battle razor-thin margins, farms can approach the equation from the other side — driving down operating costs. The best way to do this is through automation. Labor is one of the highest expenses on a farm. As more and more companies begin to build automation technologies, farmers should consider where they can decrease labor costs through investing in technology that can be depreciated over time. Of course, there is a cost to investing in technology and if that’s too high for the farm, there are other ways to increase process efficiencies. I recommend farmers do a farm labor audit at least once per growing season (if you grow year-round, I’d recommend once per quarter). For the audit, spend a few hours recording the time it takes to complete each task tied to operations: planting, moving crops from one area to another, harvesting, recording inventory counts, packaging, cleaning, whatever tasks your employees perform. Then map that with your planting and harvesting schedule. Where are you spending a little too much time? Are you organizing labor hours efficiently or most efficiently? Where can you reduce labor hours? Are certain employees performing better than others? Are there technologies that aren’t a huge investment that could reduce a labor hour here or there? Understanding what’s going on with operations is operational intelligence.

People

While not in the traditional way Marcus looks at People (namely — he looks at the People internally), I’ll consider People to be the external stakeholders. Farmers aren’t just selling to wholesalers or retailers or distributors, they have to begin to look at the needs and demands of the end consumer. We know consumers want relatively high-quality, affordable food. But what else do they want? Are buyers demanding a broader range of produce grown year-round? Or locally? How about transparency in the supply chain and better traceability. I know every time I bite into a strawberry, I want to know that I’m not going to get sick from eating it! As a triathlete, protein is incredibly important to me. I love seeing the trends of alternate proteins and an increase in aquaculture. I, and most other consumers, are not yet ready to eat chocolate covered crickets or grasshoppers yet, but Tilapia I can get behind. That being said, we’re seeing a lot of bugs being grown for animal feed, which is really neat! With all this in mind, it’s becoming more and more important for farmers to figure out what is really on consumers’ minds because that’s a prime way to evolve operations to realize higher revenues.

Take-away: Over the past few years, we’ve seen some indoor farms fail and we’ve seen a lot of consolidation in the conventional farming world. I think we’ll continue to see small farms get out-priced by larger farms and see new innovative indoor farms fail. However, farms who have a deep understanding of their customers, their processes, and their product will change the way we eat as a society. They’ll run profitable businesses and grow high-quality, safe food for decades to come. That’s a future I think we can all get excited about.

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