Reaching New Heights
The vertical farming market has seen an explosion in activity over the past 5 years, with companies raising over $1 billion in funding since 2015. In this blog post, I discuss the problems behind the hype and the advancements needed to turn the industry from VC trend to true disruptor.
Unless you’ve been living under a rock…is how I wanted to start this blog post, but the truth of the matter is that although many in the VC and startup world will have heard of vertical farming, the majority of mainstream consumers will have not. Despite this, vertical farming has risen to venture capital stardom recently, with Plenty’s $140 million Series D funding round led by Softbank and Infarm’s $170 million Series C funding round, making up just some of the impressively large rounds being pumped into the nascent industry. So why is it that with such impressive capital in-flows, very few mainstream consumers are yet to hear of vertical farming and experience the many benefits it asserts?
It’s trying to solve a big problem
For one, it’s not like the problem vertical farming is trying to solve is a niche one. It took us roughly 200, 000 years to reach a population of 1 billion by 1800. It then took only 200 years to reach a population of 7 billion. The world bank predicts that the global population is due to add another 2 billion to the equation by 2050, putting enormous pressure on our already struggling food supply system.
The challenge is therefore to increase food supply to meet this growing demand, whilst reducing our impact on the planet in parallel. There are a number of different reasons why the current food supply system we have in place is not sustainable including; the fact that we commit around 70% of fresh water usage to agriculture globally every year; and the carbon footprint of this global agriculture accounting for around 20–30% of greenhouse gas emissions globally.
Enter vertical farming
Vertical farming is the practice of growing crops in vertically stacked layers. It often incorporates controlled-environment agriculture, which aims to optimise plant growth and soilless farming techniques such as hydroponics, aquaponics, and aeroponics. As such, vertical farming offers a way to boost the ratio of crop yield to square footage of land used through its stacked layout, whilst the absence of soil reduces water usage by up to 95% and removes the need for pesticides.
A number of other advantages exists to this method of farming including:
- Year-round crop growth
- Crop resilience to natural and climate disasters
- Reduced supply chains, reducing food supply emissions
- Reduced supply chains, improving supply chain resilience
- Reduced supply chains, improving traceability and transparency
- Increases organic food supply production
It is the truly remarkable list of benefits above that has led to the huge funding rounds mentioned earlier and the hype within the venture capital industry around the potential of vertical farming. However, the perceived lack of impact these companies has had on the average consumer so far begs the question, is this hype really justified?
Pulling back the curtain
There are two major headwinds preventing the industry from having a serious impact globally right now. Firstly, there are very few examples worldwide of vertical farming organisations making a profit. Of the minority that have managed to generate a profit, almost all of them focus exclusively on growing high priced herbs like basil, parsley, rosemary and thyme (a notable exception to this is Spread based in Japan, that can be found in my market map). Professor Leo Marcelis, the head of horticulture and product physiology at Wageningen University, and an expert in vertical farming states,
“Technically, we can grow any crop very well in a vertical farm. The question is how can we do it in an economically feasible way?”
The current selection of produce being grown at a profit is unlikely to solve the global food supply crisis until vertical farming can produce low cost nutritious produce that is available to mainstream consumers globally. This struggle for profitability is caused by huge capital costs to set-up the vertical farms; the potentially high ground rent for the space to do it in urban areas; and the high energy costs of running the farms. All this leads to vertical farming companies having to sell high-margin, high-priced produce in order to survive.
This also leads us on to the second headwind the industry is currently experiencing. Whilst I have shown how vertical farming can reduce the environmental impact of global agriculture in some ways, the truth is that overall, the process remains incredibly un-sustainable and energy intensive. Although traditional farming utilises the sun for lighting to grow crops, vertical farming will often rely entirely on high powered artificial lighting like LEDs to keep the growing medium ideal. This means the carbon emissions associated with running a vertical farm are extremely high and outweigh the carbon savings from reduced supply chains. Even with recent improvements in the energy efficiency of LEDs, they still have a long way to come to make vertical farming a sustainably and economically viable method for growing produce.
Vertical farming 2.0
Despite the huge challenges that lie ahead, the industry is powering on and we are now seeing a ‘vertical farming 2.0’ arise. Companies like LettUs Grow in Bristol, UK, are developing innovative lighting and heating technologies “to increase productivity, quality and sustainability of vertical farming.” Huge investments in R&D across the industry are seeing a variety of new technologies being leveraged to help overcome current challenges. Companies are investing heavily in new IOT hardware sensor systems, AI predictive software, robotics for automation, and SaaS offerings to help run vertical farms.
It seems the combination of a potentially huge market to address, strong competition and a large interest from investors, has only spurred the industry on and makes for an exciting few years ahead in innovative developments. As a result, an explosion of new market entrants has entered the scene in the past few years and below is simply an indication of the current market as it stands, as well as how players are tending to position themselves (Please be aware this market map is indicative and many of the companies below fit into multiple categories, however I have organised based on what I believe to be their main go-to-market offering).
The bottom line
Vertical farming certainly won’t be the silver bullet for global food supply that many founders and CEOs in the market are currently claiming. However, there is clearly potential for it to play a significant part alongside other innovations to help us increase food supply whilst reducing our environmental impact. Of course, if the assertion by Infarm co-founder Guy Golanska that vertical farming will “not be another VC trend, but have a real impact”, is to come true, a number of things must happen in order to get there.
Firstly, I agree with Michael Dent, analyst at IDTechEx, that unproven claims by founders about the current capabilities and benefits their vertical farming companies are having on global food supply are unhelpful for the industry at this point in time. Claims like this, unless proven quickly, are likely to harm the reputation of their brand and industry, consequently putting off investors and sinking the ship in the long run. Secondly, the energy efficiency of vertical farms must be drastically improved not only for cost, but to reduce the carbon footprint of the process in order to ensure we are reducing our impact on the planet in parallel. Lastly, once the cost problem has been resolved, the vertical farming industry must begin to produce low-cost produce in greater varieties to have a true impact on the live’s of mainstream consumers and live up to the hype it has promised.
Despite the difficulties ahead, I remain excited about the prospects of vertical farming and the innovations the industry will undoubtedly create in the next few years with continued growth, competition and funding.
Opinions are my own and represent in no way the views of my employer
