Summary: A recent article on indoor farming by Adele Peters ( “The vertical farming bubble is finally popping“) was published on February 27 in Fast Company. The focus of the article is on the profitability of indoor farms. As noted at the beginning of the article: “Climate change might make growing produce indoors a necessity. But despite taking in more than a billion dollars in venture capital investment, most companies in the industry seem to be withering, unable to turn a profit on lettuce.”
Dr. Eric W Stein, Executive Director of the Center of Excellence for Indoor Agriculture and contributor, talks about the financial feasibility and sustainability of indoor farms and controlled environment agriculture (see below).
The full article can be found at: https://www.fastcompany.com/90824702/vertical-farming-failing-profitable-appharvest-aerofarms-bowery
….Lights alone are expensive. “Plants require about five to 10 times more light than we do as human beings,” says Eric Stein, a business professor at Penn State University and head of the nonprofit Center of Excellence for Indoor Agriculture, who studies the economic model of indoor farms. Vertical farms often start growing leafy greens first because they require less light than some other crops, but buying the lights, and paying the electric bill, is still a significant expense. Even a small, 10,000-square-foot farm might have a lighting bill over $100,000 or even $200,000 a year, he says. Running air conditioners and other equipment adds to the energy used.
…Some American startups also have a suite of well-paid executives even before they’re making a profit. “A lot of these companies are still floating on venture capital,” says Stein. “What’s the first thing that they do? They hire all their friends. And they blow out the administrative salaries on the operating side.” The high-tech greenhouse company AppHarvest, which has raised more than $640 million, reported net losses of $83 million through the first nine months of 2022, including a summer quarter that yielded a paltry $524,000 in net sales when AppHarvest had to compete with outdoor farmers’ growing season. The company’s total revenue for the first three quarters of last year was $10 million, but most of that was used on up to $7 million in severance payments when it fired two executives.
…..It’s also hard to make money selling baby greens rather than a high price-point item like cannabis—or even just more expensive produce, like berries. “Is it worth spending $20 million on a cutting-edge system when you’re producing objects that might get $1 or $2 in the marketplace? That’s the problem,” says Stein, the Penn State business professor. (As a growing number of indoor farms have started selling branded greens, the competition is also making it harder to get placement in grocery stores.) If companies look to make more money by charging a large premium for a box of greens, there’s a relatively limited group of consumers willing to pay more for salad.
….Stein is currently collecting data from farms on their operational cost per pound of lettuce—something that many companies are reluctant to share—with the aim of identifying which farms are most efficient and gleaning lessons for the indoor farming industry as a whole. He still believes that this type of farming can be a viable business, though perhaps not in the way that some investors expect or some startups may have promised.
“For the life of me, I do not understand [why investors are investing], because the economics are not the same as Silicon Valley high tech,” says Stein. “No matter how you want to spin it, it’s not the same. If you can build a farm that has a nice, healthy 20% to 25% margin, that’s a good bet. But it’s not going to be 150%.”
To read more, please go to: https://www.fastcompany.com/90824702/vertical-farming-failing-profitable-appharvest-aerofarms-bowery