Vertical Farming: growing up

DigestVertical / Indoor Farming

What is it?

It’s all in the name. Farming: specifically, growing produce.  Vertical: specifically upwards.  Put them together and you have a definition for vertical farming - producing food on vertically inclined/stacked surfaces as opposed to the traditional method of farming vegetables and food on a single, horizontal level, such as in a field or a greenhouse. Growing up rather than growing out.

But vertical farming is much more than growing food on multiple levels stacked one above each other.  It involves growing food in controlled environments and deploying advanced technologies to control taste, texture and speed of production, all in the name of optimising output.  These technologies range from controlled LED lighting to replicate the natural sunlight spectrum necessary for photosynthesis, drip irrigation to save water, all the way to the Internet of Things, Artificial Intelligence, Machine Learning and robotics to improve production, quality and productivity.

And because much lower quantities of fertilisers and zero-chemical pesticides are used, vertical farming produces pesticide-free, non-GMO and organic equivalent food, which can be as healthy, if not healthier, than organic food.  By being in well-controlled environments, vertical farms can grow food anywhere in any climate and in any country with access to a power source and water.  Just as well…

The Problem

…because the traditional agricultural system appears to be broken.

Five things that are wrong with traditional agriculture:

• Limited arable land just when we need it most: the world’s population is forecast to hit 10 billion by 2050 from 2020’s 7.8 billion level.  More mouths to feed will require more food to be grown.  For more food to be grown, more land will be needed, at least under the traditional ‘horizontal’ farming system.

 

Easier said than done.  In 2020, land equivalent to the size of South America was being used as arable land.  If the projections prove to be correct, by 2050, feeding a population of 10 billion will require more land equivalent to the size of Brazil.  That’s not all.  Global supply of land is actually falling.  It is estimated a third of all arable land has been lost to climate change and soil erosion over the past 40 years.

 

• Paucity of potable water is set to get worse: traditional agriculture uses huge quantities of water.  The numbers speak for themselves: 325,800 gallons of water are required to irrigate one crop per acre.  56% of the world’s freshwater is used in agriculture and this is set to increase.  By 2030, global average agricultural water usage for irrigation is expected to have increased by approximately 14%.  If the world sticks with traditional agricultural models, there’s a danger freshwater supplies will run dry.

 

• High GMO content/use of pesticides poses health risks: toxic chemical pesticides are present in up to 70% of traditional agricultural produce which has had a devastating impact on food quality and global health.  Meanwhile, GMOs are used in traditional agriculture to increase productivity and yield.  As a result, over 60% of all processed foods on US supermarket shelves contain GMO-rich ingredients.  The problem?  Firstly, GMOs do not increase yields either organically or sustainably.  Secondly, GMO foods require higher amounts of pesticides and herbicides that are not biodegradable, encourage superweeds and superbugs, are harmful to pollinating agents, such as butterflies and bees, and pose health risks.

 

• Long and fragmented supply chain: the world needs more food and yet c. US$1trillion worth of food is wasted annually every year during the transportation process.  That’s roughly 30% of global food supplies. Furthermore, to survive the journey to end markets, produce is bred for survival rather than nutrition and therefore harvested prematurely for transportation.  Extra pesticides are also added to maintain freshness, which eventually necessitates triple washing.  Then there is the damage caused to the environment and the produce itself by air pollution from transportation.

 

• Impact on climate change: 25% - agriculture and forestry’s contribution to the world’s greenhouse gas emissions. These are to blame for rising global temperatures as they trap more heat in the atmosphere, which in turn leads to more extreme weather patterns.

Traditional agriculture is plagued with concerns over the freshness, health and nutrition of food as well as the consumer’s health and ecological sustainability.  Solutions are required.

The Solution

Vertically-farmed healthy, fresh, nutrient-rich and non-GMO food solves many of the issues related to traditional farming.  By operating in a controlled environment and in an ecologically efficient manner, it opens an array of opportunities for sustainable food sourcing, and at the same time has the potential to produce over 350x more food per square yard than a traditional farm, thanks to faster growth cycles and quicker harvests.

Key benefits of vertical farming:

• 100% natural food, healthy and non-GMO
• more locally sourced, greater variety, higher quality food
• 24/7, 365 days a year production
• increased productivity
• no need for triple washing to remove pesticides before eating
• yields 400x more per sqm
• 30x more water efficient
• brings food production closer to consumption hubs
• minimal food wastage from farm-fork
• higher nutritional content per crop
• multiple crop production across climate and seasons increases productivity
• increases food security

How does it work?

Hydroponics, aeroponics and aquaponics – the three methods used in vertical farming.  All are ecologically efficient, reduce pollutants released into the environment and produce healthier and more nutritious food:

• Hydroponics – involves growing plants with the roots submerged in nutrient-rich and soil-free solutions in growing mediums such as perlite, rockwool, clay pellets and vermiculite.  With only 6-13% of total operating expenses spent on seeds, growing mediums and nutrients, hydroponics is estimated to be profitable c.60% of the time.  The method uses 20x less water than soil-based farming and produces 3-10x more food than traditional agriculture in the same area and in half the time.  Hydroponically grown crops earn c.$200-250,000 per year per acre as compared to $20-30k for traditionally farmed land.

 

• Aeroponics – where plant roots are suspended in the air and sprayed on a continual basis with nutrient-rich water or mist which provides the plants with the water and nutrients they need to grow.  This provides the plant roots with greater access to atmospheric levels of gases such as oxygen which in turn boosts plant health.  A top-down directed setup also allows misting devices to be placed at the top, allowing gravity to distribute the moisture. Crops grown via aeroponics take on higher mineral and vitamin concentrations making them healthier and potentially more nutritious.  In addition to faster plant growth, aeroponically-farmed crops use 90% less water than most hydroponic systems.

 

• Aquaponics – a closed loop ecosystem that combines aquaculture and hydroponics. Plant roots are in direct contact with water containing fish. Fish produce wastewater high in nutrient content that functions as a fertiliser.  This is then transferred to a separate container to grow plants. Plants naturally filter and purify this water which can then be circulated back into the fish tanks. Fish and plant ecosystems form a symbiotic relationship, while also acting as self-sustaining waste disposal structures. Aquaponic systems use just 10% of the water needed for field-based farming and recirculate and reuse water very effectively.

Timeline

Vertical farming has come a long way in a short space of time. But there is still a way to go.  Below is a timeline of vertical farming covering both the past and a possible future:

The future

Staple crops are a big prize. Using a crop simulation tool, researchers found that a 10-floor vertical farm, covering one hectare of ground space and operating under optimal conditions was able to generate about 600x greater yield than the average amount produced on one hectare of ‘horizontal’ farmland.  This has major implications as the benefits of indoor vertical wheat facilities could be particularly valuable in buffering the effects of climate-related events, health concerns and other anomalies in food production globally.

Why now?

By exposing the unstable nature of the conventional food ecosystem and by causing mounting global food shortages, the pandemic laid bare the faults of the traditional agricultural system, thereby accelerating the need for innovation:

The exposed fault lines include:

• lack of migrant labour
• decline of fruit and vegetable supply
• food wastage as highlighted by pictures of at ports and distribution centres
• food security - between 18 March and 11 May 2020, 22 countries initiated export restrictions to insulate their populations from domestic food price increases

The National Sustainable Agriculture Coalition estimates US$1.32 billion farm losses in the US between March to May 2020 due to Covid-19. Furthermore, the pandemic provided a major push towards locally sourced food.  Thanks to year-round availability, the healthy food produced and the food security provided, the value of vertical farming came to the fore.

An obstacle

Vertical farming requires energy.  Energy costs money. It therefore follows that high energy costs act as a growth inhibitor.  But there is a solution, one that is in keeping with vertical farming’s high sustainability credentials – the use of sustainable energy sources such as solar power, wind turbines and other clean energy alternatives. These sources are increasingly providing a cheaper source of electricity in many parts of the world, and as they do vertical farms are harnessing renewables for their energy needs.  For example, in Germany, Farmers Cut has deployed a combination of solar plants and batteries to reduce power costs.

The graphics below highlight how energy costs are on a downward trajectory, one that is expected to continue in the years ahead:

As costs tumble, the energy cost problem associated with vertical farms should tumble too.

Size of market

Key benefits such as proximity to urban cities and pesticide-free, year-round consistent, nutritious and healthy produce have helped vertical farms make strong inroads in the food production market:

If the forecasts are correct, there is more to come. Between 2020-2030, the global vertical farming market is expected to grow at a CAGR of c. 60%.

Who are the leading players?

North America with c. 26.9% CAGR over the 2018-24 period and Europe with a CAGR of c. 26% over the 2019-2026 period lead global demand for vertically-farmed food.  Together, these two regions account for around two thirds of global demand. In August 2022, The Guardian wrote: “It’s estimated there are more than 2,000 vertical farms in the US growing produce such as lettuce, herbs and berries. Market leaders such as Plenty, Bowery, Kalera and AeroFarms – which can operate 365 days a year regardless of weather conditions – and sprawling greenhouses from companies like AppHarvest and Gotham Greens, see themselves as part of the solution.”

Other regions are getting in on the act too. AeroFarms, for example, is constructing a 90,000 sq.ft. vertical farm in Abu Dhabi on the back of an undisclosed amount of investment by Abu Dhabi Investment Office (ADIO).  As for China, Fox News recently reported: “Over the past decade, China has spent trillions of dollars for agriculture technology. It's also invested in some of the most high tech agriculture equipment. Drones used to spray pesticides, A.I. technology and genetic research to increase its pig population and pork production and greenhouses and indoor farming to grow crops year round… Vertical farming has also grown in popularity in China. With the world's largest population, space can be limited in urban areas. Farmers have resorted to growing up rather than out.”

At the company-level, the below graphic compares three of the major vertical farm players:

Growing up

Reaching for the stars is associated with setting lofty goals and by growing upwards, vertical farming is doing just that.  By tackling some of the major issues of the day – food security and traceability, excessive use of harmful pesticides and GMOs, reduction in food wastage, sustainability, feeding a growing global population, protecting the environment – vertical farming offers investors not just exposure to a growing industry that is already up and running, but also the opportunity to help bring about positive change.