Can vertical farms be profitable?

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Earlier this year, we covered a few indoor farming companies that went public through mergers with sspecial pgoal apurchase vscompanies (SPACs). Neither has looked very appetizing to retail investors, with negligible income to date. As we expected, more indoor farming startups (referring to both large-scale greenhouses and vertical farms) jump on the PSPC crazy train. The latest is a Montana company called Local Bounti that had generated little buzz until this month’s announcement, which included reports that Cargill would provide $ 200 million in debt financing as part of the the agreement.

In this article, we want to take a step back and take a closer look at the indoor farming industry, sometimes referred to as vscontrol eenvironment aAgriculture (CEA), especially on the vertical farming side. Basically, we are skeptical of the economics and saving ethics of the world that many companies preach. We brought in an industry insider to help us separate the wheat from the chaff.

Save the world from BS

Marc Korzilius

Mark Korzilius is the Founder and Chief Strategy Officer of & ever, a vertical agriculture startup based in Germany, with its first mega-farm located in the Kuwait Desert. Korzilius was also the co-founder in 2002 of a chain of fast and casual Italian restaurants, Vapiano, with more than 200 establishments in around 30 countries. He reached out to us, as founders sometimes do after reading a story that didn’t include them, to tell us about all the cool things their company is doing. In Korzilius’ case, he also wanted to set the record straight on everything that competitors like AeroFarms and other vertical indoor farming companies fail to do despite claims to the contrary.

Obviously, Mr Korzilius is biased, but he also confirmed one of our main suspicions: There are many indoor farming companies that claim to be on a mission to help feed the world, which seems incongruous with the fact that most grow leafy greens, herbs, berries. , and maybe some tomatoes. Barely the kind of staple that will keep the roughly 800 million people in the world from going hungry at the end of the day. He also argues that claims of automation using artificial intelligence and sensor-rich environments are also exaggerated.

“We really believe that by becoming farmers and being successful farmers for certain crops, we can prove that [vertical farming] is, ultimately, a way forward, ”he says. “I hope we can find technologies to really overcome some problems created by others… that will help solve problems that were the result of technologies created 50 years ago.”

In the second half of this commentary, Korzilius obviously refers to the modern industrial farming system, with its reliance on pesticides, herbicides, and fertilizers that deplete and poison soils and water supplies. This is why you see so many companies developing natural fertilizers using microbes or biofabrication solutions for non-chemical pesticides. Outdoor farming is also water hungry, especially for products like almonds, which require a gallon of water per nut. Various technologies are being developed to use water more efficiently, from ground sensors to aerial imagery from drones and satellites. Vertical farming is tackling the root of the problem by moving the growing operation indoors, using LED lights and hydroponics to deliver nutrients using only water rather than soil. This eliminates both pesticides and many traditional fertilizers, and would have reduced water consumption by up to 95%. Let’s take a look at the specific technology behind Korzilius’ business.

Creating the right climate for vertical farms

Founded in 2015, & never (formerly known as the Farmers Cut) raised an undisclosed sum of money, originally through seed and seed funding, before raising a Series A from partners in Kuwait for its mega-farm, a joint venture with a company of local investment called NOX Management. Korzilius said & ever are currently breeding a Series B but declined to provide details.

The company’s technology, as we understand it, has two key elements: the Dryponie and the climate cells.

Dryponics is a new variation of hydroponics, which involves growing plants without soil. The company uses a proprietary growing medium to keep the roots dry. Indeed, the root system remains above the substrate, while absorbing the nutrients contained in the water. This setup would have several advantages, including using 68% less water than common hydroponic systems and 37% less water than aeroponic systems, which grow plants in the air using a foggy environment or a system. similar. Less water means that the ponds under the substrates are flatter, allowing a more compact stratification of the crops.

Each culture requires different growing conditions, Korzilius explains. His team therefore developed climate cells – microenvironments optimized for temperature, light, humidity and CO2, among other factors. Environmental control also helps control energy costs, especially in the large structures that house many of today’s vertical farms, including the company’s flagship facility in Kuwait.

Vertical farm in Kuwait.
Credit: & never

“Within the same premises, we can create different climates. At our farm in Kuwait, we have four climate cells side by side. So we could potentially create a Californian climate next to the Danish climate next to the Singaporean climate, ”he explains. “By creating climate cells within the same room, we save energy [and] only air-condition what needs to be air-conditioned.

Take spinach, a notoriously difficult plant to grow indoors that took the company two years to find the right combination of substrate and climate. But this work has paid off by reducing growth time by 15%, which translates to 18 growth cycles per year, which is enough for Popeye to be an investor (If only he hadn’t exploded his retirement on canned spinach).

Betting the farm on indoor agriculture

The value proposition is that & ever products leave the farm as live plants with the roots intact, continuing to grow while staying fresh and retaining maximum freshness, according to Korzilius. The Kuwait Farm is the first large-scale effort to prove the business model, although the company also has smaller grow towers for on-site outlets such as grocery stores, including one in Munich. A second mega-farm is under development in Singapore.

Culture tour
An increasingly taller tower. Credit: & never

The Kuwait Farm, which was put into operation shortly before Rona’s coup, is designed to grow up to 250 varieties of greens and herbs. The 30,000 square foot facility could produce up to 1,200 pounds of green products. Korzilius says the pandemic continues to hamper the full-scale operations of the farm, which is overseen by just six employees. However, he claims that the vertical farm is operationally profitable (in other words, without taking into account the initial capital expenditure). “So we are not selling at a loss. Yes, it’s a prototype, but it works fine.

Product of a vertical farm.
Tasty greens from a vertical farm in Kuwait. Credit: & never

However, there is a reason the mega-farm is located in Kuwait and not in Munich or elsewhere in Europe. Energy is simply cheaper in the Middle East, so it was obvious to plug into the grid there. In Singapore, where electricity is not as cheap, the local government stepped in with grants to subsidize the project. Currently, Singapore imports over 90% of its food, so the government is motivated to find ways to be more self-sufficient, especially in the aftermath of the pandemic.

The most important implication is that vertical farms will need cheap energy sources to be economically viable. This flies in the face of the current narrative of locating large-scale operations in the midst of large urban centers where electricity is generally quite expensive. Of course, there are other economics to consider: Centrally located grow facilities will lead to lower shipping costs and can theoretically deliver fresher and tastier produce to consumers, who may be willing to pay. the full price for what Korzilius calls the harvest on demand.

“I firmly believe that consumers are at the center of everything,” he says. “The consumer, at the end of the day, has to pay for it. And if he doesn’t, then it’s all just a stupid bubble.

Conclusion

The bubble is certainly inflating. The three indoor farming companies that are going (where have gone) that we know of are valued at nearly $ 4 billion. Last year, the top three indoor farming startups in 2020 grossed more than $ 400 million between them, according to AgFunder News. These companies claim to build a sustainable food system, but it seems unlikely that a micro-green-based business can be sustainable on this scale and at this cost. As always, the market will decide which model will succeed.

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