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Can Vertical Farming Rise to the Challenge?

According to the ‘Food and Agriculture Organization’ food production would have to increase by around 70% globally to be able to feed the world’s population by 2050.

Certainly, in the developed world, there isn’t enough land to expand agricultural capacity to the levels required without further deforestation and this means doing more with resources already on-hand - one way to produce more with less is through vertical farming.

What is Vertical Farming?

Using water and land more efficiently will not only be critical in ensuring food supply for all amidst increasingly unpredictable weather patterns but it’s also paramount in reducing the impact of the agriculture and food production industries on the environment. Vertical farming alleviates the drain on these natural resources as produce can be grown vertically stacked in greenhouse-like windowless ‘towers’ and water is conserved through employing hydroponic or other soil-alternative growing methods.

What are the Main Advantages of Vertical Farming?

Smaller Footprint

Growing vertically means plots as small as a few hundred feet can be utilized to yield much more than a field of the same size - dependent on the crop it’s estimated the yield could be as much as 10-20% more than a traditional soil field. From an investment perspective, less land equals less outlay and whether it’s an old warehouse or a vacant parking lot, it makes little difference to the undemanding needs of a vertical farm’s building and location.

Uses and Pollutes Less Water

Water usage in a vertical farm is reduced to around 10% of that which would be required by traditional methods. Sprinkler systems are not required and the majority of water that is used, can be collected and reused rather than being discarded through ‘run-off’. Because the plants get all the nutrients they need through the water in which they’re grown and they’re produced in a strictly controlled indoor environment which minimizes the risk of contamination, the use of pesticides is negated so that the water remains fresh and reusable for multiple purposes. The growing number of health-conscious consumers can also be assured that produce is fresh and chemical-free and hasn’t contributed any water pollution.

Dependable Year-Round Crop Yields

Even in once hospitable farming climates, extreme weather events give farmers more and more to contend with each year. Droughts, storms, excessive rain and unpredictable and unseasonal frosts have the potential to ruin an entire season and hit profits hard. Growing crops in a temperature-controlled indoor environment means no longer being at the mercy of the weather and growers can be assured of a steady yield and income all year round. Some Canadian climates will never be suited to traditional farming and in the cold of the far north and on many first nations reserves such as ‘Sheshegwaning First Nation’ in Manitoba, people are resorting to indoor hydroponic farms using containers to bring down the cost of fresh supplies and make them accessible in the harsh winter months.

Prior to the pandemic, populations of developed countries were generally apathetic to the threat of food insecurity. Uncertainty and supply issues have lingered longer than mask mandates however and the threat of food shortages became a serious concern for the first time. Notwithstanding the pandemic, extreme weather events are exposing the vulnerabilities in Canada’s reliance on foreign food imports. Canada is heavily reliant on California for the bulk of its imported fruit and vegetables for instance and when extreme drought and wildfires threaten to wipe out Californian crops year after year, food shortages become a very real and unnerving prospect. The amount of wildfires in California tripled in January 2021 and as the inflation rate in Canada hits an 18-year high, the importance of stable, hyper-local grown produce can’t be overstated.

Diminished Carbon Emissions

Carbon emissions are reduced in vertical farms at least threefold;

  • Heavy farming machinery is not needed for intensive sowing, spraying and harvesting;

  • Farms can be located anywhere including in densely populated towns and cities which means food can be produced closer to where consumers live in urban areas, reducing vehicles on the road for last-mile delivery;

  • Less need to import produce via air or sea which reduces global emissions.

Safer and Cheaper Production

The controlled environment of vertical farms relies heavily on technology for light, heat, humidity and ventilation monitoring and control, it doesn’t need a great deal of human intervention therefore ongoing labor costs are minimal compared to a traditional farm.

Traditional farming is not the safest industry to be involved in, frequently topping internet lists of the deadliest jobs and vertical farming offers employees a safer environment with less propensity for accidents and chemical exposure. As these risks are mitigated, the ongoing cost of insurances may also be lower.

Awaiting Take-Off in Canada

Asia and Europe seem to be spearheading investment into modern and sustainable agriculture with indoor-farming in Canada somewhat lagging behind. GlobalNewswire recently reported 19.2% CAGR for the vertical farming market up to 2027 and whilst the US is making quick strides, Canada still seems to be lackadaisical getting on board.

Canada’s hesitation could simply be a question of the industry’s nascency and a wait-and-see attitude as more players enter the market and others scale up. Modern-day vertical farming is still relatively early-stage with the first commercial farm, Sky Greens, popping up in 2012 in Singapore.

These kinds of developments are admirable and not dissimilar to the ideas of Aztec and Babylonian visionaries from over a thousand years ago who also sought innovative ways to feed their people. Although technology has enabled the vision and ambition of vertical farming startups to get off the ground today, there are certain challenges that foster indecision for investors by calling into question the profitability of these developments.

There are a few significant points that are deterring the advancement of indoor farming in Canada as a viable food source and a viable investment that when addressed, open the floodgates for widespread interest...

  • Where exactly does vertical farming sit as an industry? Is it a farm or not? Without clarity on this, developments near to urban centres could run into all manner of zoning objections but these need to be ironed out so that local markets may be served. This is not something that can be solved by those at the forefront, developing technologies and pushing boundaries but by the federal government, whose support is essential to get more projects underway and attract big players to North America.

  • The carbon footprint of a vertical farm is certainly lower than a traditional farm, but there is still a question over sustainability given the facilities rely on 24/7 LED lighting 365 days per year. It’s only a matter of time before innovators find a way to harness natural light in these green towers or LED technology is outranked by something even better.

  • At the moment, the diversity of produce is limited. Microgreens, salads and herbs lend themselves best to indoor farming given their lightweight properties and ratio of root to leaf but to make a real impression on the food industry, new techniques and farm designs must be introduced to allow the growing of a wider range of fruit and vegetable products on one site.

  • The profit curve in vertical farming can be protracted compared to other businesses. High startup costs and high energy costs with a fixed output result in a constant struggle for cost efficiencies which makes it difficult for farms to scale without early investment and this can be tricky for young, rapid-growth companies.

It seems that a perfect combination of advancements which facilitate more product diversity, even further reduced energy usage and easy scaling and replication need to converge for the risk-averse to get into this market.

Is Vertical Farming Profitable?

It is and will become more so. This is a developing industry and the real estate cliché of higher risk for higher return holds true for those getting in early and finding solutions to growing pains. There’s no doubt that upfront investment is much higher than a traditional farm and longer-term returns off-putting depending on an investor’s specific strategy and risk profile. Despite this, global investment is now in the billions with major private capital investors like Google, Ikea and ex-Amazon chief Jeff Bezos throwing their hats into the ring. These are good signs for the future but good signs must be backed up by thorough due diligence to understand the nuances of this emerging industry. Armed with a comprehensive business plan and an experienced management team, along with an eye for progressive technology; there’s no reason why vertical farming shouldn’t make a positive, long-term addition to the portfolio.

If you have any questions on the expanding agtech market and investment opportunities, reach out to Private Capital Group today.

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