Tuesday, April 16, 2019

"The Economics of Local Vertical and Greenhouse Farming Are Getting Competitive"

From AgFunder:
In February 2019, I published an article comparing the cost of growing and delivering greens on a conventional farm, to growing them in a container farm.  My conclusion was that the consumer can get both a hyper-local and superior product from a container farm.  However, it will be approximately 10 times more costly to grow and deliver. Unless the industry can change the consumer mindset to pay the significant differential (much like what Starbucks did to the brewed coffee market), container farming is likely to remain a niche industry. 

My research concludes that today’s consumer would like to buy produce with the following attributes: competitively priced; locally grown; tastes fresh and is healthy; available at same location where other shopping is currently done – “one-stop shopping”; and year-round availability.
If conventional and container farming are on opposite sides of the spectrum in price versus quality, what alternative forms of growing can meet the demand of today’s consumer?

Based on my research, greenhouse or vertical farm growing, or a combination of the two, can get farmers close to meeting the needs of today’s consumer. Efficient deployment of further technology and capital into each of these growing structures will allow the farms to get ever closer to fulfilling consumer demands. 

As illustrated below, I researched a prominent domestic greenhouse grower, BrightFarms, and a prominent domestic vertical farm grower, AeroFarms. 

Currently, BrightFarms has several greenhouses and recently announced it is building additional greenhouses in Massachusetts, New York and California. Each of these greenhouses will be 280,000 square feet and produce in the range of 2 million pounds of greens per year. AeroFarms operates a 70,000 square foot vertical farm in Newark, NJ which can also produce in the range of 2 million pounds of greens per year. Per AeroFarms website, this vertical farm is the largest in the world in terms of annual capacity.    

My research indicates the following costs per pound to grow and deliver greens grown in each of the following formats (including depreciation):
Conventional Outdoor Farm Hydroponic Greenhouse Vertical Farm Container Farm
$0.65 / lb. $2.33 / lb. $3.07 / lb. $7.14 / lb.
Assuming a 40-45% gross margin for a typical supermarket produce department, retail prices for greens would need to be approximately $1 a pound for conventional, $4 a pound for greenhouse, $5 a pound for vertical, and $12 a pound for container-grown. A typical head of bibb or butter lettuce weighs less than half a pound. Therefore, the lettuce can be grown in a greenhouse or vertical farm and sold at retail for $2 to $3 per head.

Although greenhouse or vertical farming is three to five times more expensive than growing on a conventional outdoor farm, it still allows for competitive pricing to the consumer with other vegetables and sides....