Agricultural technology has never been the favorite of investment and is often classified as an industry that is unlikely to generate significant returns. But things are a little different these days, with data from Crunchbase showing that agtech startups received $5 billion in 2021, a 50% increase from 2020’s total funding for the industry. And before the first quarter of the year ended, $1 billion had already been invested in agtech startups.
Crunchbase points to a variety of factors driving this trend, including millennial consumer habits and needs, the pandemic and climate change, and the attractiveness of liquid investment opportunities for agtech companies.
1. The most sustainable way: to farm vertically
Ever since humans began farming, agricultural productivity has been partly constrained by nature—climate and weather, insects and viruses, and so on. The limited availability of fertile land is also a chronic problem in agriculture: arable land can only produce a limited number of crops per harvest, and the health of the soil can degrade over time.
Agriculture has depleted most of the world's topsoil over the past 150 years, and modern industrial agricultural practices such as monoculture and chemical use have reduced soil quality, directly affecting the quality and quantity of food farmers can produce.
"Industrial agriculture absolutely kills our fields and our agriculture," said James Lloyd Jones, CEO of Jones Food Company. "We're facing a huge agricultural problem of declining soil quality around the world." Add to that the world's growing population. , the United Nations Food and Agriculture Organization estimates that by 2050 per capita production land will be only 1/4 of 1960.
Faced with this agricultural dilemma, vertical farming is emerging as a viable solution. Indoors with carefully controlled conditions, plants can grow 365 days a year without sunlight, herbicides or pesticides. Unlike other indoor farming techniques, vertical farming optimizes space issues by planting crops in rows of vertically stacked shelves, increasing productivity per square meter.
The cultivation process of vertical farm:
In the case of Jones Food Company's vertical farm, the process starts with sowing. A machine inserts seeds (currently herbs and lettuce) into the growth medium, which is then placed into the germination chamber. After germination, the seedling layers are transferred to the growth chamber, where they are connected to the hydroponic system and can be stacked up to 17 layers. This vertical setup gives the room about 26 tennis courts-sized growth space.
The indoor conditions are carefully controlled to maintain optimum humidity, temperature, and most importantly, light. The grow room has no windows, instead 11 kilometers of LED lights to power the plants. To save energy and optimize plant growth, LEDs emit "light recipes" specific to each crop's spectrum and intensity combination.
Jones Food Company also claims its optimized vertical farming system is weather-proof, uses no pesticides or herbicides, and can achieve 7 to 14 more growth cycles per year than traditional greenhouses.
It's also trying to be 100% sustainable. For example, its hydroponic system draws water from rainfall collected on the farm, as well as from excess moisture in the facility, which is captured and recycled into the system. 10% of the site's electricity is provided by solar panels on the roof, while 100% compostable food packaging is also used.
Advantages over traditional outdoor farming include:
• Ability to grow food year round without worrying about changes in weather, sunlight and water.
• It requires much less water than conventional agriculture. (Vertical farms typically use soilless farming methods such as aquaponics, hydroponics, and aeroponics, which require only 10 percent of the water consumed by traditional outdoor farms.)
• Significantly reduced incidence of pests and diseases (essentially eliminated through controlled environments).
• Reduce exposure to agrochemicals used to control weeds and pests.
• Reduced transportation costs and emissions from trucks, boats and planes that transport produce from farms to locations.
02 Prominent cost issues of vertical farming
In fact, vertical farming is nothing new. It can be traced back to the Hanging Gardens of Babylon from 605 to 562 BC. The use of rice terraces in East Asia has also been a form of vertical farming for centuries.
In 1915, the American geologist Gilbert Ellis Baily clearly proposed the concept of Vertical Farming. In 1999, Columbia University professor Dickson Despommier and his students came up with a design for a "skyscraper farm" that could feed 50,000 people.
Although the structure has not yet been built, they have succeeded in popularizing the ideology behind the vertical farming system. Vertical farming is growing in popularity as attention grows towards organic food, urban centre space optimization, energy conservation and compensation for arable land losses.
So why haven't skyscraper farms been built?
Vertical farming relies heavily on technology (controlling temperature, light, humidity and other environmental elements) and advanced gardening skills. Frankly, the main disadvantage of vertical farming is that it is too expensive. A single farm can cost hundreds of millions of dollars to build, and a lack of data on the long-term economic viability of vertical farms has led to a lack of interest from some investors.
Vertical farms are most needed in urban areas, where food quality is lower because food must be transported far from the farm. Unfortunately, real estate and labor costs in large cities are quite high, as are the costs of artificially maintaining optimal temperature, humidity, and carbon dioxide levels to promote healthy plant growth. High initial investment and reliance on technology are currently hindering the market growth in this segment, especially hydroponics, aeroponics, and eventually climate control equipment.
In addition, the biggest economic problem with vertical farming is the high cost of lighting. After the free outdoor sunlight is no longer available, lighting alone can account for about 30% of the total operating cost of a vertical farm.
But this problem is also being solved: LEDs are becoming cheaper and more efficient over the past decade due to the development of LED technology and the growing demand for LEDs in technology products.
As LEDs become more common, its cost will almost certainly continue to drop. The LED field also has Haitz's Law similar to Moore's Law in the semiconductor industry - an observation of the LED market shows that every 10 years the cost per lumen (a measure of useful light emission) falls by a factor of 10, and the amount of light produced per LED package increases by 20% times.
It turns out that the law is accurate most of the time. Cheaper LEDs have also sparked more entrepreneurial interest in vertical farming.
"LEDs are very expensive, and that's why people didn't want to build big indoor farms before," Jones said. "The first thing that makes more people want to get into vertical farming is the lower price of LEDs."
03 Expand production capacity and balance prices
While technology like lighting is still expensive for vertical farming companies, it does have one major economic advantage over traditional farming: location.
Vertical farms can grow a variety of crops almost anywhere on the planet, unlike agricultural land, which needs to be cultivable and often kept away from consumers.
Consider how imported produce gets to the store: produce grown thousands of miles away is packaged in a series of transport vehicles that are either refrigerated or preserved with chemicals (both of which affect the taste of the product). However, due to the flexible land use of vertical farming, it is possible to flexibly choose a geographical location closer to consumers and shorten the supply chain.
But that doesn't mean vertically grown products are cheaper. Most companies sell their products at premium prices, expecting consumers to pay more for cleaner, more sustainable, and (just possibly) tastier food.
Several large companies in vertical farms also include Bowery Farming, AeroFarms, PlantLab, and BrightFarms, among others. Some vertical farming companies are already selling their products to some retailers at the same price as imported products. For example, large vertical farming companies such as Plenty, AeroFarms, and Upward Farms already sell their products to large retailers such as Walmart, Whole Foods, Stop & Shop, and Shop-Rite.
The next step in opening the market is to achieve price parity with all conventionally produced agricultural products, which means that vertical farms need to significantly reduce operating costs.
“As scale increases, vertical farms bring the certainty of year-round production, which may move closer to price parity and scale,” Jones said.
Kukutai, an early investor in Plenty, believes that for the vertical farming industry, increasing yields is the key to profitability. According to him, Plenty has already increased production in its leafy grow room by 700% in two years.
"Their (vertical farming companies') path to yield improvement is absolutely critical," Walmart's Mundo said of why Walmart chose Plenty over the nearly a dozen other indoor farms they've been to.
Mundo also adds that Plenty can also grow strawberries and cherry tomatoes on a large scale, not just leafy greens, another advantage. In late 2020, Plenty raised capital from berry brand Driscoll's and signed a joint development agreement to grow Driscoll's strawberries.
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