High energy costs are hitting the vertical farming industry hard | FT Food Revolution

Summary

The vertical farming industry, once seen as a groundbreaking solution for sustainable agriculture, faces significant challenges despite over $4 billion in investment in recent years. Companies like Fifth Season and Agricool have declared bankruptcy, while many survivors struggle with rising energy costs, which now constitute up to 40% of operational expenses. High setup costs further hinder profitability compared to traditional farming. However, regions like Dubai thrive due to favorable conditions. While technology may improve viability, the industry's reliance on venture capital and a shift toward consolidation suggest that many businesses may not survive.

Takeaways

• 🚜 Vertical farming was initially hailed as a revolutionary method for year-round crop production, aimed at reducing resource use and food transportation.
• 💸 Despite $4 billion in investments over the past five years, the vertical farming sector is currently struggling with significant challenges.
• 📉 Recent bankruptcies, including Fifth Season, Agricool, and Glowfarms, highlight the industry's vulnerability and ongoing consolidation.
• 📊 Many vertical farming companies are unable to achieve profitability, with rising energy costs being a major factor.
• ⚡ Energy expenses can account for up to 40% of operational costs for indoor farms, a sharp increase from 25% in 2021.
• 🌱 Vertical farms heavily depend on electricity for essential systems like LED lighting, ventilation, and temperature control, making them susceptible to energy price fluctuations.
• 💰 The high initial setup costs for vertical farms range from $2,500 to $3,500 per square meter, excluding construction and rent, which is significantly higher than traditional farming costs.
• 🌍 Geographic factors influence the success of vertical farms, with regions like Dubai benefiting from low energy costs and government support for food security.
• 🌿 A notable vertical farm in Dubai produces over 3,000 kilos of leafy vegetables daily, showcasing the potential for success in supportive environments.
• 🔮 Future advancements in technology and automation may improve the viability of vertical farming, but the industry remains reliant on venture capital and faces ongoing challenges.

Q & A

What are indoor farms and why were they initially considered promising?

Indoor farms are facilities that grow crops year-round in controlled environments. They were considered promising because they reduce food miles and the amount of land and water used.

What recent trends have been observed in the vertical farming sector?

Despite significant investment and hype, the vertical farming sector is struggling with layoffs and bankruptcies, with notable companies like Fifth Season, Agricool, and Glowfarms going out of business.

What is a major financial challenge facing vertical farms?

A major financial challenge is the rising cost of energy, which has increased from about 25% to 40% of operational costs due to skyrocketing consumer electricity prices.

How does energy consumption impact vertical farming operations?

Vertical farms rely heavily on electricity for LED lights, ventilation systems, and temperature controls, making them vulnerable to increases in electricity prices.

What steps are some vertical farms taking to mitigate energy costs?

Some vertical farms are tapping into renewable energy sources, although scaling this approach presents challenges due to high upfront costs.

What are the setup costs for vertical farms compared to traditional fields?

Setting up vertical farms costs between $2,500 to $3,500 per square meter, while traditional field investments range from 50 cents to 50 euros per square meter.

What geographical factors can influence the success of vertical farming?

Geographical factors, such as access to cheap energy and government support for food security, can significantly influence the viability of vertical farming, as seen in Dubai.

What is the current status of a major vertical farm facility in Dubai?

One of the world's largest vertical farms opened in Dubai, with a $40 million investment, producing over 3,000 kilos of leafy vegetables per day for airlines.

What is the future outlook for vertical farming?

While advances in technology and automation could improve the viability of vertical farming, the industry is currently reliant on venture capital and moving toward consolidation, which may lead to more business failures.

What does the consolidation trend in the vertical farming industry imply?

The consolidation trend suggests that instead of continued growth, the vertical farming industry may see a reduction in the number of operational businesses, with some likely failing as profitability remains uncertain.