Publications

- October 1, 2021: Vol. 8, Number 9

Agricultural prospects are looking up: The sky might be the limit for vertical farming

by Bennett Voyles

Whether it be in a reconfigured air-raid shelter 33 meters below the ground in south London, in a converted office building in Singapore, or in a building in Dubai — startups around the world are now growing closely-stacked racks of vegetables under LED lights, in a bid to bring consumers fresher produce with a lower carbon footprint than generally available at their supermarket.

As anxiety about climate change and the vulnerability of extended supply chains grows, the possibilities raised by vertical farms have captured the imagination of a number of large venture capitalists and private equity funds.

Located in a controlled environment, urban farms have some major advantages: their crops don’t require any pesticides and need much less water, their growing season never ends, and they can produce much more food in a much smaller space.

“Urban farming delivers significant savings in water and mineral inputs over traditional farming,” says Joe Lloyd, a rural research analyst at Savills in London. Many vertical farms don’t even require soil. Instead, farmers — usually in lab coats in the promotional videos — grow plants in a mineral-enriched solution.

But there is a catch. Unlike conventional farmers, vertical farmers must supply the light source and ventilation, which adds significant expense. iFarm, a Finnish vertical-farming startup, estimates that the power consumed per square meter is about 65.26 kilowatts per month, about the same amount of electricity that a typical house uses in 2.25 days, according to US Energy Information Administration figures. Not surprisingly, Grand View Research estimates that lighting vendors took 43 percent of global vertical-farming revenue.

Despite high lighting costs, vertical farming continues to grow rapidly. The market reached $3.89 billion in 2020, according to Grand View Research, which estimates that it will continue to grow by 20 percent a year through 2028.

Fortunately for vertical farmers, many of their backers are not looking for a quick return. “They’re not typical Silicon Valley investors,” says Peter Tasgal, a Boston-based agricultural consultant. Instead, he notes, the vertical-farm startups are bankrolled by some of the deepest pockets around, such as Google Ventures and Softbank’s $100 billion Vision Fund, for whom investing a few hundred million dollars can simply be regarded as an interesting experiment.

For real estate investors, the other crucial question as to where all those farms be located, is also unclear.

Former industrial cities seem to be the best bet. Most of the vertical farms in the United States have been located in lower-value cities, such as Newark, and Buffalo, N.Y., generally in light industrial areas on the outskirts of those locations.

Cushman & Wakefield speculated in a 2018 report that old manufacturing buildings and defunct shopping centers could be reborn as vertical farms, but acknowledged that the cost of refitting those properties could be expensive.

 

Bennett Voyles is a journalist and is based in Germany.

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