Vertical farming has seen its adoption rapidly accelerate over the past few years, yet it still remains a niche part of the agricultural industry. That will likely change throughout the next several decades as humanity’s demand for food, as well as the impact of climate change, will drastically alter the agricultural commodities market.

For instance, farmers around the world will have to increase their crop yields by 70 percent over the next 30 years to meet the demand from rising populations, doing so with much less water supply. The reality is that farms around the world will almost certainly have to do more with less in the future. Vertical farming’s efficient use of water and its ability to manage other scarce resources needed for successful cultivation make it a leading candidate to shore up the world’s food supply.

Crop yields can be maximized with indoor farms, as they are able to operate 365 days a year, while traditional farming methods are limited based off harvesting cycles and weather patterns. Additionally, since these structures are vertical, the number of crops grown per acre is significantly higher. Utilizing vertical indoor cultivation methods like hydroponics, which require no soil for cultivation, crops can be grown with roughly 10 percent of the water that is demanded by field-grown crops, per Produce Grower.

The Guardian notes indoor farming raised more than $1 billion in 2021, exceeding the combined funding generated in 2018 and 2019, and the industry is expected to grow to $9.7 billion worldwide by 2026.

Vertical farming enables the growing of crops virtually anywhere, even in desert climates where soil would not typically be suitable for harvest. In Dubai, the recently opened ECO 1 vertical farm, a 330,000-square-foot facility, is expected to produce 2 million pounds of greens per year in a country that currently imports 90 percent of its food.

One of the key problems facing vertical farming in some regions, however, is energy costs. A Rabobank study in 2021 found electricity will be the most significant outgoing for vertical farms across the board. The study suggested electricity accounted for 25 percent of the industry’s costs.

At present, there is only a handful of publicly traded companies in the vertical farming and hydroponic space, including Hydrofarm Holdings Group (HYFM), AppHarvest (APPH), CubicFarm Systems (CUBXF), and Kalera (KAL).

Shares of vertical farming firms as a whole have languished in 2022 due to rising interest rates, but the long-term value proposition remains strong given the ongoing deterioration of efficiency in traditional farming methods. Startups will likely struggle to raise as much funding as they did last year, when private markets and venture capital were hotter than ever, but those large raises should help many of the top-performing startups sustain operations for some time.

This article was excerpted from a McAlinden Research report. Access the full report here.