Two recent reports warn that if indoor farming cannot reduce its energy footprint, the sector could be killed off.
‘With their ability to fully control growing environments through LEDs, sensors, and HVAC systems, vertical farms achieve great control over the quality and consistency of their crop, says the new IDTechEx report. ‘However, vertical farms are notoriously power-hungry and require large amounts of energy to operate. These energy costs often form one of, if not the largest part, of their operational expenditure. Even before rising energy prices, many vertical farms have already found it challenging to achieve profitability due to the high costs of operation; with dramatic increases in the cost of energy, this could be the final nail in the coffin for many vertical farms.’
The IDTechEx report says that vertical farms need to decouple themselves from the price of gas, for example through greater integration of photovoltaics, and reduce energy usage. It also suggests that instead of producing low value lettuce and microgreen crops (as many commercial vertical farms currently do) the sector should focus on ‘crops that may not be possible through conventional agriculture, especially in cold Western climates.’
Another report from CoBank points out that while investment in indoor vertically stacked layers has ballooned in recent years, vertical farming operations have high capital requirements. ‘Costly technologies hamper their cash flows, and vertical farms still require manual labour and produce crops at a smaller scale, putting them at a cost disadvantage to traditional outdoor farms,’ say the authors. Their analysis, along with other published research, shows that most vertical farming operations have yet to demonstrate profitability.
‘While few vertical farms have yet to show it, there are viable paths to profitability,’ the report adds. ‘Survivors that have sufficient and reliable financing will be able to acquire low-cost liquidated assets. Successful vertical farms will also need to have a strong marketing pitch and brand-name recognition to command a premium price, all while being cost-efficient in production and distribution.’ It also warns that there is likely to be a lot of consolidation in the sector in the future.