Vertical farming and the future of agriculture
Is vertical farming the answer to future food security challenges?
When colonies are established on Mars, it will be necessary to grow at least some food in underground rooms under cover of the Martian soil using hydroponics and artificial lighting. Due to the lack of a dense atmosphere on Mars, crops grown on the surface would be exposed to radiation that would cause mutations and damage the plants. Perhaps by then, the technology for producing food in a closed, controlled environment will already be commonplace on Earth. Why hasn't this happened so far? After all, the concept of hydroponics has been known since the 17th century. The thing is that traditional agriculture became quite efficient over the millennia and any additional control over the environment naturally increases your costs. Only recently, controlled environment agriculture (CEA) has become economically viable for some crops. Despite this progress, there is still plenty of room for improvement in terms of both crop yields and profitability.
In our previous post, we discussed how we applied sensitivity analysis to the field of all-electric aviation. Sensitivity analysis aims to identify the key factors that drive costs down for a product or service, in that case, passenger transportation. This post will do the same for vertical farming (VF). We have monitored this space for some time now and built operational models for various types of agriculture, incl. vertical farming itself, based on which we can find cost drivers and range them to get a sense of what’s important and what’s possible. One would expect the cost of electricity to be the most important cost factor for VF, but in the current most popular applications of VF tech (leafy greens), it is not. The yield factors (the growth cycle duration, pot density, and pot weight) are actually more important than electricity and water costs. Let us explain.
VF cost drivers
Vertical farming is a type of CEA that allows for indoor agriculture with precise control over all growth conditions, such as temperature, humidity, fertilizers, light duration, intensity, and spectrum. VF involves stacking trays of crops on top of each other, using space more efficiently. There are several types of soilless VF techniques, including hydroponics, aquaponics, and aeroponics. In hydroponics, a water solution containing nutrients is continuously flowing to deliver nutrition to the plant roots. Aquaponics is a combination of hydroponics and the production of aquatic organisms. In aeroponics, a liquid solution with nutrients is misted in air chambers where the plants are suspended. In this post, we focus on hydroponic VF.
It’s quite obvious that when you illuminate plants with artificial light instead of the sun you add a cost of electricity & some additional CapEx. The tradeoff theoretically shall come from more predictability (no dependence on weather), an ability to grow more cycles per year (optimizing plant’s sleep phase), automation, no pesticides and herbicides, less post-processing (you don’t need to wash plants grown in such an environment), control over the growth factors (light/water/fertilizers) that leads to better yields and recipes improvement based on data analysis. Recent advances in LED efficiency are also helping to reduce electricity bills.
Precise control over recipes leads to one clear advantage of VF - better taste and quality of products, so they might be sold in a premium segment, allowing for higher costs to be absorbed by the premium pricing.
Other important factors are logistics and perishability. If you only have 2-3 days to deliver a plant before it goes bad, you might be better off producing it a bit more expensively but locally. For some crops, it’s the only way to have them available at all. That creates an additional incentive for localization.
All that makes leafy greens ideal for vertical farming (VF). First, leafy greens have a short growth cycle, which doesn't include pollination and can result in up to 15 harvests per year. Second, leafy greens contain plenty of water and little carbohydrates, produced during photosynthesis. Therefore, their cultivation requires less light per 1 kilogram of produce and, as a result, less electric energy per 1 kilogram, than it would for high-nutrition crops like wheat.
So it does not come as a surprise that VF of leafy greens is already an established business with a market size estimated at $5.37B in 2022 and more than 2,300 farms by some estimates in the US alone (though we believe these estimates to be a bit inflated).
The sensitivity analysis
The cost components of vertical farming are well-defined and include expenses for water Cw and electricity Ce, depreciation Cd, personnel salaries Cp, rental costs Cr, expendable materials Cm, packaging costs Cp, commercial expenses Cc, and general administrative expenses Ca. Each cost component is a complex function of various drivers, such as the farm's technical characteristics, location, crops grown, equipment used, growth recipe, the density of plants (or “pots”) in the substrate (d), the pot weight (m), total growing area, the growth cycle period (cycle), material cost per pot, and so on.
As we already alluded to above, VF only works when a high enough yield reduces the importance of direct expenditures (most importantly, electricity used for illumination and ventilation). It suggests that the most effective way to make vertical farming more competitive with other forms of agriculture is to keep on increasing the yield.
In other words, when you substitute free natural light with artificial lighting you create an additional cost that shall be offset by either an increase in productivity or the ability to command higher prices. For those crops that overcome this cost barrier agricultural productivity and automation come into the foreground.
One interesting observation is that the freshwater price is one of the least important drivers. Water price is of little importance in VF because it is effectively used and recirculated. This is one of VF's competitive advantages compared to other farming methods. In the event of droughts the water prices will hit traditional agriculture hard. Looking at California's 2022 vegetable price hike, it doesn't take long to get an idea of the cost sensitivity of traditionally grown vegetables to water prices.
This quick overview suggests that VF might be great for growing plants that could be sold in a premium segment (taste shall matter a lot) and that have high water content, low nutritional value, and a quick growth cycle. These may include berries, cucumbers, carrots, zucchini, and melons. The most important price drivers for them will be the ones related to yield, i.e. growth rate, planting density, recipe optimization (i.e. using data analytics for determining growth conditions that boost yield and improve taste), etc.
So, Vertical Farming (understood in the sense we described: control environment, artificial lighting, etc) is going to have its place. It makes perfect sense for the production of fresh premium leafy greens, vegetables and berries, medicinal plants, and plants for perfumery. It also can be invaluable for places with a limited water supply and logistics barriers. But it’s safe to say that VF is not a futuristic answer for global food security challenges as it is sometimes presented.
Simplistically, plants used in agriculture are biological machines transforming inputs (most importantly, light) into chemical energy. The more energy-dense foods we consider, the greater the importance of free sunlight and the less sense artificial lighting makes.
But don’t get us wrong, we are not against controlled environment agriculture, we believe it is indeed the future as it’s the only way to increase the yield per unit of inputs all the way to the theoretical limits. That’s how agriculture becomes biomanufacturing - the predictable and controlled manufacturing of certain compounds through the utilization of biological systems. We are just skeptical about the specific kind of it when you ignore the free resource of natural sunlight.
It is extremely interesting to estimate what the theoretical limits of agriculture are and what types of CEA might get us there. What will allow us to utilize available resources in the most efficient way? Is it going to be some kind of greenhouse with next-level automation and a controlled environment? Can an inexpensive but calorie-rich crop like wheat be economically viable when grown in a controlled environment as opposed to an open field? Can we make it grow faster and utilize inputs better? What are the limits? Will CEA be overtaken by newer exotic technologies such as cellular agriculture?
In the upcoming post, we will delve into these questions. Stay tuned.