Challenges of Vertical Farming

Plenty's announcement that it has filed for Chapter 11 bankruptcy protection was not a surprise, especially given recent news about non-payment to suppliers. However, it still is a disappointing end to the first act of a company that raised over $1 billion. The question now is whether Plenty® can rise from the ashes like a phoenix, and if its current situation is a statement on the company or the vertical farming sector. There is no doubt that Plenty made mistakes, including building a leafy green facility, which likely took away management time and capital from its focus on strawberries. The future for vertical farms in the US is unlikely to be in leafy greens, even if some companies are having success today. Most vertical farms, due to their higher CapEx (buildings and equipment) and operating costs (electricity), should be producing higher-value, specialty products (berries, forestry products, microgreens, specialty ingredients), rather than more commoditized crops (cucumbers, leafy greens, tomatoes). Vertical farming companies, like Oishii, are growing strawberries, and others, like AeroFarms, 80 Acres Farms, and GoodLeaf Farms, are growing microgreens. Plenty could rebound post-bankruptcy by leveraging its strategic partnerships with investors Driscoll's, the leading strawberry genetics company, and Walmart, the largest grocery retailer in the US. However, these relationships don’t guarantee success; Plenty has a difficult road ago and might end up in bankruptcy again. Given that AeroFarms, Bowery Farming, and now Plenty, three industry leaders that raised a combined over $2 billion, have filed for bankruptcy, the vertical farming is clearly facing major headwinds. The sector is bifurcating into those who are at, or have a viable near-term path to, profitability and those that are likely just waiting until the capital runs out to file for Chapter 11 bankruptcy protection. These latter companies will struggle to raise capital at a time when most investors are walking away from capital intensive companies with long paths to profitability. I predict that the sector winners will be ones that have raised less capital, likely at lower valuations, which forced them to be more capital efficient and use off-the-shelf equipment and standardized processes that are cheaper and easier to build and scale up. They also are likely to target higher-margin, less commoditized products, rather than competing in oversaturated markets that result in a price war where everyone loses. The vertical farming sector continues to face near-term challenges, but I remain bullish in the long-term as consumers look for fresher, healthier, and more nutritious foods grown sustainably and outdoor farming becomes more challenging and costly due to volatile weather and rising labor costs. https://lnkd.in/gYRHqwF9 EcoTech Capital #cea; #indoorfarming; #verticalfarming

What they’re saying about 2024: Henry Gordon Smith, founder & CEO of Agritecture “2024 was another year of reckoning for indoor agriculture and vertical farming. The industry’s long-standing reliance on venture capital collided with the harsh realities of scaling unprofitable business models, leading to another wave of high-profile closures and consolidations. While many touted “tech-first” solutions, this year underscored the limitations of over-engineered farms disconnected from the fundamentals of agricultural economics and local market realities. “Conversely, the most significant innovations came from players who embraced pragmatism: integrating low-tech approaches like energy-efficient greenhouses with high-tech systems like AI optimization, and expanding into overlooked crops such as berries and medicinal plants. “Greenhouses were big winners in 2024 and will continue to be while small vertical farms continue to pop up in cities across the world with modest success. One of the most paradoxical trends was the increasing investment from oil-rich nations into indoor ag. While these initiatives boosted technological adoption in arid regions, they also raised questions about sustainability metrics and long-term viability. If 2024 taught us anything, it’s that the future of indoor ag lies not in flashy tech or limitless funding but in disciplined, market-driven innovation that marries technology with necessity.” https://lnkd.in/dwaSsnmZ Thank you AgFunder 👍🏼

The recent bankruptcies of AgriTech companies like Plenty, AppHarvest, Bowery Farming, and AeroFarms highlight key mistakes that mirror those made during the dot-com bubble: - Overconfidence in Technology: AgriTech startups overestimated vertical farming as a silver bullet for agricultural challenges, neglecting the high costs of energy, labor, and the limitations of scaling such tech. - Unrealistic Market Expectations: These companies promised disruptive solutions without fully understanding the economic realities of farming, with high-tech methods proving too costly to scale. - Overreliance on Venture Capital: Much like the dot-com era, AgriTech relied too heavily on VC funding and debt, leading to cash burn and unsustainable growth. - Lack of Real-World Fit: Many technologies were too expensive and infeasible for broad adoption. - Hyper-Growth: The rush for quick scaling didn’t align with the long-term nature of agricultural systems. - Sustainability Overhype: The sustainability promises often failed, resulting in high costs and inefficiencies. This article examines how AgriTech must now shift towards practical, scalable solutions grounded in the economic realities of agriculture for true, long-term success. #RegenerativeProsperityModel #AgriTech #VerticalFarming #Sustainability #TechOverconfidence #MarketRealities #VentureCapital #Regenomics #GrowthVsSustainability #AgriculturalInnovation #SustainableFarming #FoodSecurity #RegenerativeAgriculture #SustainableSolutions

I had a really great time discussing Controlled Environment Agriculture (CEA) with Damian Mason and Adam Bergman on the Business of Agriculture podcast. I remain bearish on CEA and Adam remains bullish. As always, a bit of disagreement makes for great podcast fodder. We covered a lot of ground - here are the highlights: 1) CEA was one of the hyped sectors of AgTech (along with alternative proteins) - and the $7B that went into CEA over 5 years (2/3 vertical farming; 1/3 green house) is turning into a terrible investment in real time. Primary factors that caused the bad investments - media missed the fact that all CEA product has to compete with existing growers and supply chains (it was never a green field opportunity), investors did a poor job of due diligence (next round of investors - call me or someone like me to chat), and a lot of folks thought this was a tech play (it's not, it's a distribution play that needs to focus on taste and price). 2) The most interesting battle may not be between CEA and conventional soil growing - I predict it will be between green house and vertical farming. I believe that green house is in a huge advantage position in this battle with patient capital, years of optimizing product and economics, and a much lower operating cost structure (they use sun, vertical farming has to pay for electricity - and that cost is only getting higher). 3) The most interesting owner of the vertical farming assets may not be the original owner - it may be the third owner (after a second owner that gets the asset for a deal but has no business model - the third owner gets it for an even better deal and has a business model). 4) Future vertical farming startups need to focus on 2 sets of unit economics - unit economics of the facility (how much it costs to build and operate) and the unit economics of the resulting SKU at the retail level to the customer (needs to be at or below similar product with existing shelf space - incumbency has it's advantages). 5) I do think there are use cases for vertical farming - growing strawberries in the Middle East locally where it's hard to grow outdoor product and shipping comparable product via long-range air travel. But it's unclear how big the go-forward opportunity this will be given the current and likely future bad outcomes for a lot of the $7B already invested. How many more checks will investors write in this space? #agtech #cea #growereconomics Ann Donahue Julia Nellis Kara Timmins Emily Lyons https://lnkd.in/gH7h7Qg2

Whether you like it or not, vertical farming is transforming agriculture. But it's more than just growing plants indoors. It's about sustainability, efficiency, and innovation. Done right, it revolutionizes food production. So I thought I’d cover some key trends, challenges, and opportunities from spending the last 8+ years building vertical farms: ☑ Key Trends in Vertical Farming 1/ Technological Advancements Ex: LED lighting and hydroponics are making indoor farming more efficient. 2/ Urban Integration Farms are moving into cities, reducing the distance food travels. 3/ Sustainability Focus Less water, less land, and fewer pesticides compared to traditional farming. ☑ Challenges in Vertical Farming → High Initial Costs Setting up vertical farms requires significant investment. Ex: Advanced equipment and technology. → Energy Consumption Indoor farms need a lot of electricity for lighting and climate control. Ex: Balancing sustainability with energy use. → Technical Expertise Specialized knowledge is required to manage these systems. Ex: Understanding plant biology and technology integration. ☑ Opportunities in Vertical Farming → Local Food Production Fresh produce grown close to where it's consumed. Ex: Reduces food miles and improves freshness. → Year-Round Farming Controlled environments allow for continuous production. Ex: No dependency on seasons or weather. → Innovative Business Models New ways to think about farming and food distribution. Ex: Subscription services for fresh produce. We’re on the fringes of the mass public understanding the importance of vertical farming. But it’s time more people educated themselves on the topic. Hopefully, this little breakdown helped.

We are excited that the World Economic Forum has published our recent work on how supply chain optimization can help vertical farming succeed in the U.S. Why have so many vertical farming startups in the U.S. struggled or shut down despite the technology’s potential? This is a critical question troubling experts and policymakers, and our work provides some answers. Contrary to popular view, the challenge isn’t the technology. It’s about how these farms are structured and operated. High operating costs, inefficient logistics, and poor location choices have made it difficult for them to stay profitable. Our work leverages supply chain economics, data analytics and optimization techniques to show how smarter strategies (such as better location planning, resource optimization, and data-driven decision-making) can help vertical farms scale successfully and become both sustainable and profitable. So, the future of agriculture in the U.S. isn’t just about innovation in how we grow food. It’s about making sure we get it to people in the most efficient way possible. The research was lead by Professor Haitao Li, and thanks to Co-Investigators from the system. Check it out here: https://lnkd.in/efVkRcGD We’d love to hear your thoughts. How else can we make vertical farming more viable? World Economic Forum World Food Programme University of Missouri-Saint Louis USDA UNESCO United Nations Environment Programme Finance Initiative (UNEP FI) UMSL Supply Chain Risk and Resilience Research Institute - UMSL SCR3