9 Reasons Why Vertical Farms Fail

9 Reasons Why Vertical Farms Fail

by Chris Michael | Feb 20, 2017 | Farm & Business Planning | 0 comments

First annual “Aglanta” event shines light on “shuttered” farms

This weekend 200+ urban farmers, policy makers, industry professionals, and good food advocates gathered in Atlanta, Georgia for the first annual “Aglanta” conference.

A highly promoted and anticipated segment of the event featured a unique panel titled: “An Examination of Shuttered Vertical Farming Facilities.”

The panel, hosted by industry commentator blog Agritecture provided a platform for three unique case studies with one overlapping theme: Tales of why vertical farms failed.

Watch the full panel discussion here >>

The panelists, including Paul Hardej, Co-Founder of FarmedHere, Mike Nasseri, Harvest Supervisor atLocalGarden, and Matt Liotta, CEO of PodPonics, took turns weighing in on several questions selected and facilitated by Agritecture’s Community Manager Andrew Blume, who moderated the event.

In this post, we’ll examine each panelist’s perspective to provide a detailed summary of the top 9 reasons each of these vertical farms ultimately failed.

1) Location, location, location.

Whether you’re talking about buying a house or building a vertical farm, choosing the right location iscritical.

After all, the whole reason you’re building a vertical farm is to grow crops closer to market and meet thedemand for fresher food. If demand doesn’t exist, then Poof! There goes your business feasibility.

On the other hand, imagine that you do have fantastic demand for local food. That advantage is often eclipsed by the inability for local farmers to start farms in or around where people actually live. Several obstacles stand in the way of urban farmers when tradition soil-based farming is impossible because of…

• … high cost of land.
• … poor soil quality.
• … inherent risk of uncontrollable factors.

Amplifying these disadvantages of urban farmers are the facts that unlike giant established and well-funded farms, the little guys can’t always afford the levels of insurance, permits, and “Plan Bs” to protect themselves from that risk.

Vertical farmers, however, have the unique ability to sideline these constraints by leveraging high density growing technology and taking control of their growing environment.

That said, just because the technology and techniques exist to grow food anywhere, the aspiring vertical farmer still has many questions to answer in order to get the location recipe just right.

Location question #1: What am I growing and for whom?

This is the most fundamental question for all startup farmers to ask, regardless of their growing technique.

Although we’ve said this for years, it’s worth repeating once more: 
If you can’t sell it, you shouldn’t grow it.

Whether you win or lose in your commercial farming venture comes down to being able to sell your produce, not just grow it.

So before you ever put down roots, it’s critical you do your market research to find out what your markets can’t get or needs more of, who your customers will be, and the potential prices you could charge.

Doing so will either save you a lot of money and heartache by telling you your idea isn’t worth pursuing or give you the green light on your farm planning journey.

Location question #2: What’s my distribution plan?

In addition to matching your crop(s) to market demand, it’s important to understand how you’ll physically get your produce from your facility to your customers.

Doing so requires that you know who your end customers are and keep your farm location as close to them as possible.

If you’re selling direct to consumer through a CSA (community supported agriculture) for example, your farm should be located as close to the community you’re serving as possible.

If you’re selling specifically to restaurants, you want your farm close to the restaurant(s) you’re serving.

If you’re selling direct to grocery stores… you get the point.

However, one exception here is if you decide to sell to these customers through a wholesaler or distribution partner, as was the case of PodPonics’s first farm.

Even though their farm was growing for local restaurants, they chose to do so through a distribution middleman which took his product across town to their warehouse only to return to the restaurants down the street.

This logistical oversight made Liotta change this thinking about farm locations. Instead of establishing a farm near the end consumer, he opted instead to set up their operations closer to their distribution partners.

“It’s about being at the point of distribution, not at the point of consumption.” — Matt Liotta, PodPonics

For new farmers, the lesson here is about knowing not only who you want to see consuming your food, but also how they’ll get it. For PodPonics, once they grew large enough and began selling through a distribution partner, the middleman essentially became their customer.

Location question #3: Will my building meet my farm’s needs?

Once you’ve nailed down the proximity to market question, it’s time to start searching for the right facility in the geographic area you’ve selected.

Indoor controlled environment farms often require substantial amounts of power and the fact is not all buildings are equipped with the type of electricity at the capacity these facilities require to operate.

When searching for a facility, it helps to know exactly what type of equipment you’re using and the energy requirements of each.

Before making a decision on a building, you must know how much power you’ll need to support your growing equipment, lighting, pumps, HVAC, automation equipment, dehumidifiers, fans, computers, etc. Growers serious about scaling up should also consider any increases in power requirements for future expansions.

Depending on the equipment you choose, should be paired with a qualified rep that can help you identify not only the best equipment t0 meet your farming goals, but also work with you to identify your electrical loads.

Having these exact numbers will allow you to seek out a building with the proper electrical capacity to make your farm work the way it should.

The bottom line: Both your geographical location and the physical space where you decide to install your vertical farm should be carefully considered. Your business will not get off the ground or go very far without a good location.

Looking to dive deeper? This video will walk you through some of the considerations for the proper indoor farm facility.

2) Choose a pricing strategy based on value.

One of the most important coaching conversations we have with our growers is about how they should price their products.

It’s a common instinct for new farmers to simply survey the prices on grocery store shelves and price their product to compete.

And Matt Liotta of Podponics shared that same gut instinct.

“We got into the market trying to compete with the California growers so we priced our product exactly the same as them… Our focus was to try and sell at the same price as everyone else, and try and lower the cost of producing it,” Liotta said.

But that’s fundamentally the wrong approach and Liotta admits it cost Podponics a lot of profit margin on their produce.

When we tell our farmers they should actually avoid competing with conventional growers, they often give us a confused look.

They forget that their product has significantly fewer “unknowns” to it and customers perceive local products as a fresher, more trustworthy option.

Their produce was not grown in some unknown field using unknown chemicals handled by unknownpeople and shipped for hundreds if not thousands of miles to sit on the shelves for an unknown amount of time.

Today’s consumers have even been shown to shell out more for the increased benefits of quality, transparency, and peace of mind.

It’s a fundamentally better product and it should be priced accordingly.

It’s important to remember that pricing is as much about customer perception as it is about profit margins. Both must be considered and play into how a local farmer communicates their value proposition through branding marketing.

The bottom line: Your pricing should match the quality of your product, not the status quo. With the right system and distribution strategy, the local product you produce should be better than anything else on the shelves and it should be priced to reflect the increase in value.

By growing and selling locally, our farmers are delivering a fundamentally different product, one that eliminates the unknowns and gives customers peace of mind.

3) Focus on trying to do one thing well.

A common pitfall of many vertical farms is attempting to do too many things at once. They want to grow food for market while productizing and selling the technology they’re using to grow their food.

The lesson may seem to only apply to bigger farms, but we’ve seen this time and time again with small producers too, albeit in different ways.

Know your “why”.

New farmers must understand they have only one goal:

Sell good food. Everything else comes second.

The more time, attention, and money you spend trying to productize the system you’re growing with, the less time you have to delight your customers with fresh, local food.

The same goes with decisions about which equipment to use to accomplish this goal.

Unfortunately, we’ve seen dozens of hard-working farmers invest their time, energy, and financial resources into half-baked ideas that ultimately fail, taking their money and dreams of starting a farm down at the same time.

Despite flamboyant claims about “plant sites” or some unfathomable acreage equivalent, choosing to use unproven technology is another way new farmers lose focus on what’s important: Their ability to grow and sell food.

The bottom line: Farmers can either grow food or develop technology- not both. Attempting to do both, as shown by all three panelists, ends poorly. Farmers who waste time on unproven systems or tinkering with their own tech instead of acquiring customers will ultimately end up out of business due to losing sight of their core objective: Selling food.

4) Labor is always your biggest cost.

We’ve said it a thousand times: Don’t overlook your labor costs!

Reflecting on their own “shuttered” operations, each of the three panelists echoed this warning about labor with gusto.

Matt Liotta of Podponics event went as far to say that “People are the problem,” when describing the challenges of balancing operating expenses and proper farm management.

All three panelists experienced similar challenges when discussing the workers on their respective farms. While the wages ranged were relatively low (ranging from $9-$15/hr), the costs added up quickly when paired with the growing techniques in use.

Many of the failed farms in question ignored ergonomics and were the opposite of efficient for humans to be working in. Multi-layered systems with grow beds reaching to the ceiling meant that farmhands had to travel up and down on a scissor lift to perform basic farm operations like planting, inspections, maintenance, and harvesting.

An excerpt from “The 4 Factors of Vertical Farming Success” warning would-be vertical farmers about system configurations increase the cost and complexity of performing basic farm tasks.

And don’t get the panelists started on scissor lifts…

The mere mention of the word sparked a heated conversation ragging on the clunky, expensive, and unclean nature of the machine.

“Scissor lifts are not an ideal solution, stated Mike Nasseri, Harvest Supervisor a Local Garden, a mechanically complex Vancouver-based farm that declared bankruptcyback in 2014. “Don’t use scissor lifts. Find another solution, please.”

Adding to that, Matt Liotta chimed in: “It’s very telling that Aerofarms, the big farm in the news right now is using scissor lifts,” citing the operational constraints of the world’s largest indoor farm. “Absolutely don’t use scissor lifts,” he said.

Of course, if you’ve talked to our team in the last 4 or 5 years, you’ve probably been steered away from these dangerous machines and the inefficient systems that require their use for everyday operations.

We’re much more fond of systems that enable growers to spend less time going up and down on a scissor lift, and more time working with their plants or getting more customers.

But won’t automation solve a lot of the farm labor issues?

Maybe, but probably not. At least not for the majority of small producers.

The fact is automation equipment requires massive capital investments to build and then requires highly skilled labor to operate and maintain it over time — both of which are in short supply at most local farms.

And why rely on automation to make your farm economically viable? That’s a question that tends to stump those obsessed with minimizing the cost of human labor. But perhaps there’s something to it…

Instead of asking how can we lower our operating expenses of performing farm tasks, we should be asking: how can we design a system that doesn’t need automation to function economically?

The bottom line: As a farmer, you need to implement a system that reduces labor costs and does not require you to install and maintain expensive automation technology to be economically viable.

“Don’t use scissor lifts. Find another solution, please.”  — Mike Nasseri

5) Quality farm labor requires quality farm education.

To make the labor equation work, local farmers need a reliable, capable workforce to help them with daily tasks like planting, harvesting, and packaging.

One of the most fiery points made during the entire panel occurred when Matt Liotta discussed his experiences with low-wage labor citing examples of disgruntled farmhands missing work because of court dates and sabotaging the system’s nutrient solution out of frustration. He and Hardej made it very clear that finding and developing quality farm laborer is critical to operating a farm with as few hiccups as possible.

But finding capable labor to make a local farm work is a difficult task, especially if you as the farmer aren’t exactly an expert yourself.

Things like how to grow hydroponically, how to find customers, and how to manage your farm business are all areas that most farmers need help with.

That’s part of the reason why we createdUpstart Universityover two years ago.

At that time, we had been working with farmers long enough to know that there were some significant, yet common gaps in the knowledge of both our farmers and their workers.

The courses we began creating back then are now helping over 1,200 students learn how to plan, launch and operate a modern farm every month for the price of a few coffees each month.

The bottom line: It should be clear by now that labor poses a significant challenges for local farmers and hiring workers without the knowledge they need to succeed will only pour fuel on the fire. To continue growing at the trajectory it’s currently on, the indoor/vertical farming industry will need even more accessible education opportunities for training and developing their farm laborers as well as business managers.

6) Treat your farm like process.

One of the biggest arguments we made in the 4 Factors of Vertical Farm Success (a free ebook), was the importance of creating an efficient farm layout and workflow. The same sentiment was echoed throughout the presentation by all three panelists.

Treating the farm like a manufacturing process, as opposed to an art form, means that you’re treating it like an optimization problem.

In today’s technology-based modern farming world, we all know that production is not the problem.

Growing in controlled environments and providing proper plant nutrition allows modern farmers to produce crops with astounding consistency and quality.

The real issue these three farmers faced was not “Can we grow it?” but “How do we run the growing operation efficiently and minimize cost?”

These are two fundamentally different questions with the second incorporating the complexity of humans working on the farm.

An excerpt from “The 4 Factors of Vertical Farming Success” on the importance of treating your farm like a manufacturing process to increase labor efficiency.

As mentioned above, the conventional way of “vertical farming” that uses stacked layers puts farm owners and their laborers at the mercy of expensive and dangerous scissor lifts in order to access their crops.

These types of production methods are totally inefficient because of the time spent traveling up and down aisles and between layers to do everything from the initial planting all the way to the harvest, and everything in between. Such complicated workflows reduce efficiency and increase labor costs,

When asked what he would do differently the next time around, Paul Hardej of FarmedHere said he would avoid building such a tall system that requires lifts to provide basic access.

Instead, he would think about any future vertical farm as first and foremost a “manufacturing and production process.”

The bottom line: When evaluating farm equipment options, it’s important to see past production. Every system can grow crops, but not every system can optimize your workflows and maximize labor efficiencies. We discuss this idea in much more detail in the 4 Factors of Vertical Farm Success.

7) Data is useless unless you can put it to work.

There seems to be an entire subset of the rapidly growing AgTech industry that is straight-up batty over data. And rightly so.

The proliferation of sensors and cameras to glean ever more data from a controlled environment farming operation is opening up new doors for improving yields and process.

The problem, however, comes with an obsession of collecting data without an intended use or without the hardware behind it to leverage it effectively.

What’s more is that these types of data collection systems require significant amounts of capital and time to deploy, time and money that most local farmers don’t have.

Data helps inform decisions, but don’t bet the farm on it.

Data is actually the one area that granted each of these “shuttered farms” some hope.

Podponics, for example, used data to analyze and augment their production technique for lettuce to reduce labor time during the harvest.

FarmedHere also leveraged data systems to collect and provide helpful insights to improve their farm’s yields.

Both farms stated that while new technology can certainly be used to the advantage of a new farmer, data and tech alone won’t save you. It’s up to the grower to find a system that produces the yields they need at the cost they can afford to sell to the customers they’ve found that are demanding it. And right now, no single data-driven growing solution can remove the farmer from this set of skills.

The bottom line: Local farmers should not rely on data to save them from an inefficient farm setup or their inability to sell their crops. Data can amplify and accelerate a farmer’s production and sales, but only if they have the infrastructure in place to use if effectively.

8) Is Organic dead yet?

For a long time, our team has been coaching farmers to reconsider the cost of an Organic certification and instead spend that time and money working to form real relationships with customers.

Why? It’s not that we don’t see the value in the certification on it’s own, we just have yet to meet a customer who wants organic food.

What customers really want is transparency and to trust that the food they buy and consume is safe, nutritious, and grow in ways they can support.

They don’t want a label, they want certainty. We’ve been given a label as a proxy but what we wanted was trust and security.

Buying from a local farmer gives them greater feelings of security because they can visit their farm and shake their hand.

That’s part of the reason why Liotta stated that “local is worth more than organic.”

This statement promptly triggered another back and forth between the Podponics CEO and the FarmedHere Founder as they discussed everything from consumer perceptions to pesticide use.

And yet, Hardej, who helped FarmedHere become the first Organic-certified aquaponic farms in the U.S.,— a feat that demands the respect and gratitude from anyone in the modern farming movement — had a different opinion on the value to consumers. He knows first hand that consumers want to buy brands they feel are the healthiest and safest option and that often means organic.

In the end, however, he too conceded that “local is the new organic.”

The bottom line: Consumers have lost trust in the conventional ways of growing food and labels like organic are a poor and increasingly confusing substitute for true transparent farmer-consumer relationship. This type of trust and transparency is only truly available with local options.

9) Greenhouse vs. indoor? Aquaponics vs. hydroponics? It’s not that simple.

Towards the end of the panel, there was some discussion about production techniques and facility types and which was the best for modern growers.

The table was divided along the typical lines of aquaponics vs. hydroponics with arguments lobbed in each direction about which was a viable commercial technique when aiming for profitable production.

There was also some discussion about the marginal cost of producing food in a greenhouse vs. an indoor facility, with the bias towards indoor, highly controlled production.

From our experience, however, getting into a philosophical discussion along each of these battle lines doesn’t end up going anywhere.

There will always be those outspokenindividuals who prefer one over the other and don’t hesitate to tell you which one youshould choose for your farm.

But the important thing to remember is that every situation, every location, and every local market is unique and so should be approach when making these two fundamental decisions.

As a new startup farmer, it’s your responsibility to evaluate your unique situation objectively. That includes your climate, your initial investment, your desired level of operating complexity (aquaponics, of course, being slightly more complex production technique), the cost of electricity in your area, your market’s sensitivities about price and preferences, etc.

Our team has helped hundreds of farmers make this decision through an advanced costs/conditions calculator and we can help you too if you need more than just a talking head for guidance. We even have a free webinar that helps walk you through this exact question.

The bottom line: Everyone has their own answer to these two questions. To establish a successful farm, you must eliminate subjectivity from the decision and evaluate all your variables carefully to avoid choosing a technique or facility that reduces your ability to flourish.

Conclusion: The future is bright for vertical farming

If you’ve been paying attention to the vertical farming industry over the last few years, you know that it’sjust starting to take off.

There are new companies emerging every day promising to deliver new solutions in every subcategory from growing equipment, lighting technology, climate controls, data, sensors, automation, consulting, and much more.

If one thing is clear from this post, it’s that we’re all still learning. That’s the beauty of fast-growth, nascent industries.

Vertical farming, in a lot of ways, is the next frontier of agriculture.

It’s one of the most promising ways to get fresh food into our cities and food-insecure places like Alaska and other often overlooked food deserts.

By exerting more control over the growing environment, making better use of our resources, and implementing smart, labor-efficient growing technology, I believe we’ll see some tremendous strides made toward greater access to better food for anyone who wants it.

I personally want to thank the three panelists involved in the Aglanta event for their courage, selflessness, and willingness to talk about what are undoubtedly painful outcomes to ideas they invested much of their lives pursuing.

It’s through collaborative forces that we’ll be able to keep pushing the boundaries of what vertical farming is and how it can help us achieve amazing things.

Ready to get started in vertical farming?

Here are few places to start:

Upstart University & The Upstart University Blog — As mentioned above, this is an online learning platform for aspiring modern farmers who are serious about starting their own farming business. The courses are all super accessible and we add new material every month. It’s seriously the best (and cost effective!) investment you can make if you’re ready to move from idea to business. Join over 1,200 students for $9.99/mo or just start by reading our helpful blog posts for free.

“Hydroponic Food Production” by Howard Resh — This is a great guide for serious hydroponic growers. Resh wrote the book on hydroponic farming (literally) and you’d be wise to pick up a copy for those tricky soil-less growing questions.

Bright Agrotech’s eBooks (some free, some paid) — Over the last 5 years, our organization has worked with hundreds of modern farmers starting and scaling vertical farms. In the process, we’ve identified some of their toughest challenges and created high-quality ebooks, guides, and even workshops to help them find solutions. We’ve got guides on business planning, post-harvest produce handling, and full crop guides that tell you what specific crops need to grow successfully in hydroponic systems. Again, these resources are not for the average hobbyist just looking for low-quality, anecdotal info on the internet. These are for serious growers that are seeking real results.

Over 300+ free videos on YouTube — If you’re looking for answers to specific questions or more insight into what makes farms using ZipGrow technology work, you can swing over to our YouTube channel where you’ll find over 5 years worth of dedicated modern farming content. We started the channel way back in 2011 because we were sick of all the BS out there in the aquaponic growing niche and we decided to do something about it. Over 5 years later, we continue to push out 2–3 videos per week on topics ranging from indoor farming, LED lighting technology, quick tips from real farmers, and much more. Check it out and hit subscribe if you find these helpful.