11/2/2020

By Urban C Lehner , Editor Emeritus

Connect with Urban: @urbanize

It looks like some of the big boys in agriculture are finally taking vertical farming seriously.

Last month one of the biggest, the berry behemoth Driscoll's, became an investor in and joint venture partner of Plenty Unlimited, an indoor vertical-farming startup. (https://www.businesswire.com/…) (https://agfundernews.com/…) From Driscoll's and Japanese tech investor SoftBank, Plenty is getting $140 million, bringing its total funding to $500 million. More importantly, it's getting to work with Driscoll's on growing strawberries indoors.

Entrepreneurs have been trying to make a go of indoor vertical farming since 1999 when Columbia University professor Dickson Despommier and his students developed the concept. It seemed like a no-brainer to grow food close to where it would be consumed, with high yields on minimal acreage, with less water and fewer if any chemicals, without soil in some iterations, and without fear of droughts, fires, floods, frost or high winds.

The disadvantages were less obvious -- but debilitating. For conventional farms, the sun provides free photosynthesis. For farms inside buildings, the cost of artificial lighting is horrific, and the cost of climate control makes matters worse. An Irish researcher contends that in the United Kingdom, indoor farms require more than ten times the energy of heated greenhouses. He recommends rooftops for those who want to grow food in cities. (https://theconversation.com/…)

Other disadvantages include high costs for labor, rent, and capital-equipment depreciation. "Despite the advances that have been made in controlled environment agriculture, it isn't quite ready for prime time and many opportunities for innovation remain," a Cambridge Consultants paper concluded. (https://www.cambridgeconsultants.com/…)

Vertical farmers, venture capitalists, consultants, academics, and others are doing cartwheels trying to solve these problems. Plenty Unlimited uses wind power and solar cells to generate its electricity and has developed special forms of plastic LED lights. A University of Florida researcher is working on pulsing light -- five seconds on, 10 or 20 seconds off -- and seeing signs that it cuts lighting costs substantially without hindering plant growth. (https://theconversation.com/…)

While depreciation costs are high, capital is available; fearless investors are hurling money at the sector. Rent costs could start coming down, too. With the pandemic encouraging more work from home, there will be surplus space in office buildings. (On the other hand, some vertical farms sell directly to restaurants, which the pandemic has been hard on.)

Though making progress, vertical farming remains a tiny corner of the multi-trillion-dollar agriculture and food business. A market research firm estimated it at $212 million in 2019 and predicted it would hit $1.4 billion by 2027. (https://www.prnewswire.com/…) When I last covered this subject in 2015, many vertical farms were still losing money. It's likely many lose money today. (https://www.dtnpf.com/…)

All that said, vertical farming has come a long way in the last few years. Hundreds of operations have germinated and sprouted in countries around the world. There have been innovations in lighting and climate control.

After years of growing mostly leafy greens and herbs, vertical farms are preparing to add crops like potatoes, tomatoes, and blueberries. As vertical-farm pioneer Despommier wrote in the Wall Street Journal recently, "Vertical farms are no longer some futuristic fantasy." (https://www.wsj.com/…)

As an example, Despommier cited Infarm, a company that was started in Israel, is now headquartered in Berlin and employs 400 people in 40 countries, mostly European. According to Despommier, who serves as an unpaid adviser to Infarm, the company provides grocery stores with automated, hydroponic systems that allow them to grow food in their produce aisles.

"Each store selects its own mix of greens and herbs, and consumers are encouraged to choose, taste and harvest from a menu growing right in front of them," he wrote. You can't cut transportation costs much more or provide much greater freshness.

And now, to move the sector further forward, comes Driscoll's and Plenty.

You can see the benefits to Plenty in this deal. They go beyond the $140 million and the expansion into a new and promising product, strawberries. They're hitching their wagon to a company that controls about a third of the $6 billion U.S. berry market. It has proprietary genetics and a team of geneticists developing new products. It has a recognized brand name and marketing muscle; the "clamshell" berry package was its idea. (https://www.newyorker.com/…)

What does Driscoll's get out of the arrangement? Plenty, too, has plenty to offer a partner. It says its Laramie, Wyoming, farm -- where Driscoll's berries will be grown -- is "the largest privately-owned vertical farm research and development center in the world." Plenty says it's "currently building the world's highest-output, vertical, indoor farm in Compton, California." https://www.businesswire.com/…)

But why vertical farming in the first place? Bloomberg emphasized Driscoll's desire to learn robotics from Plenty, whose farms are highly automated. Labor is a big part of Driscoll's cost structure and immigrant labor is becoming scarcer in the U.S. (https://www.bloomberg.com/…)

The Financial Times pointed to the fires in Driscoll's home state of California. A Driscoll's executive told the FT that instead of moving a whole farm farther up the mountain to get away from them, it can move to vertical farms. (https://www.ft.com/…)

The FT also mentioned "deglobalization," by which it apparently meant that in the future there may be less cross-border trade in food. That would encourage big players like Driscoll's to produce locally. The FT noted that two of Driscoll's biggest markets are in Hong Kong and the Arab world. It won't grow berries outside in either place but could grow them vertically indoors.

Whatever the reasons, what Driscoll's has done is big. Of all the progress vertical farming has made over the last several years, getting the big boys in ag to take it seriously is arguably the most important.

Urban Lehner can be reached at urbanize@gmail.com