Can Giant Greenhouses Help Feed Consumers? AppHarvest Wants to Find Out
AUTHOR Christopher Doering@cdoering
May 28, 2019
Jonathan Webb grew up in Kentucky, where coal production once dominated the landscape. But while the region and its economy have fallen on hard times as mines have shuttered and workers laid off, the 34-year old is optimistic that it can rebound through a business typically not associated with the hilly area: agriculture.
Webb's company AppHarvest is expected to start shipping its first crop — tomatoes — to 25 major U.S. grocers in the second half of 2020. It will eschew the outdoor fields typically associated with agricultural production, instead embracing controlled environmental agriculture by working indoors with sprawling glass-enclosed greenhouses using rainwater to grow food that will be non-GMO and chemical-free.
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Its first greenhouse, which will be 60 acres, costs $82 million to build. AppHarvest recently secured funding for the 2.76 million square-foot facility from Equilibrium Capital. It separately raised an undisclosed amount from ValueAct Spring Fund and Revolution’s Rise of the Rest Seed Fund, led by AOL co-founder Steve Case and author J.D. Vance, to run its operations.
The company's location in Appalachia is no accident. AppHarvest is less than a day's drive to more than two-thirds of the U.S. population — including cities such as New York, Philadelphia and Boston — lowering transportation costs by 75% and enabling it to compete against foreign imports. The inspiration for the project came after Webb noticed how high-tech greenhouses in the Netherlands produce much as 10 outdoor acres on just one acre.
As the population around the world increases and many consumers demand healthier foods produced in a more sustainable and transparent way, Webb said companies such as AppHarvest will be ideally positioned to benefit. Webb spoke with Food Dive about AppHarvest's future and how it is planning to tap into these trends while helping the local community and posting a profit at the same time. The interview has been edited for brevity and clarity.
FOOD DIVE: Why did you pick Appalachia to start this business?
WEBB: Building a produce hub from the ground up that we can all be proud of is going to be a lot easier than trying to untangle a mess that frankly some folks in the food business are currently operating. And if you walk into a grocery store and a majority of what's in the grocery store is not real food, you know, that's a problem. And, I mean, if healthcare is bankrupting our country, how do you get to the root of the problem? Well, in many cases, that's food, and it's unacceptable that healthy, fresh food is not accessible and available to everybody.
Jonathan Webb
Credit: AppHarvest
There's a lot of different complexity to our business and our approach and how we're doing this. But in essence, we're building in a region of the country that got walloped on the decline of coal, and we think these are some of the hardest working men and women of the country.
This region has been kind of lambasted by national media. ...We would like to think that our region is well positioned to be a solution in agriculture.
So [we are] going from that transition of an energy economy in this region to hopefully ... a major producer for fresh fruits and vegetables for the U.S. It's an area of the country that powered the country, and we'd like to think it's going to be an area of the country that will be able to feed large segments of the U.S. Being a part of a solution is an important thing for this region and we think growing indoors, growing in a controlled environment, has extreme benefits from a lot of different levels.
What are the benefits of growing fruits and vegetables this way?
WEBB: It uses 80% to 90% less water than open-field agriculture. We're able to use integrated pest management to where we don't need to use the harsh chemical pesticides. And then a big one is the trucking. I mean, it doesn't matter if you're on the left or the right side of the aisle, it's unacceptable that food gets trucked five days in this country to make it to a plate. That's not good for anybody. It's not good for the environment. It's not good for the quality of the food itself. We're blessed by our geographic position, where we can get to roughly 70% of the U.S. population in one day's drive.
Has your unconventional approach made it difficult to convince people to invest?
WEBB: The first investors were Steve Case and J.D. Vance, and since then we've taken on significant follow-on investment over the course of the year. ... Attracting investment is very hard ... but if you look at the macro trends in how we're set up differently than many of the other players in this business, as people peel back the onion, it (conversation) has become increasingly, "Wow, this is a really good strategy and a very good geographic location, both from labor and from how we can get access to markets with transportation."
And then there's the macro trends of 600% more people said they were vegan over the last five years and ... more plant-based foods sold in the U.S. year over year. It's a good time to be in the fresh fruit and vegetable business, and it's a really good time to get into controlled agriculture. I mean, look at the scares with lettuce. ... Look at Wendy's, how they announced all tomatoes need to be purchased from greenhouse production. There's many layers to the business that just are attaching onto these macro trends. ... We think we're in a good segment and we're pretty optimistic on what the next five to 10 years look like in this industry.
"[We are] going from that transition of an energy economy in this region to hopefully ... a major producer for fresh fruits and vegetables for the U.S. It's an area of the country that powered the country, and we'd like to think it's going to be an area of the country that will be able to feed large segments of the U.S."
Jonathan Webb
Founder and CEO, AppHarvest
How did you come up with this idea?
WEBB: I was in D.C. and kept having and hearing conversations about the Netherlands. ... As we peeled back and looked at the Netherlands, it was pretty shocking. I mean, to see a country that is one-third the size of Kentucky in landmass — I can fit the entire country of the Netherlands in eastern Kentucky — and they have the second most agricultural exports in the world is just completely shocking. ... It's a very robust, proven industry in Holland. ... Our planet is at a real peril point on many different places and we need to take the best ideas and deploy those ideas around the world as quickly as possible.
... By 2050, we might need 50% to 70% more food to feed our growing population. You know, people are saying we might need two planet Earths ... to have enough land and water to grow enough food. ... We have one planet Earth, so we have to figure out how to grow significantly more food with significantly less land and significantly less water. And we can do that with all the proven technology that's in the Netherlands.
If you look at the rapid build out in the solar and wind energy industries, I mean, solar was nearly the No. 1 job creator in the U.S. because of the construction jobs. And so, if we're able to replicate that ... and build at scale with controlled environment agriculture, there's no reason why $10 billion to $15 billion of development does not go in the U.S. over the next five to 10 years. There's a market for it. Grocers want regional production. Groceries and food service want food safety with controlled ag. And I think there's an opportunity to bring a lot of these specialty crops indoors, regionalized production, and build out at scale all across the country. ... There's an opportunity for many of us to kind of get together at the table and figure out how we can collectively push the industry.
Your first greenhouse is slated to open next year. What's next and when?
WEBB: We're trying to be somewhat quiet about the strategy in general, but you know, that's a big facility for us. It's a first flagship, one of the largest connected under roof. ... It's actually about 70 acres fully connected with the (area to pack the produce) and everything. ... We have a very, very, very large strategy. I mean, we are looking at sites all across the region. Phase one of development is that first project and we have a phase two development that we're going to be pretty aggressive on.
Credit: AppHarvest
Do you have plans to look outside of Appalachia and maybe consider other parts of the country?
WEBB: We're going to completely focus on central Appalachia. We want it to be the largest indoor produce hub of the U.S. and we think, "Look at what happened with the Netherlands." ... We've tried to, again, just talk to operators, talk to growers. Why is the Netherlands so successful? Why do they get so much efficiency? Because it's such a tight-knit community and they've done it in such a close tight-knit environment.
We're going to leave the West off the table. Let everybody else fight for that 30% of market where you've got a ton of production. We're going to focus on the 70% of the U.S. on the Eastern Seaboard, the Midwest and Southeast. And we can get to all of that in a day's drive from central Appalachia.
What crops are you planning to grow in your facility? Are you going to focus on specialty crops?
WEBB: Wheat, corn, soy, all those row crops will stay outdoors in the U.S. We believe everything else is going to come indoors and it's going to become regionalized. Is it going to take five years, 10 years, 15 years, 20 years? We'll see. We're going to focus on tomatoes, cucumbers, bell peppers, anything on the vine and then the specialty crops, the leafy greens, the herbs, the berries and strawberries. All can be grown inside these facilities. But for us out of the gate, we're going to completely focus on tomatoes. ... People are really paying attention that produce imports from Mexico have nearly tripled in the last 10 to 15 years.
Will the prices for your crops be competitive with other so-called conventionally grown methods?
WEBB: We're going to be selling to the largest ... 25 grocers in the U.S., and we're going to compete with conventional pricing. Our goal is to get fresh, healthy produce to the table of the majority of Americans. But we're bound and determined to make it affordable. Price is important, and we were going to be competitive with everything else that's on the market.
You plan to open the first facility in 2020. When do you anticipate having produce arriving in stores?
WEBB: It'll be in 2020. We'll be breaking ground on this first facility here in the very near future, and then we'll be operational in the second half of 2020, and we'll be on store shelves in 2020. We're going to be able to grow produce all year round, 24/7, 365 (days a year) in a controlled environment. We might go offline some in the summer to clean out the facility, but you know, we'll have the ability to run year round if that's what we choose to.
What do farmers think of your endeavor?
WEBB: We've tried to meet with local farmers and made it very clear that local farmers are not our competition. Our competition is 2,000 miles in the other direction (in Mexico), but we also want to be cognizant of the market in the U.S. ... There's a lot of production that goes online due to seasonality during those (summer) months. And so for us, we see the best price benefit and the best market opportunity in the winter months. ... We want to to situate ourselves best to satisfy market demands where a lot of the produce is not available in those colder fall and winter months.
I think for us there's been some big names that have announced, indoor growers that have gotten a lot of attention in New York and San Francisco and some of those big VC-backed companies. I'm huge fan of what they're doing. I think there's going to be a lot of winners in this market and anybody that can grow fresh food, whether it be hyperlocal or ... urban environments. There's a lot of excitement around indoor growing and controlled environment agriculture. I think there's a lot of opportunity in different segments of the market, but when it comes to production at scale, we don't really think it's going to be one of those companies in New York City or San Francisco ... that's going to feed the country.
"Our goal is to get fresh, healthy produce to the table of the majority of Americans. But we're bound and determined to make it affordable. Price is important, and we were going to be competitive with everything else that's on the market."
Jonathan Webb
Founder and CEO, AppHarvest
At the end of the day, are you a for-profit entity?
WEBB: We're a registered benefit corporation, so I don't just have fiduciary responsibility to our shareholders, but I also am able to do what I think are frankly just smart long-term business decisions. For example, we've made a significant investment at a high school in Eastern Kentucky and we put a container farm there. And why did we do it? We're pre-revenue, we don't even have tomatoes on the shelf.
In Holland, that culture of growing is so ingrained in society. ... You have to start early and have kids dreaming of what this industry can be. So for us, investing in more of these programs. It's not steel and glass or infrastructure that's going to define AppHarvest, it's the people of the region. And so for us, investing in communities in the region to create a culture of growing is critically important.
When do you expect to be profitable?
WEBB: We plan to be profitable in our first year. ... In order to have impact and be mission oriented, we've got to have a return for our investors, and so as long as I can show that this business is profitable, we're going to be able to do all of this other impact work. It's very important to us.
You operation seems to check a lot of the boxes popular with consumers such as chemical-free, non-GMO, less water consumption.
WEBB: Consumers are becoming more aware of what they're buying at the grocery. I think mothers and fathers are becoming more aware of what they're putting on their table. ... A lot of people in the agriculture industry do not want you to know the way your food is produced and they don't want you to know where your food comes from because it is dirty, it is messy.
With what we're doing, we want to be as transparent as possible, and we think the way we farm is going to sell our produce more than anything. I want people in New York City or in D.C., or wherever they're at, to know they're voting with their dollar. And by voting with your dollar, you can put healthy food on the table for your family and you're also supporting very important work in our community.
We want people to know how we're running our operation. And so it's important to us that minimum wage in our greenhouse for even entry-level employees is going to be $13 an hour, plus health benefits. And we're going to have upskilling classes in the nights and weekends. That's the way farming should be.
We've got a farming system in the U.S. where it's messy and we can't be proud of it. And I think you look at some of the labor practices that go on around the country and some of the labor practices south of the border and some of the chemicals. There's harsh chemical pesticides that are legal in the U.S. that are being used on farms and other countries. ... App Harvest is certainly not going to be perfect, but we're going to try our hardest to be very intentional about our growing practices and allow people to be proud of what it is they're putting on the table for their families.
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