Here's Why Your Winter Produce Tastes Better

By PETER FROST 

 Nearly 7 million pounds of hydroponic tomatoes will be harvested this year from two 7.5-acre greenhouses in Rochelle, about 80 miles west of Chicago. Another new greenhouse in that small town is delivering greens, herbs and tomatoes year-round to all Mariano's supermarkets in the Chicago area. And on the South Side, a greenhouse atop a soap factory is producing 25 crops of leafy greens a year, the equivalent yield of a 50-acre farm in just under 2 acres of space.

The amount of local, sustainably grown produce available throughout the year in Chicago has never been greater. But it's still not enough, as health-centric millennials assert their dominance over the U.S. food chain. While greenhouses have long been a mainstay of fresh produce in Europe, the industry is still nascent in North America, where open, irrigable land is more plentiful. Substantial capital requirements and slim margins—especially in the early days of a controlled farming operation—can stymie startups and, in fact, recently caused one high-profile vertical farm to shut down in suburban Chicago. Still, an influx of venture and private-equity money is funding the erection of more greenhouses and indoor farms, mostly around big population centers like Chicago.

North America is expected to be the fastest-growing commercial greenhouse market worldwide through 2020, according to a report from market research firm Research & Markets. Globally, the industry is projected to grow at a compounded annual rate of 8.8 percent, reaching nearly $30 billion by 2020, the report says.

"It reminds me a bit of solar 1.0, where capital intensity is unknown or varied, and the industry is immature and unproven," says Sanjeev Krishnan, managing director of Chicago-based S2G Ventures, which invests in food and agriculture companies focused on healthy, sustainable and local food. But like solar panels, whose costs have come down substantially over the last decade, Krishnan thinks what he calls "controlled agriculture" is well on the way to proving itself as a sustainable business model. "We believe in the trend of growing closer to your demand center. It makes sense for logistics costs, (spoilage) and a product quality perspective."

Nearly 7 million pounds of hydroponic tomatoes will be harvested this year from two 7.5-acre greenhouses in Rochelle, about 80 miles west of Chicago. Another new greenhouse in that small town is delivering greens, herbs and tomatoes year-round to all Mariano's supermarkets in the Chicago area. And on the South Side, a greenhouse atop a soap factory is producing 25 crops of leafy greens a year, the equivalent yield of a 50-acre farm in just under 2 acres of space.

The amount of local, sustainably grown produce available throughout the year in Chicago has never been greater. But it's still not enough, as health-centric millennials assert their dominance over the U.S. food chain. While greenhouses have long been a mainstay of fresh produce in Europe, the industry is still nascent in North America, where open, irrigable land is more plentiful. Substantial capital requirements and slim margins—especially in the early days of a controlled farming operation—can stymie startups and, in fact, recently caused one high-profile vertical farm to shut down in suburban Chicago. Still, an influx of venture and private-equity money is funding the erection of more greenhouses and indoor farms, mostly around big population centers like Chicago.

North America is expected to be the fastest-growing commercial greenhouse market worldwide through 2020, according to a report from market research firm Research & Markets. Globally, the industry is projected to grow at a compounded annual rate of 8.8 percent, reaching nearly $30 billion by 2020, the report says.

"It reminds me a bit of solar 1.0, where capital intensity is unknown or varied, and the industry is immature and unproven," says Sanjeev Krishnan, managing director of Chicago-based S2G Ventures, which invests in food and agriculture companies focused on healthy, sustainable and local food. But like solar panels, whose costs have come down substantially over the last decade, Krishnan thinks what he calls "controlled agriculture" is well on the way to proving itself as a sustainable business model. "We believe in the trend of growing closer to your demand center. It makes sense for logistics costs, (spoilage) and a product quality perspective."

SHAKEOUT

S2G in August put about $4 million behind a combination greenhouse/vertical herb farm in Harrisonburg, Va., called Shenandoah Growers, and it's studying minority investments in unconventional growers. But placing bets in the field remains risky, Krishnan says, noting that many of the early players in greenhouse and vertical farming either have gone out of business or changed their business models. He expects additional shakeout over the next three years.

One local casualty was Bedford Park-based FarmedHere, which shuttered last month, largely because it didn't have enough capital to expand production and spread out its costs, says Nate Laurell, its former CEO. Laurell relaunched the company as Here, which turns would-be discarded produce from other growers into juices, salad dressings and spreads that have longer shelf lives.

Despite the demise of his farming operation, Laurell remains bullish on indoor and greenhouse farming's place in the food chain. "I really think it's like energy. It's not solar or wind or natural gas, it's all of it," he says.

He and others say there's plenty of room for smart operators that are backed with sufficient capital, due in large part to intractable secular trends in the industry.

"Right now the demand in the marketplace exceeds our supply," says Viraj Puri, CEO of New York-based Gotham Greens, which operates four greenhouses, including the 2-acre greenhouse on the roof of the Method soap factory in Chicago's Pullman neighborhood. The company, which sells lettuces to restaurants like Gibsons and Honey Butter Fried Chicken as well as grocers Jewel and Whole Foods Market, has raised more than $30 million and is exploring an expansion in Chicago.

Then there's MightyVine, which built a 7.5-acre greenhouse in Rochelle in 2015 and almost immediately after opening began an expansion that would double its size. It has invested about $20 million in the project.

Its tomatoes have earned their way into some of the city's higher-end kitchens, such as Rick Bayless' and those of Italian restaurants Il Porcelino and Monteverde. They're also sold in Whole Foods and Jewel in Chicago and supermarket chains in Iowa and Wisconsin and just launched in 49 Fresh Thyme stores this month, says CEO Gary Lazarski. "If we waited on the expansion, we knew we'd be in a shortage situation rather quickly," he says.

Its neighbor in Rochelle, BrightFarms, invested $10 million into a 3.7-acre greenhouse that grows lettuces, tomatoes and herbs, all earmarked for Mariano's stores. The company, which has raised more than $70 million since 2011, also has greenhouses in Virginia and Pennsylvania and is finalizing plans to build in Ohio and near Kansas City, Mo., says CEO Paul Lightfoot. "We expect more competition and more investors," Lightfoot says. "In the hot part of any market, you'd be a fool not to assume more capital will come in and more competitors will arrive."