By Dr. Dawn Thilmany

and Elizabeth Thilmany

Wednesday, October 10, 2018

Vertical farming is an emerging niche in the food supply chain, defined as the practice of growing food indoors by controlling all elements of its development.

As vertical farms are stacked, multistory and typically aligned with large skyscrapers in densely populated urban areas, they can prompt mixed feelings about their aesthetics: Some observers believe they make urban areas feel green while others believe the structures will compete with their access to sunlight.

There are additional unique issues related to their role in food markets, the food environment and broader community impacts.

The nature of production

One potential benefit of vertical farming is its role in encouraging cities to become more self-reliant by producing at least some share of their food supplies. This may lead to more resiliency if there are natural or political events that disrupt our food distribution system. Plus, in an era of renewed interest in food-based economic development, a new generation of farmers may be attracted to vertical farming since their operations can be year-round and integrate high-tech solutions.

Still others see vertical farming as a potential innovation in real estate development — operations may be designed to be aesthetically pleasing, or, if rooftop development is used, permit buildings to conserve air-conditioning costs, and more broadly, help mitigate urban heat islands.

However, many potential benefits (eliminating food miles, reducing spoilage and food waste, better management of environmental implications from agricultural inputs) have yet to be evaluated.

Only a few successful vertical farms have been built, and both building and maintenance costs for a vertical farm are expensive, according to a 2014 article in the Journal of Agricultural Studies. In 2011, vertical farming pioneer Dickson Despommier estimated an upfront cost of $80 million to build a commercially viable vertical farm and over $6 million in annual energy expenditures (with other operating and labor costs above that).

One can quickly estimate that such investments are only possible if one is creative about the potential benefits that may accompany a vertical farming development, such as:

— A strong consumer base to create demand to provide a viable market for the local produce offerings as local produce is seen as a premium offering in mainstream food retailers and supply chains.

— The positive “spillovers”of such a real estate amenity, e.g., aesthetic, lifestyle or environmental benefits to the business, government or residential partners who may help offset the original investment of operating costs. For example, a residential building may see vertical farming as an amenity akin to a golf course or fitness center for its tenants.

— The multiple ways vertical farms can benefit communities economically — acting as a food provider to education venue to source of starter plants that expedite production on surrounding farms.

Consumers as a catalyst for change

We can address some of the research that has been done as a starting point to consider these economic tradeoffs.

Consumer research on food buyers is newly focused on where, how and even why people make their food purchase decisions and confirms that local food is a key driver for several food industry changes. For decades, there has been increasing evidence farmers markets were growing as consumers sought to reconnect with their food sources, but increasingly, local foods have been identified as a key market trend by food manufacturers, retailers and chefs as well.

Through farmers markets, community-supported agriculture and farmstands, direct-to-farmer consumer (DTC) engagement is found to be a value to a growing set of consumers — e.g., those who want to re-engage with their food producer, perceive direct purchases as higher quality or believe they can verify that the farms and ranches they purchase from are better environmental stewards or an important part of their local economy.

Direct markets are not always practical for producers (who have too much volume to sell or they live far from consumer markets) or consumers (who perceive barriers to the locations or prices of direct markets). Thus, the majority of consumers experience local food only in the context of intermediated channels, the term used for food hubs or distributors that broker local foods to mainline retailers, restaurants and other large buyers.

Within the U.S. food system, major food retailers see the integration of local foods into their product offerings as one means to compete, but local sourcing by retailers can be challenging as consumers rely on in-store signage, product labelling and/or recognized farm brands to identify local items.

Since retailers entering the local foods space will need to pay particular attention to clearly and credibly communicating their retailer-farmer partnerships, perhaps they will seek nearby sources, such as vertical farms that are visible to urban dwellers. Yet, it may require vertical farms to engage their communities, be transparent with their production processes, and align with other values that local food consumers seek (e.g., environmental benefits, returns to the farmer, healthful offerings and fair treatment of workers).

Since few locally oriented producers have the requisite scale and/or consistent quality to work with medium/large distribution or food retailer networks, vertical farms may be well-suited for intermediated local food sales. If consumers encourage their primary grocer to carry more local food offerings, vertical farms can seize the opportunity to be a key food source for their nearby retailers.

Vertical farming in communities

Urban agriculture, widely upheld as a solution to the food crises facing increasingly metropolitan populations, has seen a resurgence in recent years.

There are, however, potential disadvantages to this increasing drive for urban agriculture including associated urban health risks and threats to already limited water supplies. In response, cities such as Denver, New York City and Baltimore are bringing more permeable land to rooftops to capture and filter water in hopes of lessening the burden to overwhelmed sewage plants.

Clearly, the potential that controlled atmosphere systems, such as vertical agriculture, may have for addressing food security and economic development justifies a closer look, and public institutions are stepping up to that challenge. Expect to see more pilot programs of vertical agriculture aligned with real estate development such as Denver’s Green Roofs initiative (https://www.denvergreenroof.org/the-basics/), or technical assistance from land grants such as University of Maryland’s programs in Baltimore (http://extension.umd.edu/baltimore-city/urban-agriculture).

Still, it is important to realize these new innovations come with questions about best practices for production, and there is a need to develop a policy and regulatory environment that allows for this sector to operate effectively. As a response to new interest in urban farming as a potential food system investment in communities, the U.S. Department of Agriculture has developed toolkits that offer up resources for both urban agriculture producers (http://www.usda.gov/sites/default/files/documents/urban-agriculture-toolkit.pdf ) and the communities that want to assess their potential community and economic impacts (https://localfoodeconomics.com/toolkit/).

Dawn Thilmany McFadden, Ph.D., is a professor at Colorado State University and specializes in economic development related to food supply chains, focusing on market responses to consumer behavior. She has over 90 peer-reviewed publications and has presented to over 400 academic, industry, community and policy audiences. She is co-director for CSU’s Regional Economic Development Institute and worked with the USDA on many projects, most recently a Toolkit on the Economics of Local Foods (localfoodeconomics.com). She has provided leadership to the Colorado Food Systems Advisory Council, Agricultural and Applied Economics Association, the Western Agricultural Economics Association, and the Food Distribution Research Society.

• Elizabeth Thilmany is an undergraduate student at University of Maryland-College Park studying Agriculture and Natural Resource Economics and has conducted research with Colorado State University on adding value along the wheat supply chain for a Foundation for Food and Agriculture Research project. On campus, she is involved with the Food Recovery Network and the Sustainability Department.

For more information on local food consumers and vertical farming, please read:

Banerjee, C. and L. Adenaeuer. 2014. Up, Up and Away! The Economics of Vertical Farming. Journal of Agricultural Studies. 2, 1-21.

Bauman, A., D. Thilmany and B.B.R. Jablonski. 2018. The financial performance implications of differential marketing strategies: Exploring farms that pursue local markets as a core competitive advantage. Agricultural and Resources Economic Review. 1-28.

Bond, C., D. Thilmany, and J. Bond. 2008. “Understanding consumer interest in product and process-based attributes for fresh produce.” Agribusiness 24(2):231-252.

Despommier, D. 2011. The Vertical Farm: Feeding the World in the 21st Century, second ed. St. Martin’s Press, New York.