Vertical Farming: Is The Industry Learning From Its Mistakes?

/AGRITECTURE.COM EXCLUSIVE/

by Chad Sykes

A debate about vertical farming has recently started to find its way into public discussion by many respected people in the industry, such as Joe Swartz from American Hydroponics and Nate Storey, Chairman of Bright Agrotech. This debate hasn’t been lost on journalists either who have started asking the question, what is “the verdict on the value of vertical farming” and “does vertical farming make sense?” I’ve decided it’s time to share my own personal opinions on the subject of vertical farming in an effort to help shape the ongoing debate and maybe help others from making a huge financial mistake.

So, what is the verdict on vertical farming? Well, I honestly think the jury is still out, but there is more than enough evidence to at least suggest what works and what does not. The problem today is that more often than not, the industry is selling a dream and not the honest reality. I’ve been in this industry since the very beginning and watched it evolve, so hopefully sharing my knowledge will prove useful and prevent people from buying into the dream because it can quickly become a nightmare.

THE BIRTH OF VERTICAL FARMING

It was late 2008 when I was first introduced to what has now become widely known as Vertical Farming, or more technically accurate, Building-Integrated-Agriculture. The Company was Angel Eyes Produce, whose CEO Andy Maslin had reached out to me for some help in marketing his Company to investors. At the time I was running a boutique investor and public relations Company taking on unique and interesting clients. Andy was operating out of a small 3,000 square foot warehouse in upstate New York growing a variety of crops indoors under fluorescent light and selling them through his local farmers market. My first visit to his farm was in the winter, with three feet of snow outside his door. I was enthralled, to say the least.

To the best of my knowledge, Andy was the first true pioneer of small scale vertical farming in the U.S. The idea was unheard of at the time and finding willing investors proved to be quite difficult. I couldn’t help Andy raise the money he needed and he eventually fell victim to some people who exploited his efforts. Today, Andy runs 2445 Organics with his family in Massena, New York. I haven’t spoken to him in a while, but meeting him changed my life.

VERTICAL FARMING GOES BIG

Fast-forward a couple years to 2010 and everyone is talking about Dickson Despommier’s book The Vertical Farm: Feeding the World in the 21stCentury. In the U.S., the big players in vertical farming that I started closely following were TerraSphere, Aerofarms and VertiCrop. These new farms represented a far more complex model than I had seen Andy attempting with Angel Eyes Produce. This new breed of vertical farms tried to go big and commercial with tons of automation and complex systems. For the next three years a competition of sorts broke out and everyone was vying for the title of the “largest vertical farm.” Most of these expensive, highly automated vertical farms would eventually begin to fail and lessons were learned by these early pioneers.

New players that came into the market watched these failures unfold in real time and developed less complicated and less costly vertical farms such as Green Spirit Farms, FarmedHere, Ecopia Farms and Green Sense Farms. This new generation of vertical farms reminded me a lot of Andy’s farm but these farms were being attempted at a much larger scale. 3,000 square feet gave way to 20,000 square feet and now farms were being built with over 10 layers, whereas Andy’s farm only had two or three in most cases. Investors had finally started warming up to the concept and more and more money was becoming available to start-up’s claiming to have the next greatest vertical farming idea. Vertical farming had finally started to gain some traction. It was an exciting time for all of us in the industry.  

JUMPING INTO THE FRAY

In late 2011, I decided I would join the vertical farming movement and I founded Indoor Harvest Corp. The original idea for Indoor Harvest was to combine a vertical farm with a café. The idea was simple, use the vertical farm as a marketing tool and offer fresh produce under a traditional café model that would serve soups, salads and sandwiches. In developing this idea, it became obvious there was more opportunity in the methods and processes of vertical farming than actually running one. So, while everyone else was going for the title of biggest vertical farm, I realized the industry technology was evolving too quickly to jump in as an operator so I turned my focus towards research and development. I started looking at ways to innovate vertical farming and build relationships and research and development partnerships to expand my knowledge base.

In 2012, I began conducting research and development with high-pressure aeroponics. I had been inspired by Richard Stoner’s work with Agrihouse and NASA as well as Aerofarms. However, I wasn’t satisfied with any of the existing designs so I began looking at how the method could be improved and better scaled. Those efforts caught the attention of a research scientist at the Massachusetts Institute of Technology’s Media Lab which led to an agreement and the commissioning of a research platform for OpenAg, formerly known as MITCityFarm.  Working on this project I learned something quite valuable, a grower could manipulate the chemical expression of a plant by combining aeroponics, LED lighting and environmental controls. In late 2014, I took that knowledge and began working with Canopy Growth Corporation to test the potential of aeroponics and environmental controls for cannabis production.

In 2013, I was the first U.S. based Company to join the newly formed Association of Vertical Farming. I was there, mingling and sharing ideas with the people that have now gone on to do big things in the industry. Unfortunately, my subsequent involvement in the cannabis industry has caused political issues for me personally in the vertical farming space.

I could probably write an entire book on my work in the vertical farming space if it wasn’t for all the NDA’s I’ve had to sign. I’ve had the pleasure of working with numerous big names in vertical farming, albeit mainly from behind the scenes due to cannabis politics. I’ve been invited to tour several major name vertical farms and asked to provide feedback. Now I want to share some of that feedback publicly in an effort to promote better adoption, dispel some myths and maybe help the discussion currently taking shape.

LESSONS NOT BEING LEARNED

Back when I first started, the vertical farming industry was lucky to get a published article once a month. Today, it’s not uncommon to see a dozen articles in just a single week. It’s safe to say that vertical farming has reached a critical mass. Unfortunately, the hype is creating a dangerous bubble which threatens to put the industry back several years. With Silicon Valley money now pouring into vertical farming because of the hype from technologists, everything is changing. Many of the mistakes we made five years ago are still being made today by these newer entrants. In many cases, people are simply reinventing and repackaging failed ideas. This is happening due to a new influx of investors not familiar with the history of the industry and new entrants copying what they have seen others do. Recently, there was an excellent panel hosted at the Aglanta Conferencewhere vertical farming pioneers discussed the challenges facing the industry. 

Here are a few things I believe the industry needs to hear:

• Small Vertical Farms are at best a hobby that pays for itself, at worst it’s a financial nightmare for the operator. With that said, there are certainly some successful small-scale vertical farms in operation today. However, what has made them successful has little to do with their technology and more to do with their geographic location, local market conditions and how they market their products. Generally speaking though, it’s become the exception to the rule. The margins are quite thin in vertical farming at a small scale. It’s simply not a sustainable business if it doesn’t turn a sustainable profit. Vertical farming is no joke and the failure rate is quite high.

• There are far too many LED and Software/Automation companies in the vertical farming industry, please no more. Regardless of what the investment reports say, large scale vertical farms are developing far slower than any of us expected. They are capital intensive, require huge amounts of planning, engineering and developers must deal with complicated zoning and other regulatory hurdles. What’s fueling the ancillary business growth isn’t big vertical farms, but the rapid growth and interest in smaller vertical farms. In other words, the majority of the industry is built upon a weak economic model. This bubble is eventually going to pop. If I’m building a vertical farm and spending millions I want to make sure my LED supplier is going to be around for the next 10-15 years. That narrows it down to just a handful of well-capitalized companies. If I’m building automation, I don’t care about some cute cell phone app, I’m going to develop on a tried and proven controls platform such as Siemens or Rockwell and I’m going to develop a controls strategy from the ground up specifically to my needs.

• No, Vertical Farming is NOT going to solve the looming food crises. Just stop, this is ridiculous nonsense. Amazon didn’t just move to acquire Whole Foods because they want to feed the hungry starving masses. They did it because more affluent buyers are willing to spend more on higher quality produce, not because they are solving world hunger. It is this demand for a higher quality product by those who can afford it that is driving the vertical farming industry today. Maybe in 100 years when we’re all glowing from Fukushima radiation and our crops won’t grow because of climate change, maybe vertical farms will solve a problem. However, chances are more likely humanity will have to completely rethink its diet to survive and vertical farms will ditch leafy greens and microgreens for a hybrid GMO, high-protein cultivar that science has yet to engineer.

• No, Vertical Farming is not more sustainable, at least not yet. We’ve all heard it, vertical farming is better for the environment because it reduces the logistics of farming. While this may be true for a very large, automated, commercial-scale vertical farm, it is nowhere near true for a small scale vertical farm. The carbon foot print of a head of lettuce coming out of a small vertical farm is terribly high. It’s a tough pill to swallow when someone tells you that your small vertical farm is not environmentally friendly, but it’s not. Sorry. Scaling such a model up would not only be economically bad, it would be environmentally bad as well.

• It’s not the “Vertical” in Vertical Farming that is key, it’s the ability to control the environment with precision.  Much of vertical farming is based on the fact that crops are grown in layers. However, the biggest asset of a vertical farm isn’t the layers, it’s the ability to provide a controlled environment. The focus should be on maximizing that aspect, not on how many layers you can stack. Think outside the box. Select crops that can benefit from this control.

• HVAC, it’s the most often overlooked aspect of Vertical Farming.  While many focus on the growing system, lighting or the software that runs a vertical farm, very few people make the right choices when it comes to HVAC. A plant needs airflow to properly transpire. However, too much airflow is bad as well. When I see an indoor farm with oscillating fans and standalone dehumidifiers, I see a farm that wasn’t properly designed. Vertical Farms are not office buildings, they are more like data centers. A properly engineered vertical farm HVAC system is going to be capable of removing humidity and heat via a central plant that would be designed in a manner that allows airflow management across the plant canopy. There’s no point cooling the isles, or empty spaces. I’d also highly recommend investing in airflow modeling to see where potential problems might be.

• What is your ROI after considering additional CAPEX in years 5 and 10? Today’s vertical farms are bigger, but in most cases are less complicated than their earliest large-scale predecessors. In some respects, the industry has come full circle. We’re basically back to where we started and are now talking expensive automation again. The question everyone must ask now is what is my ROI after say just 10 years? LED lights are going to fizzle out, mechanical systems are going to fail and pumps will need to be rebuilt. It would not be crazy to suggest that up to 70% of a vertical farm system will undergo some level of replacement or repair within a 10-year window. Does your vertical farm design allow for ease of maintenance? How does this fit into your cost model? Did you consider this in your business plan? This is where vertical farming is going to see its biggest challenge in the coming years. Vertical Farming will need to prove that the ROI is worth it before more capital is required to be injected into the business to keep it viable. I don’t see this happening for most of the big vertical farms operating today. Most will end up being maintenance nightmares within five years which will drive operating costs up.

VERTICAL FARMING 2.0

Now that I’ve probably upset half the folks in the vertical farming community, not all is lost. I believe firmly that vertical farming can and will work. However, we must be honest about the economic results we’ve been seeing and learn from our mistakes. For those who know me well, I was initially the biggest champion of promoting the small vertical farming model. It was the entire core of my business plan at one time. However, after working in this industry for the better part of a decade, I’ve become wise to what works and what doesn’t. I want to see this industry grow and thrive but we need to have a real discussion about the economics of vertical farming. Here are a few things that I believe are going to be important in the Vertical Farming 2.0 movement moving forward:

• Scale and automation are going to be the keys to success. If you’re not planning on spending tens of millions of dollars, you’re not scaled for success. Future successful vertical farms are going to be the ones that dramatically reduce the handling of the product, people and reduce the number of actions required to package and ship. The groups who figure out how to reduce the handling and steps required are going to be the winners. There is not a single vertical farm in operation today that doesn’t require substantial movement of people and product. The good news is there are people figuring this out and I suspect 2018 will be the year we start seeing these newer, more streamlined methods deployed.

• One size does not fit all, geography, local market, and branding matter. The number one question I get asked from aspiring vertical farmers is, how much does it cost and how much will I produce? If you don’t already know the answer, you need to get a master grower on your team and someone that understands marketing. Then come talk to me after you’ve figured your business plan out. Every city is going to have different opportunities. While I can guide you through building a vertical farm, I have no way to know the multitude of business plans that will work for your selected market and location. This is the number one mistake I see new vertical farmers making, not having the people on their team that have the appropriate local experience.

• If you don’t have a master grower, you’re most likely going to fail. While it looks easy, vertical farming is anything but. If you open an automotive repair shop, you need to hire a mechanic. If you open a barber shop, you need to hire a barber. If you start up a vertical farm, you need to hire a master grower. Do not assume you can watch a Youtube video or have an iPhone app help you figure this out. Farming outdoors is not easy, farming indoors is that much harder. Success depends on having the right people. Farming is not something you can franchise or manage from an operating manual or user interface.

• Pharmaceuticals, cosmetics, niche food markets and plant research are the future of Vertical Farming. Spending millions of dollars to grow just basic lettuce in a vertical farm is not exactly economically viable. I’m sorry to burst some bubbles but the numbers just aren’t that good. The margins just don’t work in most locations. Not unless you’re in Alaska, or in a geographic region where produce is mostly imported. In those situations, there is an opportunity for vertical farms to support niche markets. The real future of vertical farming I believe is in the ability to produce crops with precision and with consistency. Whether that’s using technology to chemically express cannabis for specific pharmaceutical use, or growing high-quality cultivars for cosmetics or research. Lettuce is boring folks, there’s so much more we can do with vertical farming that isn’t being done. The cannabis industry could surely benefit from vertical farming methods, but legal issues hinder such major infrastructure development in the U.S. today.

• Investors, quit chasing the flashy gimmicks and technologist hype. This is for all investors out there interested in vertical farming. Especially the big ones. Quit fueling the bubble and put your money behind actual scaled farm development. Try and avoid the latest flashy white label Chinese LED light, the most recent version of the Hannibal rack/flood table vertical farm, or the cool cell phone app that does nothing to help move innovation forward. Make sure you are talking to people who have been doing this since the beginning. Get to know the whole community, not just the more visible well-funded and marketed players. There’s a lot of hype out there, so be careful. Anyone saying their numbers are amazing are misleading you somewhere. Ask about their 5 and 10-year plans. If your potential investment hasn’t factored in at least a 30% CAPEX refit after 10 years, they haven’t been doing this long enough to know better. Ultimately it is you, the investors that will drive this industry forward, or cause the bubble to get bigger before it pops.

Disclaimer: Chad Sykes is the founder and Chief Innovation Officer of Indoor Harvest Corp, a publicly held Company and is a Director and spokesperson for the Medical Cannabis Association of Texas. This article was prepared or accomplished in Mr. Sykes personal capacity. The opinions and views expressed in this article are the author’s own and do not necessarily reflect the opinions or views of Indoor Harvest Corp, its Board of Directors, its shareholders, or the Medical Cannabis Association of Texas.

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