Agriculture in a controlled environment: where horticulture and technology meet

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Controlled Environment Agriculture (CEA) means different things to different people. It is a broad umbrella that covers low-tech greenhouses and wind tunnels, medium-tech greenhouses and vertical farms (e.g. hydroponics, aquaponics, etc.) and other types of high-tech indoor growing and in full control. For investors, it’s farming’s shiny new toy. For others, it’s a panacea for the future of food security and the alleged upstart disrupter who will reinvent the food system. But this burgeoning market is maturing and with it the inevitable growing pains that will define its future and determine whether it can deliver on all its promises.

“In my opinion, we are at the end of the beginning,” says Robert Colangelo, founding farmer and CEO of Green Sense Farms Holdings, which provides horticulture consulting and turnkey CEA solutions by designing and building vertical farms. greenhouses and integrated facilities. “The market is no longer brand new; it is established and has a critical mass. There are enough players now to weather the ebbs and flows of the market.

CEA promises to be part of the solution to support a growing global population facing challenges exacerbated by climate change, water scarcity and supply chain disruptions. The current food supply chain system requires an overhaul that focuses on improving food safety and quality and building greater resilience at all levels. With environmental issues escalating, the entire food production industry also needs to be more conscious of conserving natural resources and reducing its carbon footprint.

With urbanization and limited arable land, it is unlikely that outdoor food production alone will be enough to meet the food needs of future generations. Indoor growing is here to stay and an essential part of the future. Investors are betting on it.

Venture capital: a blessing or a curse?

KD Market Insights reported that globally, the CEA market is expected to grow from over $74 billion in 2020 to approximately $172 billion in 2025. A flood of investment is propelling expansion and opportunities in the American CEA market. S2G Ventures predicted in its 2020 report “Growing Beyond the Hype: Controlled-Environment Agriculture” that the U.S. CEA market will grow five times in U.S. market share over the next 10 years and “it will likely start with leafy greens – where indoor farming could become more than 10% of origin products by 2025. ‘by 2025.’

S2G Ventures also reported in 2020 that startup and growth investments in indoor businesses and apps exceeded $1 billion. As recently as 2021, indoor vertical farming company Plenty secured $400 million in its Series E funding round, while sweetening the deal with a long-term business deal to supply fresh produce to Walmart, one of its Series E backers. Cascade Investment, controlled by Bill Gates, has backed Soli Organic (formerly Shenandoah Growers) with a $120 million deal supporting the construction of three indoor farms. BrightFarms is now well positioned to focus on becoming a major leader in indoor agriculture, thanks to its megadeal acquisition by Cox Enterprises, and this came after raising $100m in Series E funding. .

Still, investors expect results, and the payback and performance timelines for live-goods manufacturing and production operations can be very different from those of a factory mass-producing widgets. Increasing the size is time consuming and expensive.

While CEA in the US has had some successes in 2021, it has also had some setbacks. After gaining support from SPACs (Special Purpose Acquisition Companies) in 2021, both AppHarvest and AeroFarms have struggled to deliver on their promises to investors. These setbacks, while disappointing, are part of the growing pains the industry is experiencing, and growers remain optimistic that things will improve in the future as operations refine their processes and technology develops further.

“Investors need to be patient and give this market time,” Colangelo says. “I think big investors are looking at big trends, and capital will keep flowing in. That said, revenue has to come at some point. Investors are looking at top line growth first, so revenue has to start flowing, and then profits will eventually have to follow.

During his keynote address at AgCon 2022 indoors, Matt Ryan, CEO of Soli Organic, said, “The money invested won’t last if we don’t make a profit. Farming is a business and we have to figure out how to win.

Ryan called on the large audience to join him in being resourceful rather than relying solely on investor money to help bring down the price of indoor-grown produce. Bound by an overreliance on venture capital, Ryan tackles two of the challenges the CEA industry is struggling to overcome. First, the investment money will not help the industry build the large-scale infrastructure it will need to gain a significant share of the product market. Building this infrastructure is an expensive prospect requiring a significant amount of initial capital. So while compelling unit economics enables profitable growth, the industry will unlock additional means to fund growth and expansion that go beyond venture capital.

Colangelo says the operations raise large amounts of venture capital and it might be best to have a mix of funding sources that includes asset-based funding.

“If they’re buying facilities or assets, it’s more efficient to finance them with debt rather than venture capital. As this market matures, the sophistication of how to fund these transactions will also mature where more traditional funding methods are used, not just high-octane venture capital,” he says.

Second, the industry must reduce the costs of growing produce indoors to compete with outdoor growers. And while it’s not there yet, it is rapidly moving in that direction thanks to technical advances and more efficient production methods. Ryan told the Indoor AgCon audience, for example, that Soli Organic plans to grow leafy greens for less than the cost of outdoor-grown produce by 2024, as it already does with herbs.

CEA must approach energy consumption as an industry

The CEA is also facing major difficulties in the use of energy. The World Wide Fund for Nature published a report “Indoor Soilless Farming: Phase One – Examining the Industry and Impacts of Controlled-Environment Agriculture” in 2020. The report shares the results of a life cycle analysis comparing the environmental impacts of conventional agriculture and four types of indoor agriculture. farming systems – combinations of two different production methods and two different growing environments – to produce one kilogram of romaine lettuce that is packaged and transported to a grocery store in St. Louis.

The researchers found that across three categories – climate change, land use and water use – “conventional agriculture has the lowest impact associated with climate change, primarily due to its lower electrical footprint and cleaner electricity mix in California However, greenhouse hydroponics received the lowest scores for land use and water use, with vertical hydroponics in second place, then l conventional farming.

With growing awareness among investors and end consumers of the environmental impacts of indoor and outdoor agriculture, CEA producers will need to be able to not only tell their story about the environmental benefits they can bring, but also back it up with hard facts, and they have some work to do in that area.

Derek Smith, executive director of the Resource Innovation Institute, a leading nonprofit for energy and water benchmarking that actively shares best practices in water efficiency and energy with CEA producers, told attendees at greenhouse grower 2021 GROW Executive Summit that only about 59% of CEA farms track their energy use and only 40% can produce credible data on their energy use.

The life cycle analysis also looked at new technologies and innovations, such as lighting, fiber optics and artificial intelligence (AI)/machine learning that could make a difference for CEA in
the future.

“As more money enters the industry, it will spur more companies to address some of the challenges facing the industry,” the report said. “However, they can still think like individual farms rather than an industry that could partner up and use existing systems, such as stranded or underutilized assets. We want to build on what’s already happening to see s ‘there are other ways to overcome some of the obstacles. One of the biggest obstacles is still the use of energy, but there are already innovations that try to bend the cost curve so that more types of crops can be grown. food in more places at affordable prices.

There is room for all to feed the world

Indoor-outdoor and environmental impact debates aside, there is more than one way to grow, and each growing operation or system is unique, producing different results and impacting the environment in distinct ways. .

“I just ask anyone watching CEA not to look at CEA monolithically,” Ryan says. “Companies are very different from each other. They have very different profiles of their abilities and technologies.

“We need it all,” says John Purcell, CEO and President of Unfold, a new joint venture between two of the world’s largest agribusinesses dedicated to developing crop varieties for technology-driven vertical farms. “You will not replace [the] Salinas Valley. You are not going to replace greenhouses in the Netherlands or Canada. We need a robust and versatile supply chain. All the pieces have to be there, whether it’s an open field, a greenhouse, a greenhouse or a vertical farm; there is room for everyone.



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