Food deserts, as defined by the USDA, are parts of the country void of fresh fruit, vegetables, and other healthful whole foods. These are usually low income communities in and around large metropolitan areas where access to fresh food is scarce. This is largely due to a lack of grocery stores, farmers’ markets, and healthy food providers. However, this hip new trend in agriculture may be the solution for such a problem. Vertical farming, specifically urban farming, is the practice of producing food in vertically stacked layers in an indoor controlled environment. This new trend is popping up in urban areas and is providing fresh, locally grow, produce. This blog post explores the economics of vertical farming and sheds light on the ways entrepreneurs are making green while selling fresh produce in cities around the world.
What is Vertical Farming?
Vertical farming is the process of growing produce on an inclined surface within indoor facilities. These facilities maintain plant health with artificial light, climate control and hydroponics. This process reduces the amount of soil and water needed while significantly increasing crop yields. Indoor farms typically use 95% less water, 50% less fertilizer and don’t require the use of pesticides, herbicides or fungicides.
Initial Startup Cost
The initial cost of an indoor facility, specifically a shipping container retrofitted for vertical farming, cost upwards of $85,000. This does not include shipping to a location, cost of land or the initial hookup for utilities. Due to these factors vertical farming is more cost effective at scale; approximately 12 shipping containers per location. The economics of vertical farming makes profitability difficult in the initial phase due to the high startup cost and the high initial working capital needed to get the farm up and running.
The costs associated with operating a vertical farm are labor, seeds, water, electricity and rents. Where vertical farms differ from traditional farms is their efficient use of space, soil and water. The use of hydroponics allows for a 95% reduction of water consumption for each shipping container. This means that each hydroponic farm consumes less water per day than the average person uses in their morning shower. However, the main operating cost of these indoor farms comes in the form of high electrical bills. Since the lights needed to keep the plants alive run for the majority of the day, electrical bills for these type of farms can run upwards of $600 a month. The biggest efficiency, however, is the use of space. Since vertical farms grow crops on a 3 dimensional plane, crop yields can be as high as 20 times larger, per square foot, than traditional farms.
Seed to Harvest and Profitability
The term seed to harvest is used to describe the time it takes for a specific produce to reach maturity. For example, a head of lettuce can have a seed to harvest time of 7 weeks. The profitability of a farm depends on this formula and the ability of farmers to quickly turn around product. To reduce wait time, most farmers will use a staggered approach to farming that allows for multiple harvest per month. For example, a typical indoor lettuce farm can yield one thousand heads of lettuce per week. With an average price of $3 a head, a lettuce farmer can make $3,000 in sales per week.
Consumers and Target Markets
Since the initial cost and operating cost are high for these types of farms, the product is priced higher than traditional produce. The target market is health conscious individuals who are willing to pay a premium for fresh, locally grown, food. Ideally, with technological advances and increased maturity of this industry, vertical farming could one day provide fresh and affordable food for the masses. However, since there is a high cost of energy needed to produce these products, farmers must resort to target high end restaurants and consumers.
How Does Vertical Farming Stack Up
Vertical farming, and indoor farming in general, is still in its infancy. High startup cost, high initial working capital needs and high energy cost make it risky to startup a vertical farm. However, with low cost of distribution, vertical farming can be extremely profitable in the long run. With increased efficiency and economies of scale, vertical farming can radically transform the food industry within the next decade.