Vertical farms expand as year-round demand for produce grows
A newly built 95,000 square foot warehouse in Compton, CA ticks all the boxes for the burgeoning storage industry: 32 foot high ceilings, secure trucking land and truck road access.
But it will not be used for freight or storage. Plenty Unlimited, an agricultural start-up, is using the site for an indoor vertical farm, which is due to open later this year.
“It’s the ability to put production anywhere regardless of the climate,” said Arama Kukutai, the company’s general manager. The terms of the lease were not disclosed. Vacancy rates in the area are around 0.6%, according to Kidder Mathews, a West Coast commercial real estate firm.
Plenty Unlimited supplies Albertsons grocery stores with varieties of lettuce grown on a smaller-scale farm outside of San Francisco. Walmart, an investor, will soon sell Plenty’s products throughout California. And Plenty has aspirations beyond the greens: Last month, he announced plans with Driscoll’s, a berry vendor, to develop an indoor farm in the northeast devoted to strawberries.
At a time when supply chain disruptions continue to slow distribution, consumers are adopting healthy eating habits, and climate change is expected to affect crop yields, a practice known as controlled-environment agriculture, including indoor vertical farms relying on artificial light and technology, attracts corporate capitalists.
But the industry faces challenges, including high energy costs, technology limitations and the ability to scale up production to reduce expenses.
Farming in a controlled environment has been around since the 1970s, said Gene A. Giacomelli, professor of biosystems engineering at the University of Arizona. What made the move indoors possible was a drop in the price of LED lamps, which fell 94% in 2015 compared to 2008.
The term vertical farm was popularized by Dickson Despommier, professor emeritus of environmental health sciences at Columbia University. Vertical farming is expected to reach $9.7 billion worldwide by 2026, up from $3.1 billion in 2021, according to ResearchAndMarkets.com, a data analytics firm. Pitchbook, a Seattle-based financial data and software company, tracked 33 deals worth nearly $960 million in 2021, up from $865 million the year before and $484 million in 2019.
AppHarvest, a greenhouse grower, recently went public through a merger with Novus Capital. And in August, BrightFarms, another greenhouse operator, was acquired by Cox Enterprises in Atlanta.
Scientists warn that the technology has its limits, with LED lights, sensors and operating systems driving up utility costs. “They don’t want to be warehouses, they want to be food production facilities,” Professor Giacomelli said. “And food production facilities have never had that kind of money.”
Money creates demand for storage space. Kalera, a vertical farming company based in Orlando, Florida, harvests green vegetables and culinary herbs there, as well as in Houston and Atlanta. Farms in Denver, Seattle, Honolulu and St. Paul will open later this year, and one in Columbus, Ohio, is planned for 2023. Farms are also open in Munich and Kuwait.
Details are hard to come by as farms closely monitor their intellectual property, cultivation system designs, materials and structures.
“Everyone has their own secret sauce,” said Brent de Jong, president and CEO of Agrico Acquisition Corporation, which in January announced a merger with Kalera.
But as long as the building used as a vertical truss meets height criteria and avoids high utility costs, “there’s no limit to where I can put a truss,” said Austin Martin, director of the Kalera operation.
Basic requirements for vertical agricultural warehouses include access to major highways, a day’s drive to major population centers, and an educated workforce that understands automation and plant science.
“The leafy greens and microgreens production plant is similar to a semiconductor factory providing a controlled environment to predictably and automated manufacture of its products,” de Jong said in an email. .
The plants are stacked in vertical rows reaching heights of 30 feet or more, said Cornell horticulture professor Neil Mattson. Additional space is reserved for aisles, harvesting and packing, but there is no common metric or industry standard.
An example of how controlled-environment agriculture is transforming industrial space is moving in Pennsylvania, which serves markets from Boston to Richmond, Virginia.
Bowery Farming, which is based in Manhattan, is outfitting a 150,000 square foot farm on the site of a former steel mill in Bethlehem, Pennsylvania, slated to open in May.
Bowery also has three farms in Kearny, NJ, two of which are for research and development. The third is a business operation serving grocers and e-commerce businesses in the North East. Another facility, in Nottingham, Maryland, runs on hydroelectric power. And the company has announced plans to expand near Atlanta and in the Dallas-Fort Worth area.
“It’s all about speed to market,” said Hans Tung, managing partner at GGV Capital, formerly Granite Global Ventures, an investor in Bowery Farming.
Darren Thompson, Bowery’s chief financial officer, said he expects the new Bowery farms to be similar in size to Bethlehem’s. “Having too many differences from one farm to another hurts my ability to manage costs,” he said.
The Bethlehem site has heavy electrical support, sewer and water capacity and fiber optic cable, said Peter Polt, executive vice president of JG Petrucci Company, which built the envelope of the building and offices. “But the tenant has equipped the building for the growth process,” he added.
Developers are also asking for proximity to food distribution centers to save on transportation costs, said Brent Vernon, executive director of the Pennsylvania Governor’s Action Team, which is working to bring businesses into the State. And he said state funding and subsidies are assessed on factors such as brownfield redevelopment, unemployment rates and job creation potential.
Bowery will create and retain at least 70 full-time jobs over the next three years and has pledged to invest at least $32 million, Pennsylvania officials said.
Upward Farms, a Brooklyn-based startup that mixes vertical farming with aquaponics and uses fish waste as fertilizer, is building a 250,000-square-foot warehouse on six acres in Luzerne County, Pa. about 100 miles from Manhattan.
Local production is better because it brings leafy greens closer to retailer and consumer, said Jason Green, CEO and co-founder of Upward.
Further west in Selinsgrove is a 280,000 square foot greenhouse owned by BrightFarms. This company has started developing five new greenhouses that will be 10 times larger, said Steve Platt, chief executive of BrightFarms.
Achieving a scale that will be sustainable for businesses may mean expanding the types of crops grown in vertical systems, from leafy greens to vine and fruit crops, said Pennsylvania Secretary of Agriculture Russell Redding. For example, Bowery Farming announced plans to distribute limited release strawberries in New York.
But some scientists have doubts about the industry’s ability to scale and diversify given the limitations of current technology. Tomatoes require 60% more electricity to grow than lettuce, and strawberries consume twice as much, said Bruce Bugbee, director of the Crop Physiology Laboratory at Utah State University at Logan.
“The LED lights are about 70%, close to their theoretical maximum” efficiency, he said. The consumer pays the energy costs.
Morgan Pattison, president of Solid State Lighting Services in Johnson, Tennessee, and an adviser to the Department of Energy, was more blunt. “LEDs aren’t going to come down much more” in cost, he said. “Where investors go against physics, they’re going to struggle.”