June 30, 2023

Building a business case for vertical farming

If you’re considering investing in vertical farming technology, this post will provide insights into how to build a business to establish the most profitable route to market.

Written by
Paul Terrell
Listen to this episode below or on your favourite platform.

Building a business case for vertical farming

With growing concerns about the climate and fertile farm land area increasing by the day, interest in vertical farming as a sustainable agriculture solution is surging. The vertical farming technology promises to deliver high quality crops, with limited waste, using a fraction of the land area and water compared to traditional agricultural methods.

If you’re considering investing in vertical farming technology, this post will provide insights into how to build a business to establish the most profitable route to market.

Who can benefit from vertical farming?

Vertical farming presents an opportunity for a number of different growers. Below is a summary of the most common business case examples we’ve seen:

  • Propagators/Nurseries; can integrate vertical farms into their existing infrastructure to reduce waste and improve plant consistency, the need for expensive cold storage is also removed
  • Large growers; can in-house propagation to reduce reliance on imports, reduce waste associated with infestation and variation, shorten supply chains and reduce the complexities of crop scheduling
  • Pharmaceutical companies; can benefit from the speed of growth and consistency of medical plants grown within a vertical farm, allowing them to expedite their R&D process, as well as providing a supply chain which is more assured and traceable
  • Renewable energy providers; can partner with growers for consistent revenue  

The advantages of vertical farming

Let's look at some of the advantages of vertical farming and how it can help to improve production efficiency and sustainability within existing or new operations.

Grow more, whatever the weather

The fundamental advantage of vertical farming is its ability to produce crops all year round, independent of weather or seasonality. This is accomplished by exerting complete control over the entire growth environment, allowing for continuous crop production.  

Maximise the profitability of your land

Another advantage of vertical farming is that it makes optimal use of your space, allowing growers to produce more food per square metre of land. This is particularly important as populations continue to expand and land availability becomes more limited.

Reduce food miles

Since vertical farming allows organisations to in-house supply chains, it can also support a reduction in the need for long-distance transportation, which not only reduces transportation and import costs, but also helps reduce greenhouse gas emissions.

Improve sustainability

In terms of sustainability pests and illnesses can be prevented or managed in a vertical farming environment without the use of pesticides, which traditionally harm the soil and adjacent water supplies, resulting in biodiversity losses.

Recycles 98% of water used for cultivation

Vertical farming also uses significantly less water than open-field farming, because our farms recycle and reuse water, rather than letting it drain away. An IGS vertical farm, for example, recycles approximately 98% of the water used. This is especially significant now that water scarcity is becoming an increasing concern in many parts of the world.

Comparison of traditional agriculture, glasshouses, and vertical farms

It's important to note that IGS’ position on vertical farming is that it isn’t meant to replace traditional farms or existing greenhouse technology. Instead, it should supplement and enhance them. By working collaboratively to build a better future for food production, we can maximise the benefits of all agricultural approaches. For example, a vertical farm can co-exist next to a field or glasshouse as a source of healthy and dependable starter plants.

When looking at inputs such as water, there are clear advantages to vertical farming.

Compared to open-field farming, a vertical indoor farm uses only 3L of water per kg of lettuce per year, compared to 250L in an open-field farm and 11 litres per smart greenhouse.  

Vertical farms can also be installed in existing warehouses or buildings in urban areas to help reduce the food miles of some crops.

Are vertical farming start-up costs expensive?

Vertical farming start-up costs can be expensive due to the investment in specialised equipment and technology. But the more pertinent question you should be asking yourself is “what is the payback period of my investment.” The answer to this involves knowing the details of a number of input variables such as;

  1. Wholesale price of the crop in the country you are selling in
  1. Price of energy
  1. Price of any labour required
  1. Level of automation required

This is just a small sample of the data we look at when creating a Grower Model for our customers.

Input costs can vary widely depending on factors such as the size of the operation and the location of the farm. There may also be additional costs associated with retrofitting an existing building or constructing a new one to house the vertical farm.

The long-term future development and profit-maximisation potential make vertical farming an appealing option for those with access to the necessary funds to invest.

How much capital investment does a vertical farm need?

The financial investment necessary to get a vertical farm operational can vary based on the individual needs of your operation, such as volume of crops, type of crops and the proposed location of your operations.

Is there vertical farming funding available?

The short answer is yes, but the source of funding is likely to come from venture capital funds, grants or private equity rather than banks. The most common sources are listed below.

Venture capital

Venture capital firms may be interested in investing in vertical farms that show potential for growth and scalability via a solid business plan, backed by a strong management team, who are able to demonstrate a clear path to profitability.

Grants

There are a variety of government grants available in the UK that are relevant to a vertical farming business. These are grants to support the creation of new jobs and businesses in rural areas or to help growers prepare for future agricultural policy changes.  

Depending on the location of the vertical farm, there may be regional funding opportunities available, so it’s well worth looking into.

There are also several organisations in the UK focused on promoting sustainable agriculture and food production. These organisations offer both funding opportunities and resources and support for vertical farming start-ups.

What to consider when seeking funding for a vertical farm?

When it comes to gaining funding for your vertical farming venture, there are a few things you should take into consideration.  

Within Europe, every country has its own systems of support for attracting business. In the USA, you could consider federal funding for agriculture and agricultural grants, but these differ by state. Grants and schemes are often being updated and changed, so it's important to research up-to-date information for your specific location and needs.  

If you’re planning to secure investment for your vertical farm, you should look for an investor who provides an equal relationship. You’ll be sitting around a table with the board, and even doing events with them, so you need to find people you can work with. Try to find someone who has a deep understanding of your industry, or who understands intuitively about your market. You will also need someone who will be there with you as the company grows, as many seed fundings don't have the basic capital to continue—so if you're looking for a partner for the long haul, this may be a challenge. Discuss this openly with your potential investors.

Ideally, you’ll be looking for someone who can be there to support you when you need introductions and advocates for the business. As you grow, and in this new innovative space, having a partner who can advocate for your business, and talk with other investors, potential governments and others who can support your business is essential.

Modern vertical farming: an analysis

Despite its high-potential, the vertical farming industry has suffered negative stigma due to inefficient, energy-intensive farms failing to meet expectations in recent years. However, failings are often due to poor business modelling, planning and execution as opposed to the technology itself.

Below, we’ve outlined examples of the most prominent misconceptions about vertical farming and how IGS technology mitigates against them.  

Vertical farming as a premium need

With a need to feed an exponentially growing population, the expensive startup costs of vertical farming have led some to dub it an elitist or premium solution to problems such as climate change or world hunger.

However, at IGS, we don’t see vertical farming as the solution to these problems, but as a part of the solution to these problems. As such, we focus on building cheaper, faster and better vertical farming solutions that countries around the globe can integrate into existing agricultural infrastructure to build more robust food production systems.

Vertical farming has a limited crop portfolio

While vertical farming can’t match the diverse growing capabilities of traditional agriculture, as we continue to innovate, we’re rapidly diversifying the crop portfolio. So far, we have trialled over 250 crops at our Crop Research Centre in Dundee, Scotland.

Most recently, for example, we’ve successfully grown potato tubers and tree seedlings within our Growth Towers and are also seeing success with a variety of fruit starter plants, herbs, chillies, vegetable and salad crops. We also work closely with growers to help drive unit costs to offer attractive business cases to growers.

Energy costs are too high

There’s no getting around the fact that vertical farms require a significant amount of energy to operate. But this isn’t the end of the story. Through innovation and experimentation, we’re consistently improving the energy efficiency of our vertical farms and have the most efficient on the market. We’re also able to integrate our vertical farms with renewable energy sources.

Can’t find a viable business model

Some vertical farming companies have struggled to find a viable business model for their vertical farming operations and unfortunately, this has lead to some vertical farming startups failing. At IGS, we’re different.

IGS are more than just a technology provider. We are a team of software engineers, data scientists and agronomists and have a dedicated sales and deployment team – all of whom are committed to making our customers vertical farm projects a success.    

We operate as a partner and work alongside your team to first help you establish whether there is a viable commercial opportunity for your project. We then work with you through the lifecycle of your vertical farm to help you to develop your own intellectual property and to help you continually enhance your operations.

Who are IGS?

IGS is a multi-award-winning global business based in Scotland that supplies vertical farming technology for growers worldwide. We use our engineering, crop science, and agronomy skills to create the best technology to help our customers succeed in growing high-quality, nutritious food.

With Total Controlled Environment Agriculture (TCEA), IGS takes Controlled Environment Agriculture (CEA) to the next level, providing predictable and consistent plant production in any suitable location. Our software generates optimal 'weather' conditions, based on the crop and manages elements such as lighting, irrigation, ventilation and fertiliser delivery.

We call our vertical farms Growth Towers, which are 6 metres, 9 metres, and 12 metres tall. Crops are grown on six-metre-square tables called Growth Trays with Lights (GTL). The central lift mechanism moves each GTL while also providing water and nutrients.  

In addition, our technology is designed and manufactured to be as future-proof as possible. IT obsolescence is avoided as computers with operating systems are not used at IGS farms. Instead, the hardware is controlled via a Programmable Logic Controller system which uploads data to and is controlled via a Cloud-based server, which is in turn managed by our Growth Tower Management System. This offers a secure, flexible, robust and reliable communications system.

How much does an IGS Growth Tower cost?

The CAPEX can vary depending on the location and when the tower is constructed, as the prices for components and materials are subject to change. Payback period is determined by the location and scale of your operations, as well as market prices for the crops you wish to grow.

If you’re interested in getting started with vertical farming then ‘Get In Touch’ to start building your business case with us.

If you’d like to find out more about how to fund your vertical farm project, you can access our webinar “From seed to scale, securing the right funding partner for your vertical farm” to gain valuable insights into how you should pitch to investors to help you secure funding for investing in vertical farming. It covers topics such as;

1. Calculating and projecting your commercial viability.

2. Measuring potential ROI of VF project proposals.

3. Scaling your vertical farm.

4. Clarifying the short to long term benefits of vertical farming.

5. Using private or public funds to finance your vertical farming venture.

Watch our on-demand webinar From seed to scale, securing the right funding partner for your vertical farm” now.  

1 https://www.sciencedirect.com/science/article/pii/S2452263520300021

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