How to avoid a salad crisis: Investment grows in securing the future of food

Investors are serious about smart greenhouses and vertical farming, seeing bumper profits ahead

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Britain is in the grip of a salad crisis as shoppers face empty shelves and supermarkets impose buying limits on fresh produce, including tomatoes, peppers and cucumbers.

The reason behind this shortage is twofold.

Firstly, a colder-than-usual winter in Morocco and Spain caused crop disruption and transport problems. So the UK, which imports the vast majority of its salad items during the winter months from North Africa and southern Spain, is caught in a supply crunch.

Secondly, British greenhouse growers planted far fewer of these crops last year. The soaring cost of energy meant it would not have been economical to grow them over the winter.

Supermarket rationing could go on for weeks before the situation improves.

Environment Secretary Therese Coffey said last week that British consumers should eat more turnips instead of imported food.

The crisis has sparked a wider debate on food security and supply, and, as is often the case, technological innovation puts forward possible solutions.

The problem the farmers in Spain and Morocco had was that they couldn't control the weather. For example, they were powerless as hailstones smashed into their tomato crops.

But what if the farmers could control the entire growing environment?

Controlled environment agriculture has been attracting the interest of investors for a few years now.

It's a wide area though, ranging from smart greenhouses to the laboratory-like conditions of high-spec vertical farming.

But the one thing all CEA facilities have is a roof ― this is indoor farming. Basically, all CEA farming methods try to create the perfect, and sustainable, growing conditions for certain fruits and vegetables. It's technology-intensive, labour-intensive and it can certainly be capital-intensive.

But interested investors are prepared to stump up the capital needed to develop and expand CEA.

In June last year, UAE-based Pure Harvest Smart Farms announced that it had secured $180.5 million in convertible funding, in a process that was vastly oversubscribed and left investors hungry for more.

Pure Harvest operates its smart greenhouses, which bring agriculture to the desert environment, in the UAE and Saudi Arabia and is building others in Kuwait and Singapore.

At the time of last year's fundraising, Bjorn Tessiore, partner at Metric Capital Partners, one of Pure Harvest's backers, said: “We believe Pure Harvest is extremely well positioned to thrive in this growing market driven by its excellent team, innovative approach, and proven track record of building and operating at scale in a region characterised by difficult climatic conditions for agriculture.”

Investors are also enthusiastically looking at vertical farms.

Here the capital goes into creating controlled environment agriculture on steroids.

There’s no Sun, no soil and the farmer, probably in a white coat, is more likely to resemble a laboratory worker.

Essentially, vertical farming is the ultimate in taking control of an environment. Plants are grown indoors in huge warehouses on shelves that can be stacked as high as the roof will allow.

There is no soil, because the plants are fed precise amounts of water with nutrients through either hydroponics (flooding the roots) or aeroponics (creating a mist).

There is no sunlight, because the plants are bathed in LED lights that deliver the specific light frequencies they need for photosynthesis.

There are no pesticides, because the indoor environment is pest-free and there is no soil for them live in anyway.

Vertically farmed produce is so free of containments it can be eaten without the need to be washed.

Vertical farmers say their methods exponentially increase crop yields, because far less area is used for cultivation.

One company, AeroFarms, claims that it uses less than 1 per cent of the land required by conventional growing to achieve the same harvest volume.

“That means we are over 390 times more land efficient than field farming annualised based on our vertical nature of growing and up to 26 harvests per year,” the company said.

Vertical farms can be built almost anywhere, so positioning them close to cities dramatically reduces food miles.

Indeed, AeroFarms has opened a new 6,000-square-metre research and development vertical farm in Abu Dhabi.

With the aim of advancing agricultural production in arid climates, the funding for the project came from the Abu Dhabi Investment Office (Adio).

Not all a bed of roses

Proponents of vertical farming say it’s a viable solution to food security issues, helps to combat climate change and goes some way to feeding the world. Sceptics are not so sure that vertical farming is any sort of panacea for global agriculture and see it as a fad at best and an investment distraction at worst.

There are also limitations in what can currently be grown in vertical farms. Most vertical farmers concentrate on leafy greens and berries; staples such as wheat or corn would prove too costly ― a study by Cornell University in the US estimated that if wheat could be grown in a vertical farm, the cost of a loaf of bread made from that wheat would be more than $21.

The world-renowned environmental scientist Jonathan Foley sees many issues restricting the potential of vertical farms, from the high costs of running them to the limited number of crops that can be grown in them and the relative price of the produce.

“While I appreciate the enthusiasm and innovation put into developing indoor farms, I think these efforts are, at the end of the day, counterproductive,” Dr Foley said.

“Instead, I think we should use the same investment of dollars, incredible technology, and amazing brains to solve other agricultural problems, like developing new methods for drip irrigation, better grazing systems that lock up soil carbon, and ways of recycling on-farm nutrients.”

Controlling an environment does not come cheap and vertical farming has proved enormously energy intensive. As such, recent increases in fuel and electricity costs have taken their toll.

“Investment in vertical farms has fallen as the industry has faltered. With the rise in energy prices in much of the world, there has been a wave of indoor farming closures and lay-offs,” Dan Blaustein-Rejto, director of food and agriculture at the Breakthrough Institute, an environmental research group in Oakland, California, told The National.

“Cheap and ideally clean energy is needed to enable the industry’s success and re-energise investment.”

However, while investment has faltered in vertical farming in general, the sector continues to be of interest. What many now argue is that investment patterns are changing because the sector itself is changing ― it’s maturing.

Growing plants with hydroponics has been going on for centuries and using LED lights goes back to at least the 1980s. But vertical farming as a commercially viable activity really started to come into its own about 10 years ago.

The industry raised more than $1 billion in 2021 alone, more than it attracted in 2018 and 2019 combined, according to data from global market research company IDTechEx.

The California vertical farm company Plenty has raised $900 million in funding in recent years, including $400 million last year, supported by Walmart and SoftBank Vision Fund.

“What attracts investment is when you have proved that you’ve got scalable unit economics,” said Plenty's chief executive, Arama Kukutai.

Industry shake-out

But the sector has several casualties. Cost issues at PodPonics and FarmedHere, once operators of the largest vertical farms in the world, became too much back in 2016 and the companies went under.

More recently, a few vertical farmers have wandered down to the stock markets as a way of raising capital, but that hasn’t always gone too well. AppHarvest and Local Bounti went public via mergers with Spacs (special purpose acquisition companies) in 2021.

AppHarvest shares, once worth more than $35, now bounce along at about 88 cents. Local Bounti shares have dropped by 79 per cent in the past year.

Meanwhile, shares in Kalera have enjoyed some recent recovery, after it sold its international operations, but they are still more than 90 per cent below their peak last June.

“Simply put, vertical farming stocks have been a disaster,” said analyst and food author Vince Martin.

One of the biggest vertical farm companies, Plenty, resisted the call of the stock market.

“What we saw was something of a frenzied Spac market, which led to a number of players making the decision that this was a way to raise capital,” Mr Kukutai told The National.

“We considered it and decided to stay private while we built up our fundamental business. We’ll look to go public at some point, but the markets aren’t looking great right now and there’s work to do ― build farms, operate them and prove they can scale.

“Frankly, there is no way to hype to great outcomes, you have to deliver. Every industry goes through its shake-out,” he added.

Even given this shake-out, investors are enthusiastic about the sector, while recognising that vertical farming is going through a change of seasons.

“What we’re seeing right now is a natural evolution of an industry that’s growing and maturing in general,” Irving Fain, founder and chief executive of Bowery Farms, told The National.

“And people are looking at what is required for us to exist in the next couple of decades in a world that is incredibly volatile and uncertain.

“Vertical farming is clearly viewed as one of those areas that is important and provides a lot of potential,” he added.

For Sky Kurtz, the founder and chief executive of Pure Harvest Smart Farms, there is a “dangerous mix of hype versus reality within the realm of vertical farming”.

UAE-based Pure Harvest, which builds smart greenhouses rather than vertical farms, topped the Forbes list of most-funded start-ups in the Middle East and North Africa region in 2022 with $387 million in total funding.

Mr Kurtz invokes the Gartner Hype Cycle, invented by the information technology firm Gartner to illustrate the maturing process of technology companies.

The Gartner Hype Cycle (which is not a true cycle at all), shows initial excitement on the part of investors, followed by a period of disillusionment, after which investment grows again at a more realistic pace.

“I believe that we have begun to enter the Trough of Disillusionment in vertical farming,” Mr Kurtz told The National.

The early hype surrounding vertical farming that it was the solution to most agricultural problems, from food miles to water scarcity, from the overuse of pesticides to falling crop yields, led to overinflated expectations.

“The concept that they [vertical farms] will 'feed the world' is a gross overstatement and I believe a disservice long-term to our industry,” Mr Kurtz said.

“High-profile failures and capital losses will result in loss of investor confidence, which will make capital more difficult to secure for controlled environment agriculture as a whole.”

However, the likes of Saudi Arabia's Public Investment Fund has not lost confidence in the sector having earlier this month struck a deal with AeroFarms to establish vertical farms in the kingdom and across the Mena region.

The joint venture plans to build several farms in the region with the first in Saudi Arabia having a capacity of 1.1 million kilograms of crops per year.

Vertical Future, which is building a vertical farm in Singapore, is another company that sees tremendous opportunity in the Mena region.

“Anywhere that has a hot climate and a lack of arable land is in need of our solutions,” its founder and chief executive, James Burrows, told The National.

“We are, as an industry, taken more seriously and at a much faster pace in the GCC countries and in places like South-east Asia than we are, for example, in the UK.”

Ultimately, investing in vertical farming and other controlled environment agriculture methods will normalise itself as the sector matures.

“Scalable, economic solutions are now consolidating markets, and unscalable, uneconomic solutions are going the way of the Dodo,” Mr Kurtz at Pure Harvest said.

“Over time, the CEA players and technologies are facing very real investor and consumer scrutiny, as they should.

“If your revenue model is selling produce, you are a farmer, not a tech company. Our industry would be well served to remember this and to ensure that we’re developing technologies that make possible high-quality, but affordable, fresh produce.”

As a sector for investment, vertical farms, and controlled environment agriculture as a whole will continue to attract investors. Analysts say as the hype is weeded out, the potential for strong, steady growth will come through.

So, perhaps in years to come, the weather in Spain and Morocco will have far less impact on British supermarket shoppers. Being stuck eating turnips each winter may appeal to some, but having the choice is nice.

Updated: February 27, 2023, 12:17 PM