Vertical farming grows up

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Indoor farming is big and getting bigger. The $79.3 billion industry is expected to grow 14.4% annually, hitting $155.6 billion in 2026, according to market analysis released by SaaS firm PitchBook in March. The indoor farming space raised $1.7 billion through more than 70 deals in 2021 according to PitchBook Senior Venture Capital Analyst Alex Frederick, who found a more than 36% increase in investments in the industry year-over-year.

Frederick’s report catalogues the controlled environment agriculture (CEA) industry’s potential and its attractiveness to tech-focused venture capitalists and investors.

Farmers have attempted to grow crops in controlled indoor environments since the invention of the greenhouse. The modern concept of vertical farming was proposed in 1999 by Columbia University Public and Environmental Health Professor Dickson Despommier, who alongside his students came up with a design for a skyscraper farm that could feed 50,000 people.

Despommier went on to write a book about it, “The Vertical Farm: Feeding the world in the 21st Century,” in 2010; and two years later, the world’s first commercial vertical farm opened in Singapore.

Frederick said major investments in CEA operations started to flow around 2017, with millions going to outfits like AeroFarms, which was founded by David Rosenberg, Marc Oshima and Ed Harwood in 2004, and California-based Plenty, which was founded in 2014.

“Funding has just gone up since then. 2020, there was a jump in mega-rounds, and part of it seems that the costs of [the control systems to operate CEA facilities] have come down significantly. The other thing is the amount of capital available. There’s just a lot of money flowing and available for startups. Ag tech is one of the smaller verticals, but it’s growing quickly and there are more investors, generally tech venture capitalists, who are increasingly open to ag tech and indoor farming,” Frederick said.

Market research engine ResearchAndMarkets.com pegs the industry at $3.1 billion in 2021 with expected growth to $9.7 billion by 2026; and while it and PitchBook deliver very different numbers, the growth trajectory is clear.

Vertical Garden State

The roots of vertical farming are deeply planted in the Garden State. Just look at its roster: Industry powerhouse AeroFarms is headquartered in Newark and has several facilities throughout the state. Bowery Farming, one of the largest vertical farming companies in the world, is headquartered in New York City but built its first three facilities in Kearny, starting with the former naval base at Kearny Point. Oishii, a luxury vertical strawberry farm, is also in Kearny.

Bowery Farming has expanded to Bethlehem, Pa., and Baltimore, but the agriculture sciences team remains in Kearny, keeping New Jersey the company’s epicenter for food innovation, according to Chief Financial Officer Darren Thompson. Setting up in urban centers like Kearny and Newark are in keeping with the ag tech sector’s venture to rewild the land—in a comparably small footprint, Bowery’s Kearny facilities have crop production equivalent to about 50 acres of airable land, and its newer facilities in Bethlehem and Baltimore produce the equivalent of 75 acres to 100 acres.

Several factors make New Jersey a natural hub for the industry, most notably geographic location and market density, Frederick explained.
“New Jersey has a massive market and whole eastern seaboard available. Probably the biggest opportunity there is the food security aspect of being able to grow produce very close to the New York metro area and supply food to a large market size,” he said.

The drawbacks of CEA are largely tied to start-up costs—they’re high—and supply chain growing pains, as indoor farming companies experience challenges getting the nuts and bolts of the indoor growing systems in a timely fashion, like most industries these days.

On the other hand, Pitchbook notes, success of domestic CEA operators can also lead to “pushback and friction from importers and other intermediaries through lobbying and trade contract negotiations.”

“I think the challenges [CEA faces] will be around capital formation, some just around the sheer physical space that you can build facilities, especially given supply chain interruptions. But I do think there’s a yawning demand for product from a consumer perspective and from a customer perspective, as in the grocery, who is dealing with a whole lot of variation in product,” Thompson said. “They’re looking for a different solution here.”

But if CEA operations can push past the challenges, they’ll reap several benefits: CEA operations have increased productivity per square feet because control systems and artificial lighting allow operators to grow crops 24 hours a day, 365 days a year, unlike outdoor farms. As global population growth continues, more food will be needed to feed everyone; and as urbanization continues, that food needs to be available in a timely manner near city centers, which is where CEA operations fit best. CEA systems also use less water than conventional farming and eliminate the runoff of chemicals into the environment.

AeroFarms cofounder and Chief Marketing Officer Marc Oshima testified in front of the U.S. House Committee on Agriculture on March 29 to highlight the importance of CEA as a means to a more resilient food system. “The U.S. imports one-third of its vegetables and nearly two-thirds of its fruit. And COVID-19, and now the war in Ukraine, have put an even bigger spotlight on how fragile our food system is. We need new paradigms to help us build even greater food resiliency and security. CEA is one of these new paradigms,” Oshima said.
Industry growth also bodes well for Hackensack-based nonprofit Greens Do Good and the neurodiverse population it serves. As investors’ interest in CEA increases and public interest in supporting local indoor farms increases, it could mean expansion for Greens Do Good.

“Even though we’re a nonprofit, profit matters because we funnel all the profit back to individuals with autism,” Greens Do Good Director of Operations Jennifer Faust explained. “Also, right now we train 50 students, and I’d like to train 100. But we’re physically not big enough to bring more students on. … I’d like to expand our footprint to serve more individuals with autism. Expansion of CEA farming matches exactly what our plan is for the future.”

Today, when most people think about vertically farmed foods, leafy greens come to mind. In some cases, like for Good Feeling Foods in Asbury Park, the focus is more specifically on microgreens—for them, 1,000 pounds a month—which grow easily indoors and have reasonable profit margins. AeroFarms and Bowery Farms have both gotten into the strawberry game, and Oishii focuses on strawberries alone. But don’t expect to pick them up on sale at ShopRite: Eleven Oishii berries run $50. Bowery’s berries, sold in eight-ounce containers, go for $14.99.

In short, vertically farmed offerings can be expensive and exclusive. Look back at the availability of organic foods a decade or two ago, though, and CEA foods are a modern-day analog.

“Fifteen years ago, [organic food] was a limited assortment of products, and now it’s ubiquitous. Indoor farming is on that’s same journey,” Thompson said. “Producing it as an R&D is one thing, but producing it for the consumer, that’s where the challenge lies. Ask anyone in the grocery industry what brings consumers to their store … It’s not the Cheerios. They’re the same in every store. It’s the high-quality fresh produce. We look at that as an opportunity for us.”