Vertical farming allows the indoor cultivation of crops, reducing the need for large areas of cultivated land, excessive water use, and other problems associated with crop farming. However, vertical farming systems can be energy intensive, so how can vertical farmers deal with rising energy costs?
What is Vertical Farming?
The aim of vertical farming has always been to produce more and more food indoors using less land and resources. Importantly, LED lighting provides the light necessary for photosynthesis. Water is supplied via hydroponics and only what the plant needs to grow, without waste.
Vertical farming facilitates cultivation year-round, regardless of climate and temperature. Many entrepreneurs have already invested in vertical farming. By 2021, $2.1 billion was invested in the sector. However, in the last few years, vertical farming companies have struggled or even gone out of business due to rising energy prices. This is particularly true in the wake of the war in Ukraine.
The Benefits of Vertical Farming
The principles of vertical farming are to deliver social and environmental benefits. Positives include:
- There is potential for producing food in derelict and abandoned buildings in urban areas. For example, Erin James and Yaheya Heikal founded Futurae Farms in 2021 in Los Angeles. The company produces fresh food for urban centres, cutting the need to transport food long distances.
- Reduced crop nutrient and machinery costs.
- Fruit and vegetables can be produced all year round in extreme environments, including communities in the far north of Canada or the arid regions of Africa and the Middle East. For example, AeroFarms is one of the largest vertical producers around the planet. The firm is based in Abu Dhabi and claims that by 2030, it will be one of the largest indoor producers of vegetables.
- It is claimed that vertical farming leads to reduced GHG emissions.
- A reduction in deforestation, i.e., it removes the need to open new areas for crops.
- Water use is reduced to what the plant needs. Many advocates for vertical farming believe it is more resilient to climate change than conventional methods.
Despite these benefits, vertical farming has problems, including higher energy costs than conventional crop production.
Vertical farming costs
Those who want to start a vertical farm first need a building. This is a capital investment, but some people start in small sheds or even buy abandoned containers to use, which is cheaper than purpose-built sites. In addition to a building, vertical farms need a wide range of specialised equipment, such as LED lighting, hydroponic systems, and heating and ventilation systems.
A study in 2022 concluded that producers must cut costs considerably to achieve profitability. Costly technologies hamper their cash flows, and vertical farms still require manual labour and produce crops at a smaller scale, putting them at a cost disadvantage compared to traditional outdoor farms.
The capital costs of setting up a vertical farm are often high—according to iFarm, implementation costs per square foot can be as high as $1000. The company also provides a cost calculator to estimate start-up and capital costs, monthly running costs, and revenues.
Energy Costs And Vertical Farming
Vertical farmers are also vulnerable to increases in energy costs, as all of its production requires light, ventilation, and temperature regulators. According to iFarm, energy typically accounts for 40% of production costs in vertical systems.
Many once believed that vertical farming had an extremely bright future. However recently, problems have arisen due to rising energy costs and some vertical farming companies are facing heavy losses of have even have gone out of business. Even with large investments already made, the sector still faces challenges, with large multinational companies going bankrupt because of this.
To overcome this, companies are investing in renewable energy, such as solar and wind. More than 6000m² of solar panels could be needed to produce 11 tonnes of lettuce. In many cases, this is economically unfeasible. For this reason, conventional production is often still cheaper, using soil and natural sunlight.
In some countries, government support helps vertical farms with energy costs. For example, within the UAE, the government subsidizes electricity for vertical farms. This makes it possible for companies like Bustanica to produce 31000m² of fully organic vegetables indoors.
New research has also shown that there are benefits in more dynamic environmental control that could positively impact crop growth, crop yield, energy use efficiency, and cost-effectiveness. This means managing lighting and energy use to ensure peak usage when the grid is quiet. Some crops can tolerate less light on days when energy is more expensive and receive more light at cheaper times. These kinds of adjustments in the cropping system can yield significant energy savings.
The sector also faces labour shortages as well as rising energy prices. Automation and robotics are possible solutions, but they also require significant capital investment.
Where is Vertical Farming Is Heading?
In a period of economic and political upheaval, many vertical companies are struggling. The current situation may be a setback. If vertical farming companies can adapt and innovate, then the future may hold good news in terms of viability and profitability.
According to Wageningen University professor Leo Marcelis, the hype over vertical farming is “over,” and the industry is in the “shake up and shake out” phase.
In the meantime, it is vital that those investing in the sector fully understand their costs and market. This means having a proper business and operational plan in place and a full understanding of the costs and risks involved. Contact us to find out more about how you can develop a comprehensive business plan for a new vertical farm.