Rize ETF | Investing in Vertical Farming

Key takeaways

Vertical farming is a new agricultural technology that uses controlled-environment agriculture to grow crops in vertically stacked layers.

The vertical farming market is growing rapidly, and it is expected to reach a value of $31.6 billion by 2030.

Vertical farming has a number of advantages over traditional farming, including increased yields, reduced water usage, and reduced pesticide use.

Featured Article

The global food industry has for centuries been concerned about increasing yields while keeping input costs low. In recent years, technological advances have precipitated this thinking. The convergence of both hard and soft science has prompted many companies to refine their approaches to farming (e.g. sustainable agriculture), and in some cases, develop entirely new approaches altogether (e.g. vertical farming), many of which we would be deemed science fiction just a few decades ago. The rapid leveraging of technology in how we produce food is now set to kickstart a new agricultural revolution. We believe sustainable agriculture is creating fresh opportunities for investors.

The world has seen numerous cycles of innovation in agricultural technology. From the upgrade of wood-based plows to metal-based ones, the use of oxen to the Internal Combustion Engine cars, and from traditional farming methods to those guided by GPS for crop plantation, fertilisation and irrigation – all of these transitions have helped us make significant leaps in productivity. Agriculture has long been a hallmark of human ingenuity – a seminal one, in fact. Yet, one of the things that has remained constant in agriculture has always been its starting point. That is, the act of putting seeds in the soil. However, today, even that is changing.

Hydroponics and indoor farming

Hydroponics, or the process of growing plants in nutrient rich water without using soil, is now being used to grow everything from tomatoes, cucumbers and peppers to fresh leaf lettuce, basil, and spinach.¹ And several forces have aligned to create incredible economies of scale in the space. Estimates today suggest that a 30-story building with a 5-acre basal area² would be able to produce the same amount of food as a 2,400-acre farm.³ Let’s also not forget other positives. Bringing crops indoors means improved climate control (for example, an unexpected freeze in Florida would not impact frozen orange juice markets),⁴ fewer input resources (for example, hydroponics use between 70-95% less water than conventional farming methods)⁵ and a lesser need for pesticides (which in turn creates a better and healthier product for the consumer while having a less damaging impact on the environment).

Vertical farming does have a few hurdles, however. Pollination is one. With no bugs flying around, pollination must currently be done manually. This is manageable in small-scale operations, but terribly limiting if we are aspiring for scale. Another issue is that traditional farming requires sunlight. In vertical farming, however, plants get their light from light bulbs, which in turn require electricity. Now, getting light is not the issue, but as with any other technology-based industry, electrical infrastructure is a must-have for any hydroponic operation, which may be limiting in some parts of the world.

Vertical farming market size and forecast

In the US, the vertical farming sector is currently growing at a rate of 25.2% per annum. The market is expected to hit a size of $31.6 billion by 2030 from $3.3 billion in 2020.⁶ Public market investors have a number of ways to take advantage of this potential upside.

Vertical and indoor farming stocks

Publicly listed companies planting the way in vertical farming include AppHarvest (APPH), Hydrofarm Holdings (HYFM), and Village Farms International (VFF). Recently formed blank check company or SPAC, Spring Valley Acquisitions (SV), is another name in the space, having recently announced its acquisition of privately held Aerofarms, an indoor vertical farming company.⁷ Norway-based Kalera (KSLLF) and Canada’s Cubicfarm Systems (CUBXF) are two other companies trying to bring commercial-scale innovation to this emerging sector.

The combined market capitalisation of these companies sits just above $5.1 billion, which suggests the segment is still in its relative infancy. Yet, investment in indoor agriculture more than doubled to $1.3 billion in 2020 as part of the larger doubling of agri-food investment that reached $22.3 billion last year.⁸ Even more interesting, when you look at the clients of these companies, they already include the major giants of the food industry including, but not limited to, Costco (COST), Target (TGT) and Walmart (WMT), and even Sysco (SYY) and Marriott (MAR) which, in our view, sets up the industry well to take advantage of future growth.

With global populations expected to hit 8.5 billion by 2030,⁹ and available arable land on the decline,¹⁰ there are those who would invoke the ghost of John Malthus to raise resource alarms. Our view is that, like every time since his first publication of “An Essay on the Principle of Population” in 1798, there are always going to be new technologies that wring out new and innovative solutions. Indeed, technology is now aiding human ingenuity in ensuring a future for farming can feed the ever-growing global population. After all, creating efficiencies by going vertical has been applied to many things, ranging from real estate¹¹ to solid state drives¹² and, if you have steady hands, Jenga.¹³

This Featured Article has been produced by Tematica Research LLC. Rize ETF Ltd make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability or suitability of the information contained in this article.

References

The National News, “From paddy fields to UAE deserts: The farmer growing rice using hydroponics”, August 2015. Available at: https://www.thenationalnews.com/uae/from-paddy-fields-to-uae-deserts-the-farmer-growing-rice-using-hydroponics-1.46990

Wikipedia, “Basal Area”, 2021. Available at: https://en.wikipedia.org/wiki/Basal_area

Research Gate, “The Vertical Farm – A Review of Developments for the Vertical City”, February 2018. Available at: https://www.researchgate.net/publication/322938761

Rotten Tomatoes, “Trading Places”, 2021. Available at: https://www.rottentomatoes.com/m/trading_places

Columbia Climate School, “How Sustainable is Vertical Farming? Students Try to Answer the Question”, December 2015. Available at: https://blogs.ei.columbia.edu/2015/12/10/how-sustainable-is-vertical-farming-students-try-to-answer-the-question/

Precedence Research, “Vertical Farming Market Size To Hit US$ 31.6 Billion By 2030”, 2021. Available at: https://www.precedenceresearch.com/vertical-farming-market

Business Wire, “AeroFarms, the World Leader in Indoor Vertical Farming, to Become Publicly Traded Company through Combination with Spring Valley Acquisition Corp”, March 2021. Available at: https://www.businesswire.com/news/home/20210326005074/en/AeroFarms-the-World-Leader-in-Indoor-Vertical-Farming-to-Become-Publicly-Traded-Company-through-Combination-with-Spring-Valley-Acquisition-Corp

Just Food, “Agri-food tech investment soars with notable emergence of SPACs”, April 2021. Available at: https://www.just-food.com/news/agri-food-tech-investment-soars-with-notable-emergence-of-spacs-study_id145612.aspx

United Nations, “World Population Prospects 2019”, 2019. Available at: https://population.un.org/wpp/Publications/Files/WPP2019_Highlights.pdf

The World Bank, “Arable land (% of land area)”, 2021. Available at: https://data.worldbank.org/indicator/AG.LND.ARBL.ZS?end=2018&start=2014

Burj Khalifa, “The Tower”, 2021. Available at: https://www.burjkhalifa.ae/en/the-tower/facts-figures/

Semi Engineering, “3D NAND’s Vertical Scaling Race”, December 2020. Available at: https://semiengineering.com/3d-nands-vertical-scaling-race/

Jenga.com. Available at: https://jenga.com/

Key takeaways

Hydroponics and indoor farming

Vertical farming market size and forecast

Vertical and indoor farming stocks

References

Select Your Country

Select Your Investor Type