The only way is up – vertical farming presents a significant investment opportunity

According to the World Wildlife Fund, global food production currently accounts for one-third of greenhouse gases, 80% of deforestation, 70% of terrestrial biodiversity loss and 70% of all freshwater use.^[1] It is clear that our food production needs to scale up dramatically in order to meet the growing demand for food as our population expands.

What if there was a solution to feed our growing population in a sustainable way that was better for the planet and more resilient and flexible in the face of climate uncertainty and supply chain disruption? What if this solution was also closer to the consumer, offered higher crop yields and used smaller amounts of water and land versus traditional farming techniques?

Vertical farming does just that and is becoming a burgeoning sector.

Vertical farming is the practice of growing crops in vertically stacked layers.[2] It normally incorporates Controlled Environment Agriculture (CEA) techniques which aim to optimize growing conditions. These systems are typically hosted in enclosed structures where control can be imposed on environmental factors including air, temperature, light, water, humidity, carbon dioxide and plant nutrition.[3]

It normally also deploys soilless farming techniques such as hydroponics (nutrient-enriched water), aquaponics (fish eating the plants and producing a natural fertilizer) and aeroponics (growing plants in an air or mist).

 

Farming reaches new highs

Vertical farming systems have been constructed in buildings, tunnels, shipping containers and even abandoned mineshafts. As of 2020, there was an estimated 30 hectares of operational vertical farmland around the world.

This vertical farmland is currently used to grow mostly different varieties of herbs, salads and leafy greens. However, there are those who believe that entire fruit and vegetable baskets can – and will, over time – be grown using CEA techniques.

As the global population expands and the fight against climate change intensifies, vertical farms offer a  solution to several issues. The benefits are vast, from increased water and land-use efficiency and a reduction in the use of pesticides to decreased transportation requirements (because production can be brought closer to urban centers), year–round production and protection from environmental shocks like adverse weather events.

Disrupting agriculture

One day soon, we could be eating bananas grown in a European city. Supporters of more sustainable agriculture have high hopes of vertical farms.

Anders Riemann, chief executive of Denmark-based Nordic Harvest, Europe’s largest vertical farm operation, plans to grow 1000 metric tons of spinach, rucola, basil, mint and coriander each year, 100% powered by certified wind energy. According to Riemann, growing the same amount of produce using traditional farm practices would entail 467 hectares of land (or around 467 rugby pitches).[4]

Across the Wadden sea in the Netherlands, Erez Galonska, co-founder of Dutch vertical farming startup Infarm, believes that vertical farming has potential outside of just leafy greens. Currently, the company grows more than 70 different varieties of herbs, salads and leafy greens.[5] Infarm also recently became Europe’s first vertical farming unicorn in a $200 million funding round that valued the company at more than $1 billion in December 2021. The company already has plans to expand its portfolio to include, amongst other things, mushrooms, peas and strawberries by the end of 2022.

Vertical growers are also appearing in Germany, France and the UK. Germany, for example, is already home to the Association for Vertical Farming, the “leading global, non-profit organization that enables international exchange and cooperation in order to accelerate the development of the indoor/vertical farming industry.”[6] In France, vertical farming startup Jungle recently raised €42 million to create a Farming-as-a-Service operation which now maintains farms on behalf of third-party growers. The company already manages a more than a half-hectare farm in the French Aisne region.[7] In the UK, Worcestershire-based Shockingly Fresh is also already harvesting thousands of bunches of pak choi and lettuce destined for supermarket shelves – in their case in a naturally-lit farm.

 

From small seeds grow mighty fruits

We are still in the early days of this industry. If indoor farming is to realize its potential to increase fruit and vegetable production globally, the diversity of crops that can be grown indoors must increase.

CRISPR technology, for example, has the potential to unlock the vertical farming of crops of everything from cucumbers to mangoes and even almond trees. While it is unlikely that wheat or rice could ever be grown indoors, urban farms are likely to be interested in plants that have high value, freshness and perishability where proximity to the consumer is more important.

If these applications of genetic technology to modify plant architectures are successful, we may see, first of all, the fruits and vegetables that grow on bushes and vines migrating to vertical farms, such as raspberries, blueberries, cucumbers, capsicum and grapes. Specialist crops are likely to come next such as hops, vanilla, saffron and coffee. It is even possible that one day small trees such as chocolate and almond trees are grown indoors.[8]

For this to happen, there are also many challenges. For one, the capital and operating costs for CEA must come down drastically. However, if Wright’s Law is anything to live by, this should happen sooner rather than later.

 

Related ETF

FOOD: Rize Sustainable Future of Food UCITS ETF

 

References:

[1] Bloomberg, “Can indoor farms reach skyscraper heights?”, December 2021. Available at: https://www.bloomberg.com/news/features/2021-12-13/farmscraper-design-takes-vertical-farms-to-new-heights

[2] Wikipedia, “Vertical farming”, 29 December 2021. Available at: https://en.wikipedia.org/wiki/Vertical_farming

[3] IBID

[4] Politico, “Vertical farming’s sky-high ambitions cut short by EU organic rules”, January 2021. Available at: https://www.politico.eu/article/vertical-farming-eu-organic-rules-startups/

[5] CNBC, “A Dutch vertical farming company has just been valued at over $1 billion”, 16 December 2021. Available at: https://www.cnbc.com/2021/12/16/infarm-vertical-farming-firm-valued-at-over-1-billion-by-investors.html

[6] Association for Vertical Farming, “About Us”, January 2022. Available at: https://vertical-farming.net/

[7] ESCP, “We met the founder of Europe’s largest vertical farm”, June 2021. Available at: https://thechoice.escp.eu/their-choice/we-met-the-founder-of-europes-largest-vertical-farm/

[8] Genetic Literacy Project, “CRISPR technology opens door to vertical farming of dozens of crops, from strawberries and cucumbers to mango and almond trees”, January 2020. Available at: https://geneticliteracyproject.org/2020/02/20/crispr-technology-opens-door-to-vertical-farming-of-dozens-of-crops-from-strawberries-and-cucumbers-to-mango-and-almond-trees/