Reviewing the case for indoor farming

A main argument widely used in the industry to justify the purpose for indoor farming is that consumers demand it – they demand local healthy food and that indoor farms are the answer.

We at Schmiede.one see this as the least impactful driving factor. The most critical reasons for the use of indoor farming at a large scale is the scarcity of land and water – the Californian drought for example, extreme weather variability, and poor growing environment conditions – such as those found in China and Japan. Indoor farming goes far beyond just being a way to cater to a niche consumer in an urban core – it can also be financially realistic at scale, highly efficient, and environmentally sustainable.

Indoor Farming

What is Indoor farming

Artificial Lighting: Advancements in LED lighting technology have enabled indoor farms to cost effectively produce vegetables compared to traditional grow lights and the previously more expensive form of LED lights. Despite lighting being one of the largest capital and operational costs it is also one of the areas that is projected to see the most technological advancements, reducing bulb costs and increasing energy efficiency.

Growing Capabilities: Surprisingly, any crop that can be grown outdoors can also be grown indoors under LED grow lights in a soil-less media. The choice of crop in many indoor farms tends to be weighted on the crop’s ease of production and revenue generating ability. The vast majority of indoor farms currently focus on leafy greens and herbs due to their ease of growing.

Closed Environment Agriculture (CEA): A closed environment farm is one which enables control over all growing variables: temperature, CO2, oxygen, water, nutrients, pH levels, and lighting. Indoor farms that create a closed environment are able to utilize data analysis to refine their growing methods in order to achieve the highest possible yield efficiencies. Additionally, they are able to create an environment that is independent to the environment outdoors. This enables the growers to eliminate the variable of weather and, as a result, grow crops in environmental conditions that they wouldn’t have otherwise been able to, such as exotic crops in a city, growth during droughts, and fresh produce in an arctic tundra.

Indoor Farming 2

Electricity costs for indoor lettuce derived from: Multi-layer production with LED, Wageningen University, Tycho Vermeulen, 2017
Outdoor farm data derived from: Comparison of Land, Water, and Energy Requirements of Lettuce Grown Using Hydroponic vs.
Conventional Agricultural Methods, International Journal of Environment and Public Health, G. Barbosa et al, June 2015
Indoor farm data derived from: http://www.meti.go.jp/english/policy/sme_chiiki/plantfactory/exam/spread.html

Takeaway: An important point to raise about the above chart is that the two highest costs for indoor farming are those that are projected to decrease the most drastically as technology advances. In regards to LED lighting, this figure represents the current energy requirements for a kg of lettuce as of 2017, which is a third of the energy requirements that was previously estimated in a study done in 2015. On the other hand, the employment requirements can be seen in two different ways. One way to look at the large amount of employees required for an indoor farm is that employment in indoor farms could provide effective economic stimulation through potential reduction in unemployment in a city. This is made possible since many of the employees required for certain indoor farm operations don’t require a formal horticulture background and are able to receive simple training quite easily. A second way of looking at it is that advancements in indoor farming technologies will enable more robotics and automation, which could enable an indoor farm to potentially run fully autonomously, thus eliminating the employment costs entirely.

Indoor Farming

Source of funding and founding dates: www.crunchbase.co

Takeaway: Above are a collection of companies that are some of the highest funded and unique among their niches. Although, this collection is not intended to accurately depict the health of the industry as for many indoor farms, despite having received substantial funding, have gone bankrupt or closed down within the past few years. PodPonics, an indoor farming startup founded in 2010 in Atlanta had a total raise of $15 million but went bankrupt in 2016 after struggling with their business model – in particular, their cost of labour. They have recently relaunched as a technology services provider under the brand Agrinamics. Our analysis of failed indoor farming startups has pointed to the hypothesis that failure is primarily due to the inability to structure and exercise a proper financial plan. This also creates the necessary emergence of consulting firms and associations focussed on indoor farms. Examples of such companies are Blue Planet Consulting founded in 2014 in Brooklyn, New York and the Association for Vertical Farming, a nonprofit organization, founded in 2013 in Munich, Germany.

Given our analysis, the indoor farming research team at Schmiede.one have concluded that sound financial planning such as accurate sales estimates and operational costing is the fundamental requirement for the success of indoor farming.

James B. Lindsay
James B. Lindsay

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