To say the vertical farming sector has experienced significant setbacks and failures in recent years is something of an understatement.
Speaking on a panel discussion at the recent World Agri-Tech Summit in Dubai, Henry Gordon-Smith, the vertical farming expert and CEO at advisory firm Agritecture, complained that back when this sector’s “hyped up rise” began in 2019 commentators were gushing it was the future of agriculture. Since then, one by one all of the biggest names have pretty much gone out of business or filed for bankruptcy.
Too many tech bros?
What happened? “A bunch of tech bros got into an industry pitching what was an innovative and incrementally transformative industry as a panacea to the world’s problems,” said Sky Kurtz, founder and CEO of Pure Harvest, which operates indoor vertical farms in the Middle East and North Africa.
Geopolitics, snowballing energy prices (particularly in Europe) and rising interest rates (mostly in the US) didn’t help. But essentially, added Gordon-Smith, “the Silicon Valley FOMO culture” ignored the agriculture and overhyped the tech.
But the promises of this tech were and are real, Kurtz insisted. What wasn’t were the promises of the pace of change. So today the sector finds itself at the other side of the hype cycle, and replacing the “audacious” claims of few years ago is the fear the baby will be thrown out with the bathwater.
The case for vertical farming
But there are cases were vertical farms make a tonne of sense, Kurtz stressed.
“There are lots of companies making money in this industry around the world,” he told the audience, listing the likes of Mucci Farms, NatureSweet, and the Costa Group in Australia. “The problem is the ones you heard about in the newspaper are the ones that weren’t.”
More honesty about “what’s real and what’s making money” would go a long way to inviting capital back to the industry long term, he remarked.
Pure Harvest is one company enjoying capital – it’s the second most funded start-up in the Middle East behind cloud kitchen company Kitopi. That’s largely thanks to its focus on removing “unnecessary automation” and producing high-quality premium products, which many argue is the strategy required by vertical farmers to be able to offset their high costs and achieve profitability.
Pure Harvest’s product range includes over 26 varieties of premium tomatoes, four varieties of premium strawberries, as well as multiple varieties of leafy greens and 100% natural tomato sauces.
“Vertical farms make economic sense in low light intensity crops that are rapid cycle and or very high value,” Kurtz explained.
What’s more, and in a nod to the top of the line Japanese strawberries grown by Oishii (one of the top-funded companies in the industry), Pure Harvest is set to launch a new line of “very premium, incredibly high-quality” Korean strawberries (renowned for their succulence and sweetness) targeted at affluent consumers prepared to pay top dollar for an elevated food experience.
Further, the company is as exploring plant propagation – the process of creating new plants from existing ones – to further improve its bottom line.
Go high or go home?
Another company concentrating on high-value crops is UAE-based Below Farm. It is growing speciality mushrooms, including oyster, shiitake and maitake, in the desert using controlled environment agriculture. Some, like lion’s mane and honey mushrooms, have never been grown before in the UAE and tap into both premium and wellness trends. The mushrooms are sold to restaurants, retailers, and direct consumers and also used to produce powders and extracts for the medicinal supplements industry.
“We knew from the get-go that the only way we were going to make this work is if we worked on high-value crops,” said the company’s founder Liliana Slowinska. It “never dared” compete in button mushrooms, a commodity in the category, she told attendees at the conference.
The company’s business model also incorporates circularity. This is another prospective route that may allow vertical farms to reduce operational costs and scale. Below Farm grows mushrooms using local raw materials, specifically date palm leaves, which are a byproduct of the UAE’s date farming industry.
Other vertical farms could also potentially use the large amounts of CO2 produced by mushrooms to enhance the growth of other plants, such as microgreens and leafy greens.
Schadenfreude
Slowinska, who founded the company in 2021, admitted to feeling some Schadenfreude at witnessing the travails of the vertical farming sector.
She believes the company suffered “for not being tech enough, not being sexy enough, not having robots and drones.”
But “eye-watering” levels of automation simply didn’t make sense for the company’s proposition. “We were lean, mean and scrappy. At that time, it was not what investors wanted to see.”
Size matters
A tendency towards over-engineering has been a common mistake in this sector, agreed Gordon-Smith.
Most of the successful, profitable vertical farms operating today are “niche, neighbourhood” farms, he said. These businesses sell out of products. They can connect with customers directly. They don’t need to over-engineer. They have an incentive to be scappy.
Sadly, these kinds of businesses are not typically those on investor radars. He lamented: “It’s really annoying that investors don’t see the farms that are contributing to the communities and want big, big, big all the time. Especially because new technologies take time to get there.”
Building massive vertical farms, he also complained, comes with “huge amounts of embodied energy, equipment, wasted energy, carbon footprint generation – for what?”
His advice to the sector is to focus on the product and the crop. “Obsess over customer,” he said. “Don’t obsess over the technology. It’s the most common mistake I see.”
Niche is key
Another mistake is to ignore the knowhow of growers. “We say do not invest in a vertical farming company if there is not a farmer on the C-suite because these are farming companies,” he pointed out. “It’s crazy how many of these companies have no farmer. The farmers won’t overhype the business. They are the ones responsible for the yields and the food safety.”
Ultimately, niche is key, he believes. “This is a relatively small market in the end, but an important one.”
