Is vertical farming expensive?
Is vertical farming expensive?
Lots of people are talking about the benefits of vertical farming, but there is far less transparency about how much it costs. Vertical farming technology and business models are relatively new, so there is good reason to exercise caution, understand its risks and do the appropriate research before jumping into the controlled environment agriculture industry. As with most business ventures, there are many factors that can impact whether a vertical farming business is not only successful, but profitable.
Initial investment
There’s no getting away from it - a vertical farm is a substantial investment. Our own indoor farming solutions pricing start at £99,000. We model between 3-5 years payback period on our systems, though have seen it achieved faster. Larger systems can vary in cost from £800/sqm to >£3000/sqm, depending on system complexity.
The most common ways to fund a vertical farming system are usually a blend of the following: grant funding, personal finance, asset finance (a loan from a bank or similar), or equity (outside parties invest in the business for a stake in the company).
One benefit of a vertical farming facility is that it can operate in different markets, geographies and demographics. This also means that every business scenario is different, so a replicable business model is sometimes difficult to achieve. However, understanding variants in local costs or sales prices will mean you can allow for them in your business model and help to set yourself up for success.
The profitability of a vertical farm rests on the price you are able to sell your produce for, but also in securing a reliable customer base. The chosen business and distribution models can have a big impact on how quickly you make back your initial investment.
High value crops such as microgreens can command a high price point per kg, as they are often sold to mid or high-end restaurants. However these customers require smaller volumes and change menus regularly, so would be suited to a smaller facility or container farm. Larger facilities may be able to become profitable in a similar time frame selling lower value produce to food manufacturers, for example. Often, it’s also a good idea to have a blend of customers to spread risk - for example, a wholesaler might take a bulk of your produce to lower distribution or administration costs, whilst you also provide smaller amounts to restaurants.
Operational costs
Using an aeroponic system offers the opportunity to reduce a variety of operation costs. These systems require up to 30% less water than hydroponics, and the ability to precisely control the amount of nutrients given to specific crops also means less fertilizer is used.
The nature of indoor farming means that there are also operational cost increases, such as to supply electricity to LED lighting, as well as the heating and cooling systems - though of course there is the option to control lighting and heating cycles to your advantage. Making use of renewable energy can also begin to mitigate these costs. LettUs Grow have partnered with Octopus Energy to offer the very first vertical farming tariff, which lowers these costs by allowing greater control and flexibility for growers. Your types of crop, price point and labor or distribution costs can be set to allow for energy cost fluctuations and this modeling should be consistently reviewed.
An ideal scenario would be to connect with a direct renewable energy supply, such as solar panels. Recent research suggests there could also be the potential to capture residual heat energy generated by HVAC systems and redistribute it to surrounding urban areas, though this isn’t likely to be an available technology if you’re setting up a farm in the near future.
Consistent year-round revenue
Perhaps the greatest economic benefit of vertical farming is the ability to operate year-round. An indoor facility is not restricted by climate or weather, so you can grow in the UK 365 days of the year. You will not lose profit to freak weather occurrences and you are also less likely to lose batches due to pests and diseases. Therefore revenue is far more consistent and easier to project within a vertical farm. Growing in these systems also benefits the planet, since there’s less need to transport food from overseas, which can be particularly carbon heavy - especially via air travel.
The productivity benefits of systems that use aeroponics can also boost profits: faster growth rates means more harvests and greater yields. You’re also likely to be able to boost your revenue by supplying fresh crops out of season: for example, basil in the winter.
Sustainable farming can be a sustainable business
We believe that choosing eco-friendly methods of farming should be rewarded. That’s why we are dedicated to supporting anyone interested in a DROP & GROW container farm with feasibility studies and business modeling. We understand that everyone’s situations are different, but our comprehensive economic model and knowledgeable team can help build a business plan that works for you.
You can find out more by speaking to the business development team about your business ideas or plans.