Saturday, December 2, 2023

Greens shaded by hype in vertical farm systems

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Few unsettled years ahead for ‘controlled environment agriculture’, analyst says.
‘Controlled environment agriculture’ growing systems have had too much hype, which will take some years to work through, says Agritecture’s Henry Gordon-Smith.
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Controlled environment agriculture, which includes indoor vertical farming, offers some opportunities but needs to drop the hype before success in the sector will be fully recognised in coming years.

So says international controlled environment agriculture, or CEA, consultant Henry Gordon-Smith. He offered some insights, and some realism, to the much-hyped sector at a recent seminar sponsored by Plant & Food Research and Callaghan Innovation.

Gordon-Smith has consulted to 200 companies investing in CEA across 40 countries, assisting with business cases, sizing and exploring market opportunities.  He was named a top 20 global food and agriculture influencer by Rabobank in 2019.

The CEA sector was valued at $US2.13 billion ($3.38bn) in 2018, and expected to grow to US$12.04bn by 2026.

However, high energy costs are the continuing bugbear for the sector in the northern hemisphere, said Gordon-Smith. He said many companies are also repeating the same mistakes others have made in not researching markets, starting off too large, and not costing operations properly before kicking off.

The northern hemisphere market has experienced a shake-up recently in the CEA landscape, with four companies going bust since 2019, four restructuring and another three in the process of “re-strategising” their operations. 

The collapses, coming after some high-profile fundraising, contain echoes of the alt-protein market that, like CEA, has attracted vast sums of Silicon Valley funding in recent years. 

“People get hyped up, raise a bunch of money and risk failure,” he said.

Gordon-Henry did not sugar-coat the sector’s immediate prospects.

He said it is coming out of its initial peak of “inflated expectations”, and is moving towards what he termed a “trough of disillusionment” before reaching the more mature phase of stable investment.

In the two-year window ahead, he anticipates the world will see strong growth in the Middle East and Africa, where continuing population growth, water scarcity and being at the sharpest end of climate change are all affecting food security. 

Issues around covid and the Ukraine war’s impact on supply chains mean issues of food security remain top of mind there.

Gordon-Smith said “hybridisation” of the sector is happening, where different growing technologies merge, and even where CEA-raised crops are transplanted into outdoor operations. 

New Zealand cannabinoid company Eqalis has already started such an operation, moving plants raised vertically in its Katikati operation out to Matakana Island near Tauranga to fortify the stock (see “High tech backs cannabis crop opportunity”, March 27).

Beyond two years, Gordon-Smith was confident the barrier of high energy footprints for CEA will be dealt with through more sustainable, lower cost energy inputs. 

He expected to see global crop losses from climate change really ramp up from 2027, providing a further catalyst for sector expansion.

Come 2033 onwards he expects “low-tech” CEA could become mainstream to provide local communities with supplies, with “out of the box” CEA systems being purchased and installed in assorted configurations. 

Already there are positive stories about low-tech CEA helping refugee groups and communities in places such as Cairo.

Given NZ’s small size, Gordon-Smith said the question “Why bother?” could be asked about CEA here.

“But in NZ, there is not really that much flat land as in other countries, and around Auckland the urban growth impacts upon the ability to grow crops like leafy greens in the future.”

He also highlighted NZ’s proven track record in agri-tech, with the growth in demand for water tech, sensors and energy systems all offering opportunities for that sector.

To get through the “trough of disillusionment” to a more mature market may even require the collapse of some larger companies to prompt more reasoned investment response, he said.

“And we are starting to see that happen. As farms fail a new era begins where we have honest discussions.” 

He sees two solid years of bad vertical farming news before the trough comes to an end.

Asked why leafy greens seemed to be the predominant crop for CEA, Gordon-Smith said the economics of operations require fast-growing crops to match cash flow demands. 

They also have to be crops with a high portion of edible bio-mass, hence greens being popular compared to “woody” species like berries. 

Thirdly, it has to be a crop that can be transported well, with infrastructure in place to manage its handling and transport.

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