Navigant Research Blog

Indoor Farming: Land of Opportunity

Courtney Marshall — February 20, 2018

Plenty, a vertical farming startup, has generated lots of media buzz. So far it has raised $226 million and is associated with big names like Alphabet’s Eric Schmidt and Amazon’s Jeff Bezos. Plenty promises to grow crops efficiently while shortening supply chains and catering to customer preferences. However, there is more than just hype behind Plenty’s big names and big numbers. There are important political and environmental drivers that are pushing market incumbents into urban farming, signaling that indoor farming is not just a passing fad.

Enter China

National self-interest is driving China to invest in agtech solutions like indoor farming. The state-run Agricultural Development Bank of China has pledged $437 billion in loans to finance agricultural projects through 2020. This is $31 billion more than the value of the US’ entire agricultural production last year. Currently, China faces food security issues stemming from pollution, uncertain trade relations with foreign countries, a history of food safety crises, and a growing middle class. Pairing China’s food security issues with a well-funded farming startup like Plenty is a no brainer.

Securing Food In-House          

However, China isn’t the only player with skin in the game. Other countries facing food security issues are interested as well. Qatar, for example, relies heavily on expensive agricultural imports due to water scarcity and unproductive farming land, leaving the region vulnerable to supply shortages and price spikes. Saudi Arabia faces its own food security issues, which the country is attempting to alleviate through investments in foreign countries such as Sudan, Pakistan, and Ukraine. However, as indoor farming becomes more affordable, it will likely attract investors away from foreign agro-investments and toward local indoor solutions, which would strengthen resilience to issues stemming from food insecurities.

In addition to national self-interest, environmental issues are also prompting greater interest in indoor farming. As climate change threatens to disrupt weather patterns, indoor farming allows farmers to control the weather—and a number of other variables—allowing companies like Plenty to produce greater crop yields and higher quality food than traditional farmers. Indoor farming consumes less water, which will surely be on the minds of farmers and policymakers as climate change threatens to exacerbate drought around the globe. These farms also allow food to be grown safely away from pollution and contamination, which are becoming increasingly problematic as farmers overuse pesticides and fertilizers and as developing countries are faced with mounting pollution.

Headed to Greener Pastures?

Despite its wide-ranging benefits, LED technology for indoor farming is relatively new and is not yet economically viable on a large scale. In fact, a 2017 Agrilyst report found that only 51% of indoor farms in the US are profitable. This is the case for most young farms, as older facilities averaging 7 years or more have had time to realize greater returns from energy efficiency and operational savings. In order to gain traction, urban farmers should focus on crops that are in local demand and that will always be in demand, like salad crops, in order to establish their business. Once farmers begin generating a profit, they can then devote more resources to experimenting with other possibilities.

Tech innovation is on its way, helping to make indoor agricultural operations more efficient through enhanced applications like LED and data analytics. The problem is funding these investments. Hopefully, there are more Jeff Bezos of the world to support the indoor farming movement and help make the world a greener, more sustainable place. For more information on horticulture lighting, watch for our forthcoming report, LED Lighting for Horticultural Applications.

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