Economic Viability of Vertical Farming: Overcoming financial obstacles to a greener future of farming

Photo: Indoor and vertical farming may be part of the solution to rising demands for food and limited natural resources. Source: U.S. Department of Agriculture

 

Economic Viability of Vertical Farming: Overcoming financial obstacles to a greener future of farming

 

With world population projected to reach 9 billion by 2050, the United Nations Food and Agricultural Organization portends a truly alarming statistic: the amount of available arable land will decrease to only one-third of the amount that was available in 1970.[1] As climate change is expected to increase drastically over the next few decades, we will see more instances of intensifying heat stress, droughts, and damage to ecosystems that will only further hinder our ability to grow crops to feed the billions of people that exist on our planet.[2] A new, more innovative method of food production is desperately needed. Vertical farming is one promising alternative that consists of plants stacked vertically in tall built environments, usually in urban hubs. This method of farming uses less than one percent of the land conventional agriculture does and consumes one percent of the amount of water.[3] Vertical farming has the potential to significantly increase food production while reducing the environmental footprint of the agricultural sector by reducing land, water, chemical, and fertilizer use and increasing overall efficiency. While the environmental benefits are well documented, the economic feasibility of vertical farming is the key barrier. However, I argue that while there are large upfront costs associated with vertical farming, the economic benefits associated with increased efficiency and decreased resource use tied with its increased sustainability clearly outweigh these costs.

 

The main barrier to vertical farming implementation are the large upfront costs. High capital expenditures are a result of both the higher real estate values per square meter in urban centers as well as the infrastructure needed to regulate plant growth.[4] For example, in Australia, the average cost of land per square meter in the city center of Melbourne is $3,491, whereas the same amount of land costs only $0.40 in rural areas where conventional farms exist.[5] Furthermore, because plants are grown indoors and have limited access to sunlight, steady access to LED lights are a necessity. Opponents of vertical farming argue that the amount of energy required to produce enough light for photosynthesis of crops in just one 37-story vertical farm facility requires a net total of 3.5 GWh of electricity at about $6 million a year. Overall, just one vertical farm facility may require hundreds of millions of dollars in upfront infrastructural costs and equipment. [6]

 

On the other hand, many elements of vertical farming help outweigh the upfront costs once a facility is up-and-running. For one, while real estate prices may be higher in urban areas, the localized production of crops near high density population centers will greatly reduce transportation costs.[7] In turn, this will eliminate fluctuations in wholesale produce prices due to the variability of fuel prices at any given time.[8]

 

The most important factor that makes vertical farming economically viable, however, is the controlled conditions under which it functions. Unlike traditional agricultural production, the external environmental conditions that impose further costs on farmers have a very limited effect on vertical farms.[9] For example, the need for fertilizers and pesticides (and the ensuing costs thereof) would be almost entirely eliminated because the crops would not be open to the elements and would thus be inaccessible to pests.[10] Because the effects of seasonality are also diminished due to internal regulation of temperature, humidity, and access to light and water, conditions can be fine-tuned to optimal levels. This results in a large increase in production rate, sometimes producing crops at yields 530 times greater than would be produced on conventional farmlands of the same size.[11] Additionally, control of nutrient levels and ambient temperatures will optimize the rate of plant growth and increase its nutritional value.[12] For example, at vertical farm VegataFarm in Tokyo, lettuce that would have taken at least 60 days to grow in the field only takes about 40.[13] The combination of higher yields and more efficient production rates help balance and even counteract high capital expenditures.

 

Further, the affordability of vertical farming will increase each year as climate change threatens more and more arable lands. In other words, the increased spending that will be needed to sustain the agricultural sector as land and environmental conditions become less suitable for crop growth will begin to overshadow the higher capital costs of vertical farming.[14] In addition, an added benefit of being able to control photosynthetic elements, amount of water, and nutrient intake of specific crops is that it enables scientists to adjust the taste of produce, which may make crops produced in a vertical farm more marketable.[15] Thus, despite the high capital costs required of vertical farming, this alternative to conventional farming not only reduces production costs in the long run, but is crucial to finding a solution to our growing food demands.

 

So, just how economically viable is the prospect of replacing broadacre farms with vertical farms? As is the case with renewable energy, this answer lies in the hands of investors and governmental funding. The high capital expenditures of implementation and maintenance may make vertical farming marketable only in cities and nations that have substantially high purchasing power.[16] Thus, because the costly real estate and infrastructure requirements may deter companies from tackling vertical farming, steps must be taken to surmount these costs and incentivize the development of vertical farms. The United States Department of Agriculture received $140 billion in funding in Fiscal Year 2018. Over $20 billion in direct subsidies went to traditional farmers in 2011.[17] These subsidies will ensure that crops produced by conventional agriculture will sell for lower than their actual value, which will greatly hinder the potential success of vertical farms.[18] Because traditional agriculture can supply food cheaply, it is currently unlikely that vertical farms will flourish unless subsidized to some extent by the federal government.[19] At the same time, under the Agriculture and Food Research Initiative Competitive Grants Program designed by the USDA, vertical farming has been listed as a Program Area Priority for further study and potential implementation.[20] The USDA also offers support to farmers who adopt conservation practices, presenting the possibility of vertical farming receiving federal funding.[21]

 

Currently, however, private investments support the bulk of vertical farm implementation. The National Science Foundation recently granted researcher Neil Mattson at Cornell University $2.4 million to investigate the workforce development and economic viability of crops grown in a controlled environment in order to optimize horticultural practices.[22] SoftBank Vision Fund invested $200 million in Plenty, a startup company that is using vertical farming to produce millions of pounds of greens and is planning on expanding to urban areas in China.[23] As companies begin to get their feet on the ground and adapt internal measures and improve LED lighting efficiency, productivity can be maximized and quality of produce will be consistent year-round.[24] Streamlining of vertical farming and further research has the potential to reduce the cost in the future.[25] Overall, increased investment and funding must be used towards tackling upfront costs of vertical farming.

 

It seems clear that innovations are desperately needed at a point in time where our current agricultural practices are not capable of supporting future populations. The current market is ripe for cutting-edge technologies that emphasize high levels of energy and production efficiency. While vertical farming requires overcoming upfront costs, an agricultural system that produced a total 5.3 billion tonnes of CO2 in 2011 must be replaced in order to protect the stability of the planet.[26] According to Dickson Despommier, if every city were to grow just 10 percent of their food indoors in vertical farm-like facilities, this would free up over 881,000 km2 of farmland that could then be reverted to hardwood forest, an area large enough to absorb about 25 years’ worth of CO2 out of the atmosphere.[27] Ultimately, vertical farming is a sustainable alternative that, given the chance, can become the future of farming in a resource-deficient world.

 

Works Cited

[1] Benke, Kurt, and Bruce Tompkins. “Future Food-production Systems: Vertical Farming and Controlled-environment Agriculture.” Sustainability: Science, Practice and Policy. 13, no. 1 (November 20, 2017): 13-26. doi:10.1080/15487733.2017.1394054.

[2] Benke, Kurt, and Bruce Tompkins. (2017).

[3] “The Crops on This Farm Are Grown Vertically.” CNNMoney. Accessed March 05, 2019. https://money.cnn.com/video/news/2018/02/07/plenty-indoor-vertical-farming.cnnmoney/index.html.

[4] Benke, Kurt, and Bruce Tompkins. 2017.

[5] Benke, Kurt, and Bruce Tompkins. “Future Food-production Systems: Vertical Farming and Controlled-environment Agriculture.” Sustainability: Science, Practice and Policy. 13, no. 1 (November 20, 2017): 13-26. doi:10.1080/15487733.2017.1394054.

[6] Adenaeuer, Lucie. (2014). “Up, Up and Away! The Economics of Vertical Farming.” Journal of Agricultural Studies. 2. 40-60. 10.5296/jas.v2i1.4526.

[7] Benke, Kurt, and Bruce Tompkins. “Future Food-production Systems: Vertical Farming and Controlled-environment Agriculture.” Sustainability: Science, Practice and Policy. 13, no. 1 (November 20, 2017): 13-26. doi:10.1080/15487733.2017.1394054.

[8] Volpe, Richard, Edward Roeger, and Ephraim Leibtag. How Transportation Costs Affect Fresh Fruit and Vegetable Prices, ERR-160, U.S. Department of Agriculture, Economic Research Service, Noverber 2013.

[9] Feliciano, Ivette, and Zachary Green. “Could Indoor Farming Help Address Future Food Shortages?” PBS. November 11, 2017. Accessed March 05, 2019. https://www.pbs.org/newshour/show/could-indoor-farming-help-address-food-shortages.

[10] Benke, Kurt, and Bruce Tompkins. (2017).

[11] Shieber, Jonathan. “Billionaires Make It Rain on Plenty, the Indoor Farming Startup.” TechCrunch. July 19, 2017. Accessed March 05, 2019. https://techcrunch.com/2017/07/19/billionaires-make-it-rain-on-plenty-the-indoor-farming-startup/.

[12] Goldstein, Harry. “The Green Promise of Vertical Farms.” IEEE Spectrum: Technology, Engineering, and Science News. June 02, 2018. Accessed March 05, 2019. https://spectrum.ieee.org/energy/environment/the-green-promise-of-vertical-farms.

[13] Goldstein, Harry. “The Green Promise of Vertical Farms.” IEEE Spectrum: Technology, Engineering, and Science News. June 02, 2018. Accessed March 05, 2019. https://spectrum.ieee.org/energy/environment/the-green-promise-of-vertical-farms.

[14] Benke, Kurt, and Bruce Tompkins. (2017).

[15] “The Crops on This Farm Are Grown Vertically.” CNNMoney. Accessed March 05, 2019. https://money.cnn.com/video/news/2018/02/07/plenty-indoor-vertical-farming.cnnmoney/index.html.

[16] Adenaeuer, Lucie. (2014).

[17] United States Department of Agriculture.  USDA Budget. 2018. Accessed March 5, 2019.

[18] Adenaeuer, Lucie. (2014). “Up, Up and Away! The Economics of Vertical Farming.” Journal of Agricultural Studies. 2. 40-60. 10.5296/jas.v2i1.4526.

[19] Adenaeuer, Lucie. (2014).

[20] Agriculture and Food Research Initiative (AFRI). Report. United States Department of Agriculture National Institute of Food and Agriculture, 2018.

https://nifa.usda.gov/sites/default/files/rfa/FY-2018-AFRI-Foundational-RFA.pdf

[21] USDA, Economic Research Service, “Conservation Programs Overview,” ARMS Data, https://www.ers.usda.gov/topics/natural-resources-environment/conservation-programs/.

[22] Ramanujan, Krishna. “Viability of Indoor Urban Agriculture Is Focus of Research Grant.” When Opting for Happiness or Income, Many Go for the Cash. October 12, 2017. Accessed March 05, 2019.

[23] Garfield, Leanna. “A Jeff Bezos-backed Warehouse Farm Startup Is Building 300 Indoor Farms across China.” Business Insider. January 23, 2018. Accessed March 05, 2019. https://www.businessinsider.com/vertical-farming-company-jeff-bezos-plenty-china-2018-1.

[24] Feliciano, Ivette, and Zachary Green. “Could Indoor Farming Help Address Future Food Shortages?” PBS. November 11, 2017. Accessed March 05, 2019. https://www.pbs.org/newshour/show/could-indoor-farming-help-address-food-shortages.

[25] Adenaeuer, Lucie. (2014). “Up, Up and Away! The Economics of Vertical Farming.” Journal of Agricultural Studies. 2. 40-60. 10.5296/jas.v2i1.4526.

[26] “Agriculture’s Greenhouse Gas Emissions on the Rise.” International Rice Commission Newsletter Vol. 48. April 11, 2014. Accessed March 05, 2019. http://www.fao.org/news/story/en/item/216137/icode/.

[27] Goldstein, Harry. “The Green Promise of Vertical Farms.” IEEE Spectrum: Technology, Engineering, and Science News. June 02, 2018. Accessed March 05, 2019. https://spectrum.ieee.org/energy/environment/the-green-promise-of-vertical-farms.

3 thoughts on “Economic Viability of Vertical Farming: Overcoming financial obstacles to a greener future of farming

  1. Krista, this is so fascinating! With the DukeImmerse about food last semester, we discussed indoor/vertical farming a little bit and I definitely found myself on the ‘pro’ side of the argument. As you articulate very well, vertical farming gives us so much potential for high-efficiency food production. In fact, I wonder if there is a way to decrease the necessity of LEDs by building these “farms” in a way that allows as much sunlight in as possible. I’m also curious if we could reduce land costs by building these more in suburbs rather than in urban centers. The one concern that a government official in the Central Valley of CA brought up to us was that the land formerly used for conventional farming would more-than-likely be converted into residential or commercial buildings or other impervious surfaces. Currently, farms in the outskirts of suburban areas already do so much to reduce flood risk and by eliminating them, potential damage would be even higher. That said, though, if there were a way to ensure the conversion of this land into forest, I would be so excited about this technology! The one other aspect of vertical farming that I struggle with is that I love how much different regions take ownership over certain products and I find seasonality to be such a beautiful thing in food. Vertical farming would certainly reduce or eliminate these things, but it is nice to have a mango in December that only travelled a few miles!

  2. I think it is interesting to think about the political and lobbying power that big agriculture has and how that could effect the transition to vertical farming. You laid out the costs and benefits really nicely along with our country’s need to adopt more innovative methods of farming and the obstacles that are in place. I think another facet of this topic is also taking into account the power that large broadacre farms have and how this could be another obstacle and could impact legislation and funding that support vertical farming innovations.

  3. Is there any research into “home” vertical farming systems? It would be interesting to see that, if the systems exist at an affordable price, if city dwellers in apartments would begin to utilize these systems in their own apartments. While this isn’t the exact problem addressed, it would be something interesting to look into.

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