A few things to keep in mind as you read my article…
First, it’s written from the perspective of an American active in the CEA industry since 2004. Second, it’s written from the perspective of someone who invested their own money and sweat into the industry. And, finally, it’s written from the perspective of someone who wants the industry to succeed.
For the past few months, many in the industry have focused on the negative — it’s hard not to. They point out the amount of companies failing or falling on financial hardship. They focus on the lack of new projects or new opportunities. They revert back to the way we have always done things, whether that be greenhouse production in Canada, Mexico, Netherlands or traditional high-volume field production.
This makes me ask myself the question, were we and are we full of shit?
I ask this because, leading up to the massive ag-tech investments we saw between 2012-2022, we made big claims on how (first) vertical farms and (second) U.S.-based commercial greenhouses would change the face of specialty crop production. Specifically, the production of lettuce, herbs, tomatoes, peppers, cucumbers and (finally) strawberries in the U.S. and often near urban centers.
If we were full of shit, then the industry is doomed to its current existence and historical boom/bust cycles. But if we believed in the reasons this trend started, then everything else is simply noise.
Why did we suddenly become interested in Controlled Environment Agriculture (CEA)?
Remember, CEA includes greenhouse-grown veggies, vertical farms and more.
I found my way into controlled environment agriculture when I was recruited away from ornamental horticulture by a Dutch company in 2004. Greenhouse vegetable production was anything but new at that time. It was around for decades and, depending on the country or region it operated in, had varying degrees of commercial success.
By 2008, I became attracted to a new take on CEA. (At that time, the term CEA was only used by a handful of researchers, most notably at the University of Arizona in the U.S.) Why was I attracted? Because I started seeing CEA’s potential to tackle and possibly provide solutions to broader issues such as:
- Climate Change: Climate is definitely affecting farmers around the globe, especially farmers of sensitive specialty crops. It seems that now, more consistently, you have either too much or too little of everything. Too much rain, not enough water. Too much sun, not enough sun. More extreme heat and cold events. More pests. More disease. So forth and so on. CEA allows you to control some of these variables for the crops listed above.
- Water: Water is a natural resource that I am constantly drawn to. Maybe because it fuels my pastimes or maybe because I live in Texas, and it seems like we never have enough water. (Facts show this is happening more consistently and is compounded by a rapidly growing population.) Data also shows that traditional farms often lose a large percentage of water (up to 70%) to evaporation, runoff, and inefficient irrigation methods such as flood irrigation. CEA irrigation techniques like hydroponics use less water by recirculating nutrient-rich water directly to plant roots. How much less? This is still being debated, but 40-60% is a safe estimate.
- Changing Consumer Trends: Depending on income level, consumers’ shopping habits constantly change. Over the past decades, consumers with extra income have become more focused on what they put in their body. Within fresh produce categories, this means a desire to know where their product comes from (locally grown) and how it is grown (pesticide free). Both are benefits properly run CEA facilities can offer consumers. In 2023, an International Food Information Council (IFIC) Survey showed that 73% of U.S. consumers said they consider whether food is locally grown or produced when making purchasing decisions. And in a recent poll I placed on Linkedin, almost 50% of those who engaged said the local production was a primary driver for the recent ag-tech boom and move to CEA.
- Small Farm Business Issues: Small and medium farms are always challenged. Traditional farms have to “plant” and then hope mother nature cooperates. They must try to produce enough crops during the season to make enough money to last the year. They also have to hope that market prices remain high when they have products to sell. And every year is almost guaranteed to be different. CEA gives farmers more control and predictability. (The degree of predictability depends on the crop and investment.) CEA allows for year-round growing and hopefully higher prices when the crop is out of season. In addition, it can allow a farmer to sign a year-round supply agreement with customers.
- Food Security: This one is more philosophical for me than the others. When I first met professor Kozai in 2008 and learned about the ideas of food security for island nations, I started getting interested. I do not think CEA does much for food security in the U.S., but I believe CEA offers interesting options for island nations or populations in remote geographies or extreme climates. The problem comes down to protein and calories. For an agriculture production method to truly provide food security, it likely needs to offer protein and calories. For now, CEA only offers nutrition and flavor.
These broader issues have been presented in pitch deck after pitch deck. From Plenty to Bowery and from AppHarvest to Kalera, their stories were mostly the same. The only differences were in their unique takes, tech and engineering solutions aimed at solving these problems at the farm level.
Investors liked what they heard. They saw opportunity in solving problems that plague the agriculture community. At the same time, they saw the opportunity to make money. And while some failed, others appear to have found a model that works. From Gotham Greens to Little Leaf to the numerous other greenhouses and urban farms, there is proof that these ideas can work as businesses.
If it works, is everything else just noise?
The positive news today comes from the Netherlands; Leamington, Canada; and countries such as Mexico. Each of these regions have massive commercial greenhouse footprints. And if we believe what we are told — that when you operate the way they do, you make money — then why can we not deliver on the promises made to investors?
Why can we grow specialty fresh produce in the regions above at a profit, while being better for the environment and saving water? Why can they grow close to the urban centers, allowing for delivery on consumer demand, while at the same time lowering their carbon footprint?
how an investor defines it.
And my questions do not stop there…
Is the secret to their success operational management skills? Or is it something else?
Is their success hidden in scaling? We can all now agree farming is a business. And we know that the largest, best-operated and managed (maybe most aggressive) businesses and brands seem to win. So are all the other promises simply marketing?
Once we figure out the answers to these questions, I believe we will know what is noise and what is not.
I personally believe we can do it better. If consumers really want locally grown food and understand that produce grown in these farms costs more, we can build farms that deliver on promises made to both investors and consumers. If this is what we want, then everything else is noise, and we need to find a way to stay the course.
This includes finding ways to continually do CEA better and succeed, despite the noise.
Images created using ChatGPT.
