Although vertical farming has been identified as one of the methods to combat global warming, improve access to fresh produce in urban areas, and improve food security, none of these goals can come to fruition if vertical farming is found to be unprofitable. So is vertical farming profitable?
While vertical farming is a viable method of subsistence farming of small crops, particularly in urban areas, current projections and practices show that vertical farming only has a return on investment of between 10 and 15 years subject to hefty start-up capital, making it seldom profitable.
To better answer the question, is vertical farming profitable, despite prospects of commercial viability in the future and the presence of significant investments, the following discussions will highlight the challenges facing the profitability of vertical farms.
Is Vertical Farming Commercially Viable?
To understand the commercial viability of vertical farming, the pros and cons of vertical farming have to be explored in the context of future projections around global warming and food security.
As projected by the United Nations in 2019, the world’s population is expected to increase to 9.7 billion people by the year 2050. Understandably, this will place an enormous amount of pressure on food security, particularly in light of the effects of global warming and climate change on arable land.
While there are efforts to reduce the harms of global warming, such as poor water quality and soil erosion, the Grantham Center in 2015 found that ongoing urbanization has resulted in an estimated 40 percent reduction of the world’s arable land.
Consequently, natural damage in the pursuit of human growth and capital may have already reached the point of no return, meaning that vertical farming is one of the ways communities are looking to capitalize on sustainable food security in the future.
The reason why vertical farming is considered a viable commercial alternative to traditional agriculture is that it is a form of Controlled Environment Agriculture technology. Controlled Environment Agriculture is the process by which people can control the growing process without relying on the unpredictability of the natural environment.
Controlled Environment Agriculture typically involves a combination of aeroponics, aquaponics, and hydroponics to grow plants in layered, vertical shelving.
In conclusion, this reduced space and control add a level of security that traditional farming does not while resulting in a guarantee of improved crop yield per square meter.
Is Vertical Farming Profitable? Benefits
There are six significant benefits to vertical farming over other farming methods:
1. Future food security
2. Improved year-round crop production
3. Less use of water
4. Not affected by unpredictable weather patterns
5. Improved organic crop production
6. Environmentally friendly
Let’s explore these benefits in greater detail below.
1. Future Food Security
Due to the projected increase in greenhouse gases, global warming, and urbanization in the future, there will be a reduction in arable land and an influx of people living in urban areas.
As a method of offsetting poor water quality, soil quality, reduced land availability, and unfavorable weather patterns, vertical farming is believed to increase crop yield per square meter in controlled spaces.
Furthermore, because of larger urban populations and food demand, the logistics of growth, harvesting, transportation, and food storage could be a major concern. Consequently, communal or home vertical farming systems could ease this burden while improving accessibility to food.
2. Improved Year-Round Crop Production
Because vertical farming utilizes Controlled Environment Agriculture techniques, this allows gardeners to regulate all manner of weather conditions, meaning that the production of certain crops is not limited to certain times of the year or specific regions.
Furthermore, the verticality of growing results in an improved crop yield at a reduced space. The Columbia Climate School estimates that 1 acre of indoor vertical farming offers the equivalent of between 4 and 6 acres of outdoor farming.
3. Less Use Of Water
Along with the introduction of soil alternatives like peat moss or coconut husks, some estimates believe that vertical farming can produce sustainable crop yields at up to 70 percent and 95 percent less water use!
4. Not Affected By Unpredictable Weather Patterns
Although modern farming techniques, such as advanced irrigation systems and pesticides, may reduce the effects of unpredictable weather and disasters, such as droughts and crop diseases, there is still a risk of widespread damage befalling outdoor crops.
Furthermore, because the effects of global warming increase the risk of disasters and unfavorable weather patterns occurring, most estimates show that this ongoing damage mitigation for outdoor crops is expensive and unsustainable in the future.
Consequently, indoor vertical farming allows for a level of control and enough protection from the elements that food security from vertical farming is not as affected as crops from traditional farming methods.
5. Improved Organic Crop Production
Although organic crops are better for your health and the environment and generally taste better than crops sprayed with pesticides, growing organic crops on an industrial scale is extremely difficult. The reason is that without pesticides, outdoor crops are prone to disease and destruction from insects.
However, because vertical farming allows for the controlled growing of crops in protected, indoor spaces, it has been shown to yield the growth of organic crops with improved efficiency and sustainability than traditional farming methods.
In conclusion, this is a big positive for communities and homes looking for sustainable yields of organic crops for small-scale consumption or informal produce selling.
6. Environmentally Friendly
Traditional farming has been shown to put a heavy strain on the environment due to pesticides, large farming equipment, deforestation, soil erosion, and the disruption of natural habitats.
Not only does vertical farming not harm the environment, but it can reverse the effects of global warming and urban decay through the use of repurposing old, abandoned buildings.
Vertical Farming Negatives
While vertical farming has a lot of benefits, it would be amiss to ignore the negatives.
1. Uncertain economic feasibility
2. Pollination challenges
3. High labor costs
4. Over-dependence on technology
Let’s explore these negatives in greater detail below.
1. Uncertain Economic Feasibility
Although vertical farming is a promising future investment, with a few start-up companies recording funding from reputable organizations such as banks and NGOs, it remains to be seen whether vertical farming is financially sustainable and capable of producing the yields and profits of traditional farming.
Consequently, a hybrid system between vertical and traditional farming will likely be the status quo in the future.
2. Pollination Challenges
Pollination requires insects to travel from plant to plant; this is a vitally important process of successful farming and maintaining nature’s balance.
In comparison, because most vertical farming takes place indoors, in urban areas, or is subject to highly controlled artificial environments, insects are not introduced into the vertical farming process, meaning pollination cannot occur.
In response to this limitation, manual pollination needs to be affected. Unfortunately, this is a labor-intensive practice that is inefficient and expensive.
Furthermore, the lack of investment to protect insect/bee populations due to their diminishing returns as pollinators could have devastating results on the fragile balance of the greater ecosystem.
3. High Labor Costs
Further to the need for manual pollination is the need to employ skilled workers to run and manage vertical farming operations. Most of these workers will need to be sourced from urban areas near urban farming operations.
The training and hiring of skilled labor is a costly endeavor, and the high cost of living in urban areas also needs to be factored into the equations of workers’ salaries.
4. Over-Dependence On Technology
By its very nature, vertical farming is Controlled Environment Agriculture that exclusively relies on technology to simulate natural conditions to grow crops.
The problem with an overreliance on technology is that this technology is expensive to develop and install. Still, it relies on various other forms of technology to remain operational (such as a constant supply of electricity.)
Consequently, this requires a large capital investment to start a vertical farming operation, but it also requires reliable infrastructure to sustain growing operations, as the absence of a key component such as electricity can have devastating effects.
In conclusion, this high ceiling and risk of wide-scale crop failure due to consistent electricity demands means that companies and governments may be hesitant to invest in what may be perceived as a high-risk venture.
While developing countries with poor power infrastructure and the need for food security may be deterred from vertical farming investment in its entirety.
Is Vertical Farming Profitable?
The primary consideration when beginning vertical farm operations is the start-up costs, as these vary considerably in price.
Generally speaking, smaller farms that rely solely on manual labor cost approximately $1 300 to $2 000, while more extensive operations with specialized technology and automation can run into millions of dollars.
Therefore, while vertical farming can make money like any farm, it is likely that large sums of money need to be invested in creating a commercial vertical farm and not just a simple subsistence farm.
Is A Vertical Farming Business Profitable?
Although vertical farming is believed to be the future of agriculture, the profitability of vertical agriculture appears to be reserved for sizeable vertical farming operations that produce large quantities of desirable food products in areas with high demand (such as the production of fresh herbs for restaurants in urban areas.)
That being said, some start-up vertical farms have found success; however, this has been subject to scalability and investment from larger corporations and partnerships bolstering their sales.
How To Make Vertical Farming Profitable?
The reality of the situation is that vertical farming typically sees a return on investment within 10 to 15 years of starting a vertical farming business.
Consequently, vertical farming should be included as an alternative source of revenue to traditional farming operations or undertaken with established long-term contracts already in place to keep overheads stable until such time as the vertical farm produces a long-term return on investment.
Fortunately, the ongoing development of improved software and automated machinery means that the overhead costs of starting vertical farms in the future will drop considerably.
What To Grow To Make A Vertical Farm Be Profitable?
The plants and crops that are suitable for vertical farming have short cycles, develop well in low light intensity, thrive in high-density environments, and are between 30 and 40cm in height.
Furthermore, the growth of plants that are in high demand is typically those crops that cannot be sourced annually without the need for expensive, overseas supply chains. Therefore, vertical farms that sign long-term contracts with food suppliers via year-long, renewable contracts are more likely to turn a profit than vertical farms that produce season crops.
Examples of popular crops are:
- Woody herbs
- Collard greens
Are Investors Interested In The Future Of Vertical Farming?
At the time of writing, there have been some notable investments and partnerships regarding vertical farming operations, such as:
- Softbanks’ $200 million investment in Plenty,
- Ikea’s $115 million investment in AeroFarms,
- Google Ventures’ $90 million investment in Bowery Farming, and
- Ocado’s $22 million investment in infinity Acres.
Consequently, although signs seem to point to vertical farming as the future of food security, there are some considerations when considering the long term viability and risk of investment in vertical farming stocks:
- Vertical farming can only produce small crops, while larger varied produce requires alternative farming methods to be commercially viable.
- Vertical farming practices do not have the long-term data and scientific authority of traditional farming methods.
- LED technology is not advanced or affordable enough, resulting in very high food prices.
- Vertical farming may be indirectly profitable or valuable, such as decreased spending on pesticides or water filtration.
- Although vertical farming may supplement some crops and conditions, it is likely that vertical agriculture and traditional farming will form a hybrid system in the future.
For a more detailed discussion on the viability of vertical farming and investment, check out RealLifeLore2’s video on “Why Vertical Farming is the Future of Food”.
Final Thoughts on Is Vertical Farming Profitable?
To answer the question, is vertical farming profitable, we must look at its viability. While vertical farming is an exciting area of research, there would appear to be much more development needed in the industry to produce affordable crops that can make a profit.
Consequently, vertical farming would appear to be a profitable industry in the event of hybrid farming operations and substantial international investment and long-term financial support.