Indoor Farmers Report Access to Capital Is Biggest Challenge, Agrilyst Survey Says
While last year, indoor farmers reported the cost of operations as their biggest challenge, this year growers say that access to capital is their biggest hurdle, according to a new report from indoor farming software company Agrilyst. It may seem impossible, with indoor farms like AeroFarms, Bowery Farming, and Plenty announcing large early rounds of venture funding, but indoor farming contains much more variety than these high tech coastal operations, as the annual Agrilyst report seeks to demonstrate.
Indoor Farming, on the whole, is maturing, according to the report and Agrilyst CEO Allison Kopf, with greenhouse operations making the most progress to date.
“I’m seeing the most maturation in the high-tech, smart greenhouse industry. Growers in greenhouse operations who have been operating for a number of years are perfecting growing methods and reinvesting profits into new technologies, instead of inventing systems and methods from scratch. Profit margins are pretty stable for these operations and both revenue and costs are incredibly stable across all facility sizes, whereas other facility types (like vertical farming) showed large spreads across different size and age facilities,” Kopf told AgFunderNews.
The report is the result of a survey of 150 indoor farms in eight countries and paints a picture of the financial health and hurdles of various kinds of indoor farming operations. A clear majority (81%) of respondents were US-based with 12% from Canada and 7% from other countries. Nearly half of respondents represent hydroponic farms, while 24% run soil-based operations, 15% aquaponics, 6% aeroponics, and 6% use a mixture of growing technologies.
The most dominant type of facility was glass or poly greenhouses (47%) followed by indoor vertical farms (30%), which generally convert existing industrial buildings. Plastics hoop houses, container farms and other types of structure make up the remaining 23% of respondents.
Costs Rise As Farms Grow Up
In terms of challenges, access to capital is followed by what the report calls “building-related” challenges such as pests and maintaining optimal growing environments followed by labor, and financial sustainability.
Indoor growers continue to focus on specialty crops to take advantage of high margins since operation expenses remain high, with labor at the top of the list.
While labor is a major cost center for all types of indoor farming, vertical farms require the most employees per square foot. “This makes automation technologies incredibly important as the industry matures,” concludes the report.
In terms of inputs, costs are generally split evenly between seeds, nutrients and grow media, except for vertical farms, where grow media represents half of input costs. The report explains that even in profitable vertical farming operations, the cost per square foot is $37.10 while the cost of a hydroponic operation is $13.86. While growing in stacked layers may mean that this difference isn’t as dramatic as it appears.
Profitability Depends on Farm Type and Crop, Not Tech
Profitability remains a challenge for indoor growers with only 51% of reporting farms operating profitably.
The type of farming operation most likely to be profitable according to the report, are indoor deep water culture operations followed by glass or poly greenhouses with 75% and 67% of respondents reporting profitability, respectively. The third most profitable growing method in the survey is container farms (50%) followed by indoor vertical farms (27%) and low-tech plastic “hoop houses” (25%).
The report notes however that “vertical farms reporting limited profitability is most likely because it is a new industry that is just beginning to mature.” Indeed even funding record-breaking vertical farm Plenty is less than five years old. The average age of the unprofitable farms was five years, while the average age of the profitable farms was seven years.
Flower-growing operations are by far most likely to profitable with 100% of farms in the survey reporting operating in the black. Flowers are followed by tomatoes with 67% profitability and micro greens with 60% profitability. Kopf said that this year’s survey did not receive responses from enough cannabis growers to include in the report, but cannabis likely remains the most profitable crop grown indoors.
The type of growing technology seems less correlated to profitability as most technology types range from 50-60% of farms reporting profitability with one exception. Only 25% of farms reporting using a mix of growing technologies operate profitably.
The survey seeks to underline that indoor farming is not only an urban phenomenon, though urban operations generally receive more media attention and seem to draw more venture funding. What might come as a surprise to those who follow the big names in indoor farming is that the majority of respondents were in rural locations (47%) while urban farms made up 43% of respondents and the rest suburban.
“Indoor agriculture isn’t equivalent to urban farming. This is a big misconception. As evidenced by the data, indoor farms typically locate close to the point of sale or where efficiency can be maximized. For a tomato grower, this may mean locating a greenhouse in a rural area where energy is cheaper and closer to a distribution center,” reads the report.
It is also a common misconception that indoor farms can only grow tomatoes, greens, and cannabis. Though these are definitely staples of indoor farms, the crop assortment among the 150 operations surveyed is much more varied and includes: leafy greens, tomatoes, cannabis, flowers, microgreens, strawberries, herbs, cucumbers, peppers, mushrooms, onions, leeks, hops, figs, sweet corn, eggplant, fish, insects, carrots, and shrimp but the main crops are leafy greens, microgreens, herbs, flowers, and tomatoes.