25th June 2022
Americas Controlled Environment Agriculture Corporate

Indoor AgTech: Vertical Farms & Their Place in Our Food Supply

David Verbitsky

Ahead of this week’s Indoor AgTech Innovation Summit from June 23rd to June 24th, we had the chance to interview David Verbitsky, Managing Director, Head of AgTech & Sustainable Food, NOMURA GREENTECH, USA. He will moderate the panel “Establishing CEA Innovation Hubs and Markets Around the World” at 8 a.m EST along with speakers: 

  • Yong Park, Head of Global Business Operations, FARM8, SOUTH KOREA
  • Dirk Aleven, CEO, FOODVENTURES, THE NETHERLANDS
  • Cristian Sjogren, Co-Founder & CEO, AGROURBANA, CHILE

 

 

Innovation Hubs and How They Help Indoor Vertical Farms Throughout The World

Over the years, companies involved in the industry have expanded their operations abroad, concentrating in regions where access to funding was easier hence explaining the reason why clusters appeared when looking at indoor agriculture locations. nonetheless, challenges remain as noted by David Verbitsky:

“Operating across different locations is challenging, and access to customer, integration with the existing supply chain, recruitment of talent and labor are all factors that need to be solved in order to operate effectively and sustainably.” He notes

“Arguably more importantly, companies must also adapt operationally – in terms of both yield and cost profile – across different locations. For example, variability in cost of real estate, labor and utilities (electricity and water) may impact the bottom line of already generally slim margins today. On the yield side, operations and infrastructure must adapt to varying climates and environments to achieve productive growth. This dynamic is still playing out as owner / operators scale to additional locations and markets, and I imagine these operational factors will be largely considered during geographic expansion.”

He adds that companies seeking innovation hubs as they grow around the world, should look at what their specific segments would require. For instance, “growers would need additional considerations around integration with the supply chain, whether it be close to distribution centers or in an area of high demand (e.g., a large metropolitan area), which may help the Company to de-risk the demand side of the equation.”

“There a number of cities globally with a concentration of investors focused on or interested in Agtech and Sustainable Food, and as agriculture becomes more entwined with climate goals, there are a number of investors focused in sustainable technology that have investments in the agriculture sector.” says David Verbitsky. “Local governments can also support through various incentives such as the UAE who have invested a substantial amount in indoor agriculture companies and infrastructure in order to become more self-sufficient.”

The last points he outlines is the technology as it can help businesses differentiate and adapt to new set of challenges. “There are several precedents in the indoor agriculture sector of research collaborations between companies and universities funded by government-sponsored grants, which is a cost-effective way to carry out R&D. These programs may also serve as a feeder for labor, especially if in need of employees with Masters or PhD credentials in a specialized topic. On the other side of the coin, some companies will need access to a skilled or unskilled labor force for manual activity, which may or may not be available in similar regions.”

Disruptions in The Global Food Supply Chain May Benefit The Vertical Farming Sector

Inflation hikes throughout the world, the aftermath of the pandemic and the Russian – Ukrainian war has pressured the world’s supply chain and especially the food systems. As the world seeks solutions to the variable supply, increasing cost of production and transportation, indoor farms provides a strong alternative as they they enable communities to grow local fresh food.

“Companies that are smart will try to monetize this opportunity by building partnerships and agreements with customers to achieve scale and revenue certainty.” He notes “That being said, investors are still looking for the unit economics to pencil out. They remain highly focused on seeing positive unit economics at commercial scale today, or a very clear, tangible pathway to positive unit economics. Two factors that have been hurdles are the energy intensity of indoor farming – especially in vertical farming operations, due to the use of lights – and labor for growing, monitoring and packaging produce. The market opportunity becomes a lot less relevant if indoor farming solutions cannot achieve strong unit economics at scale.”

These issues lead vertical farm operators and solution providers to seek innovation areas. Recent moves from vertical farms to expand product offering and reduce their OPEX or CAPEX shows efforts are being made to make the solution economically feasible around the world.

“We’re seeing this usher in significant development of integrated, tech-enabled platforms to precisely control and monitor an indoor farming environment. There are many examples of both owner/operators of indoor ag facilities that are building their own platform in-house and companies that are developing a platform for a B2B model. Although each company has its own approach, the overall goal of most platforms is to provide a simplified user interface with a maximum capabilities and results in terms of increasing yield rate and minimizing cost-intensive labor and resources when possible.” says David Verbitsky Managing Director, Head of AgTech & Sustainable Food, NOMURA GREENTECH, USA.

“Additionally, while the focus of indoor farming has historically been on leafy greens or tomatoes to prove out operating capabilities, there is active R&D and expansion into other produce items to build deeper relationships and offerings with customers and capture additional markets. In order to achieve this, companies will need supporting technologies to be able to grow and harvest these products, which can be vastly different than leafy greens or tomatoes. For example, pollination is an additional step that is required for fruits like strawberries. As indoor farming owner/operators race to offer the most comprehensive suite of products, I believe we will see a wave of innovation to enable cost-effective farming of all types of fruits and vegetables.”

“Overall, we are seeing a growing specialization of technology and services. More companies are now focused on being the clear leader in a specific area of innovation, instead of trying to execute on the whole package as a developer and operator. I believe we’ll continue to see this trend as the sector becomes more scaled and sophisticated in terms of technology and operation.”

Interested in seeing him during the event? Then register here with code IGROW10 to benefit from a 10% discount.

 

Legal Disclaimer: “Nomura” is the global marketing name of Nomura Holdings, Inc. and its direct and indirect subsidiaries worldwide, including Nomura Securities International, Inc.  “Nomura Greentech” is the marketing name that refers to the division in Nomura’s investment banking department that provides products and services to clients in the sustainable technology and infrastructure sectors.  All activities of Nomura Greentech in the U.S. are conducted by Nomura Securities International, Inc. (“NSI”), a broker-dealer registered with the SEC and member of FINRA and SIPC.  Unless notified otherwise, all services of Nomura Greentech conducted outside of the U.S. are provided by Nomura Greentech Capital Advisors, AG (“NGCA”). NGCA, located in Switzerland, does not provide services that require it to be licensed in Switzerland or any other jurisdiction. 

This communication shall not constitute: (i) research or a product of the Nomura research department, (ii) an offer to sell, a solicitation of an offer to buy, or a recommendation for any investment product or strategy, or (iii) any investment, legal or tax advice.  

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