Table of Contents of Indoor Farming Report August
- From the Editor’s Desk
- Monthly Roundup Of The News
- Featured Article: NKK Investments & UrbanKisaan Join Forces Expanding in the Middle East
- Financial Corner: Q2 2023 Earnings Paint a Diverse Landscape
- The Reality Check: Glenn Behrman on the Myths and Realities of Indoor Farming
- Challenges & Opportunities
- Upcoming Events
- Concluding Notes
From the Editor’s Desk
As we navigate through the third quarter of 2023, the AgriTech industry continues to be a beacon of innovation and resilience. Indoor Farming Report August showcases a sector surviving and thriving amid economic uncertainties and logistical challenges. From the rise of smaller indoor vertical farming companies making their mark on the global stage to the increasing collaborations driving technological advancements, the industry is in a state of dynamic growth.
Companies undergoing restructuring are beginning to see the fruits of their labor. As we look forward to the last months of the year, these trends offer a glimpse into an industry continually evolving, offering new opportunities and solutions for a world in dire need of sustainable agricultural practices.
Industry Spotlight in Indoor Farming Report August
Key Takeaways
- Agility Over Size: Smaller companies are proving that agility can sometimes outweigh the benefits of large-scale funding in achieving global expansion.
- Collaboration is Key: The increasing number of collaborations suggests that collective expertise and resources are driving the industry forward.
- Distribution Strength: The strengthening of distribution networks indicates a growing and stable market for indoor vertical farming products.
- Restructuring Benefits: Early signs suggest that restructuring efforts are beginning to pay off, although further data is needed.
- Consolidation Trend: The rise in M&A activity could signal the beginning of an industry consolidation phase, which could reshape the competitive landscape.
The indoor vertical farming industry is experiencing a period of remarkable resilience and growth despite the various economic and logistical challenges that have marked the year. Here’s a spotlight on key trends and developments shaping this sector.
The Rise of Smaller Players: Interestingly, smaller indoor vertical farming companies, when compared by funding received, are making significant strides in their global expansion efforts. This could indicate that agility and adaptability, often characteristics of smaller firms, are valuable assets in the current market landscape.
Steady Business Activity: Despite economic uncertainties, business activity in the indoor vertical farming sector has remained relatively stable. New projects continue to emerge globally, signaling sustained interest and investment in this form of agriculture.
Increasing Collaborations: The number of collaboration announcements between solution providers is rising. These partnerships are crucial for technological innovation and market expansion, indicating a trend toward collective growth and shared expertise.
Strengthening Distribution Networks: Growers are not just maintaining their relationships with retailers and distribution partners but strengthening them. This suggests that the market for indoor vertical farming products is stable and growing.
Positive Returns from Restructuring: Companies that have undergone restructuring phases are beginning to see returns, although this will need to be confirmed throughout Q3 & Q4 of 2023. This could serve as a case study for other companies considering organizational changes to improve efficiency and profitability.
Mergers & Acquisitions on the Rise: The increasing activity in mergers and acquisitions indicates that the industry is ripe for consolidation. This could lead to the emergence of more robust, diversified companies capable of driving further innovation and growth in the sector.
Monthly Roundup Of The News in Indoor Farming Report August
- DENSO acquires Certhon Group: DENSO’s acquisition of Certhon Group is a significant move that combines DENSO’s automotive technology expertise with Certhon’s horticultural solutions. This could lead to the development of highly efficient, automated farming systems.
- ADQ & Safe Heaven Solutions Collaborate For A New Greenhouse in the UAE: This collaboration aims to establish a new greenhouse in the UAE. This region is increasingly becoming a hotspot for advanced agricultural technologies. The partnership could set a precedent for sustainable farming practices in arid regions.
- Saudi Arabia Collaborates With Dutch Firm in NEOM City: Saudi Arabia’s collaboration with a Dutch firm to develop agricultural solutions in NEOM City underscores the country’s commitment to diversifying its economy and investing in sustainable technologies following the announcement earlier this year to commit $1Bn over the next five years in Greenhouse investments.
- Gotham Greens Launches its Advanced Greenhouse in Colorado: Colorado further becomes a hub for indoor and vertical farms as the company expands its presence in the US.
- Vertical Future to Collaborate on Space Farming Initiatives with Global Experts: This collaboration opens up the frontier of space farming. This field could become increasingly important as the space industry further expands.
- Kroger & 80 Acres Farms expand the partnership to further the distribution: The partnership between Kroger and 80 Acres Farms signifies a growing demand for locally sourced, sustainably grown produce. It could influence other major retailers to adopt similar sustainable sourcing practices.
- Bosman Van Zaal and Clock House Farm announce a collaboration: This collaboration could lead to developing new, innovative farming technologies, given Bosman Van Zaal’s expertise in horticultural engineering and Clock House Farm’s experience in sustainable farming.
- IUNU partners with Wageningen Research to introduce autonomous growing in greenhouses: The partnership aims to introduce autonomous growing systems, potentially setting a new standard for efficiency and sustainability in controlled-environment agriculture.
- RussKap Water acquires Envonics: The acquisition could lead to integrating Envonics’ environmental technologies with RussKap’s water management solutions, offering a comprehensive approach to sustainable agriculture.
Featured Article in Indoor Farming Report August: NKK Investments & UrbanKisaan Join Forces Expanding in the Middle East
Key Takeaways
- Global Reach: This partnership signifies the growing global influence of Indian startups, showcasing their ability to solve complex problems beyond their home country.
- Technological Export: The alliance serves as a platform for Indian innovation to be exported, tested, and implemented in different parts of the world.
- Sustainability: Both companies are committed to creating a sustainable agricultural future, not just for Oman but for the broader Middle East region.
In a world where innovation knows no borders, the recent strategic alliance between Nailesh Kanaksi Khimji (NKK) Investments and UrbanKisaan stands as a testament to the global reach and impact of Indian startups. This partnership, which aims to revolutionize hydroponic and vertical farming practices in Oman, the UAE, and Saudi Arabia, is not just another business deal. It represents a significant milestone in the journey of Indian startups expanding their footprint beyond their home country.
Why This Partnership Matters
We chose to feature this article to spotlight the growing influence of Indian startups on the global stage. UrbanKisaan, with its roots in the United States and a research center in India, exemplifies how Indian innovation is not confined to its geographical boundaries. The startup’s collaboration with NKK Investments, a visionary in AgriTech and sustainability, is a powerful indicator of the global demand for Indian technological expertise.
Indian Innovation Goes Global
The partnership is groundbreaking in several ways, but what catches the eye is the exportation of Indian innovation in hydroponic and vertical farming technology to the Middle East. This is a clear sign that Indian startups like UrbanKisaan are ready to compete and collaborate globally, bringing unique solutions to address challenges that transcend national borders.
A Win-Win for All
For NKK Investments, this alliance brings state-of-the-art technology to the Middle East, promising a sustainable future for agriculture in the region. For UrbanKisaan, it marks a significant expansion into new markets, validating the startup’s research and technological advancements. And for India, it serves as a shining example of how its startups are becoming global players, capable of forging international partnerships that have a far-reaching impact.
Aligning with Global Goals
The collaboration aligns perfectly with global sustainability goals, offering a solution that reduces carbon emissions and promotes food security. Chirayu Khimji, Director of NKK Investments, and Vihari Kanukollu, CEO and Co-founder of UrbanKisaan, both emphasized the sustainability aspects of their partnership, which aims to offer affordable, pesticide-free and non-GMO produce.
Financial Corner: Q2 2023 Earnings Paint a Diverse Landscape
Key Takeaways
- Diverse Strategies: Companies are adopting various strategies to navigate the current market conditions, from cost-cutting measures to exploring mergers and acquisitions.
- Innovation as a Differentiator: Companies like CubicFarm and Edible Garden are leveraging innovative technologies to gain a competitive edge.
- Financial Health: Despite the challenges, most companies have maintained a healthy cash reserve, positioning them well for future growth.
The second quarter of 2023 has been a rollercoaster for AgriTech companies, with some experiencing significant growth while others navigate challenges. Here’s a snapshot of the financial performance of key players in the industry.
CubicFarm Systems Corp.: A Turnaround Story
CubicFarm Systems Corp. reported a revenue increase to $3.3 million, up from $2.9 million in the previous year. The company also cut its net losses from $9.0 million to $4.0 million thanks to cost-cutting measures. Launching “Feed as a Service” (FaaS) through its HydroGreen subsidiary has added a new revenue stream. The company’s strategic moves, including partnerships and leadership changes, indicate a focus on sustainable growth and innovation.
CEA Industries: Navigating Challenges
CEA Industries faced headwinds in Q2 2023, with revenue declining to $1.1 million from $3.0 million in 2022. Despite the challenges, the company has reduced operating expenses by over 60% and is exploring strategic alternatives like mergers or sales. The company can weather the storm with $14.2 million in cash reserves and no debt.
Local Bounti Corporation: Steady Growth Amid Challenges
Local Bounti reported a revenue increase to $7.2 million, up from $6.3 million in the previous year. Despite weather-related challenges, the company reported a gross profit of $0.9 million. Significant facility expansions are underway, and the company ended the quarter with a robust cash balance of $40.4 million. The stock price saw a 9.13% increase post-announcement, signaling investor confidence.
Edible Garden AG Inc.: A Standout Performer
Edible Garden AG Inc. reported a remarkable 41.4% YoY revenue growth, reaching $4.2 million. The company’s focus on quality and strategic partnerships has paid off, resulting in a 168% surge in gross profit. The launch of GreenThumb 2.0, an advanced greenhouse management system, further underscores the company’s commitment to innovation.
The Q2 2023 financial results offer a mixed bag but show that innovation and strategic planning can make a significant difference. As these companies continue to evolve, they are setting the stage for what could be a transformative period in the agri-tech industry.
The Reality Check: Glenn Behrman on the Myths and Realities of Indoor Farming
In a candid interview with Glenn Behrman, President of CEA Advisors, and the mind behind The Growtainer®, we delve into the intricacies of indoor and vertical farming—an industry often magnified by hype and built on idealism. Behrman, a seasoned entrepreneur with over 50 years of global Horticultural experience, offers a sobering perspective on the industry’s trajectory, its challenges, and its misconceptions.
The Genesis of Growtainers®
My career in horticulture began when I opened a small retail plant store in New Haven in the 70s and, over the next 25 years, built that business into a very successful chain of retail stores, wholesale foliage distribution centers, garden centers, and an import division stretching from NY to Philadelphia.
“When I first read about the early projects in indoor farming in Holland in 2010, I immediately understood the potential that indoor farming/vertical farming had. I spent the next year or so asking questions, researching, traveling to Holland often, visiting facilities, learning more about vertical farming, and speaking with the industry’s pioneers, Behrman recalls. His journey began with a vision but was grounded in practicality. Unlike many startups that rely on venture capital, Behrman bootstrapped his way, giving him a unique vantage point on the industry’s evolution.
“Today we see that the companies that were built with sweat equity, self-funded, or relied on very little investment at the beginning are the ones that are resilient in these difficult economic times because their business model does not rely on external funding to succeed.”
The Silicon Valley Mirage
Behrman laments the role of Silicon Valley investors in shaping the industry’s narrative. “It’s a shame to see how Silicon Valley investors hijacked the entrepreneurs in an industry that was growing before the pandemic and encouraged all the false hype around it,” he says. According to him, the notion that indoor farming will “feed the world” is a misleading fantasy. It’s a method, not a panacea, and it exists alongside traditional farming—not as its replacement. “In my opinion, there was too much easy money being thrown at indoor farming by sophisticated investors that knew 9 out of 10 start-ups would fail. Agriculture is a long game and will never provide the returns the VCs require. Personally, I think everybody knew that, but the VCs had to invest their capital, and unrealistic valuations blinded the entrepreneurs.”
The Produce Industry vs. Software Industry
“Regardless of how high-tech your solution is, you are a food producer and is not a software company,” Behrman warns. Startups often enter the space with a tech-centric mindset, assuming the value is in their tech. This is a grave mistake. “It’s about Unit Economics; for a commodity like lettuce, how can you justify that your product costs $3 to produce when your competitors retail it at $2?” he questions. The produce industry is driven by price competitiveness, and Indoor Farming’s “green” or “local” descriptions have not significantly altered consumer behavior, especially in an inflationary economy.
The Identity Crisis
Behrman observes that many startups suffer from an identity crisis. “They can’t decide whether they are a tech company or a food producer,” he says. This leads to operational inefficiencies, as companies over-hire and over-design, losing sight of their core business. “When I have a project, I don’t do everything myself; that’s impossible. I rely on the expertise of my network,” he advises. “I look at each project and ask myself who I need to collaborate with for the project to succeed. My first question is, what are you growing?
The Excel Sheet Paradigm
“It’s not rocket science, and you don’t need to invest millions of dollars at the beginning; you can start small and build your business,” Behrman states. He likens the success of an indoor farming project to an Excel spreadsheet. “The more lines you have in the left column, the more variables you identify, the easier it is to tweak and adjust until your values are optimized, and your chances of success increase.”
Conclusion
Glenn Behrman’s insights serve as a reality check for an industry often lost in its own idealism. As we navigate the complexities of food security, sustainability, and technology, it’s crucial to remember that indoor farming is not a silver bullet. It’s a tool in the toolbox, and like any tool, its effectiveness depends on the skill and wisdom of the one wielding it.
Challenges & Opportunities
Key Takeaways
- Adaptability is Crucial: In the face of challenges like interest rate hikes and food inflation, AgriTech companies must be adaptable and agile.
- Innovation as a Pathway: Despite funding challenges, innovation remains a key differentiator and offers a pathway to success.
- Geographical Focus: Companies could consider geographical trends, like the growth opportunities in the Middle East and the challenges in Europe, when planning their strategies. But carefully consider the increasing competition in this market as an increasing number of companies strive to develop in the region.
The Indoor Farming industry is at a crossroads, facing many challenges and opportunities that could define its trajectory for years. Here’s a closer look at the key factors shaping the sector.
Challenges Identified in Indoor Farming Report August
- Interest Rate Hikes: The Federal Reserve’s warning about continuing interest rate hikes to combat inflation poses a significant challenge. Higher interest rates could increase the cost of capital for AgriTech startups and established companies, affecting their ability to invest in innovation and expansion.
- Declining Savings and Increased Spending: A decrease in America’s savings rate and increased spending signals potential economic instability. This could impact consumer spending on premium or technologically advanced agricultural products.
- Decreased Food Spending in Europe: Unlike in America, European consumers are cutting back on food spending, decreasing sales volumes. This trend could affect AgriTech companies focusing on the European market.
- Food Inflation: Countries like France are experiencing extremely high food inflation rates, currently at 11% YoY. This could lead to renegotiating food prices between retailers and governments, affecting profit margins for AgriTech companies.
- Drying Startup Funding: According to Crunchbase, global venture funding for startups fell by 18% in Q2 2023 and a staggering 66% YoY in regions like Europe. This could severely limit the growth prospects of new entrants in the AgriTech space.
- Increased Competition in the Middle East: The entry of Indian companies into the Middle Eastern market increases competition.
Opportunities
- Rise of Indoor-Produced Crops: Retailers are increasingly distributing indoor-produced crops, as evidenced by deals with companies like Plenty®, 80 Acres Farms, AeroFarms, and Swegreen. This trend offers a lucrative opportunity for AgriTech companies specializing in indoor farming.
- Expansion of Fodder Farming: Companies like CubicFarm’s Hydrogreens are expanding their fodder farming operations, inking deals in Germany, Italy, and North America. This indicates a growing market for sustainable livestock feeding solutions.
- Middle East as a Focal Point: The Middle East remains a hot spot for Western Indoor Vertical Farming companies. Collaborations between Saudi Arabia & Van Der Hoeven and the UAE & Safe Haven Solutions highlight the region’s openness to advanced agricultural technologies.
Upcoming Events
Global Vertical Farming Show | September 13-14 | Dubai, UAE
CEA Summit East 2023 | September 19-20 | Danville, VA
VertiFarm | September 26 – 28 | Dortmund, Germany
Conclusion & Call to Action
As we wrap up Indoor Farming Report August, it’s clear that the industry is at an inflection point, teeming with both challenges and opportunities. The sector is more vibrant than ever, from smaller companies showing their mettle on the global stage to the increasing number of collaborations pushing the boundaries of what’s possible. The resilience shown by these companies, especially those that have undergone restructuring, is a testament to the industry’s robustness and ability to adapt to changing circumstances.
The rise in mergers and acquisitions activity signals that we may be entering a phase of consolidation, which could lead to the emergence of more substantial, more diversified entities capable of driving further innovation. As we look ahead to the rest of 2023, we must keep an eye on how these trends evolve, especially as companies begin to see the returns from their restructuring efforts.
Thank you for joining us in exploring the dynamic world of Indoor Vertical Farming. We’ll continue to bring you the latest insights, analysis, and news to keep you informed and prepared for the opportunities and challenges that lie ahead. Until next month, stay tuned and stay innovative.
Photo by Petr Magera on Unsplash