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  1. Analysis
December 16, 2020

What are the prospects for vertical farming in Europe?

The first phase of construction on Europe's largest vertical farm was completed and the companies behind the site are confident about the sector's outlook, David Green writes.

Europe’s largest vertical farm has completed the first phase of its construction, with deals agreed for produce to be sold next year. David Green digs into the project and explores how far the sector could take root.

In early December, reporters descended on a vertical farm outside Denmark’s capital of Copenhagen, paused to snap pictures of 14-storey-high growing beds in a 7,000 square metre warehouse, and departed wondering whether a long-mooted technology might finally have come of age. 

Danish start-up Nordic Harvest is confident its venture will be profitable in 2021, having pre-sold some 1,000 tons of lettuce greens, micro-greens and herbs the farm is earmarked to produce. But to what extent are European consumers ready to buy vertically-farmed food? 

Vertical farming has always appealed on paper but its promise of pesticide-free produce from factories close to urban centres, and thus reduced reliance on imported alternatives, has increasing appeal in our climate-stressed world. The fact that such facilities require less than one-tenth of the arable land open fields need to produce equivalent harvests, use about 90% less water, and eliminate long-haul transportation costs are all climate-friendly selling points, proponents argue.

Vertical farms’ promise of secure harvests is also increasingly appealing as climate events more frequently undermine farmers’ ability to bring home their crops. This autumn, for example, South Korea suffered a so-called “kimchi crisis” after several typhoons conspired to drive up cabbage prices by as much as 60%.

However, advocates for vertical farming have found consumers are unwilling to shell out the cash necessary to offset the high costs of farming under artificial lights, and that the mechanics of building and maintaining an automated, controlled environment are not straightforward. The sector is consequently notorious for bankruptcies.  

Nordic Harvest’s package is sufficiently convincing to have persuaded Denmark’s state investment fund, Vaekstfonden, and the Danish Green Investment Fund to fund its venture to the tune of EUR8.3m (US$10.1m). 

The sector also appears to be overcoming its previous commercial challenges, according to Stella Tsai, general manager of YesHealth Group, a Taiwanese firm supplying technology to vertical farms and partner of Nordic Harvest. “We have already pre-sold the product to food service and large-scale supermarkets chains in northern Europe,” she says. “We will expand to Finland, Norway and Sweden once we have proof of concept.”

YesHealth provides the lighting, water treatment and automation technology involved in the Copenhagen farm, as well as the nutrient mix to grow the crops and software to control the farm’s output, a turnkey solution based on over a decade of operations at its own site in Taoyuan, Taiwan. YesHealth’s proximity to Taiwanese equipment suppliers has enabled it to furnish Nordic Health with a heavily automated solution that requires about 30 people to run at full production and allowing a price point YesHealth says will be no more expensive than organic equivalents. 

Chinese company SananBio is also seeking to take its technically-efficient vertical farming solutions global. The operation, based in the south-eastern Chinese city of Xiamen, has cut the energy cost of its LED lights by 15% since embarking on a research drive initially aimed at growing cannabis, according to Zheng Siqi, the company’s head of marketing. “The LEDs are key – we’ve not only managed to reduce energy costs, but improve the fresh weight of each plant as we’ve evolved the lighting,” he says, explaining sister company Sanan Optoelectronics provides a pipeline of increasingly potent ultra-high-brightness LED epitaxial wafers that will continue to bring down costs in future. 

Sananbio has secured deals with VertiVegies, a large-scale vertical farming operation in Singapore, and Ireland-based Farmony, to which it supplies its Radix modular growing platform, comprising lighting and nutrient tanks. 

“There is a huge gap in the market in Ireland, which imports about US$400m of fruit and vegetables from Israel and Africa, as well as France and Italy each year,” says John Paul Prior, Farmony’s strategy and sales director. Farmony says its value-add is the technology to monitor and adjust the indoor microclimate. “Data is critical – you’re trying to provide optimal growing conditions – consistent ambient temperatures, humidity, water temperature, and nutrient levels,” Prior says. 

Prior is enthused by the opportunity Brexit will provide for vertical farms to reduce capital costs by occupying factories vacated by Ireland’s army of mushroom producers, who are set to lose their primary export market as the UK brings mushroom production back onshore. “Vertical farming will spread like wildfire in the UK and in Ireland,” Prior says, suggesting Brexit will also raise the costs of bringing in imported produce, and that this should prove attractive to venture capital backers when Farmony seeks funding next year. 

Japanese vertical farmer Spread exemplifies how environment control technology, along with heavily automated and IoT-assisted production, can make vertical farms consistently profitable. Operating efficiency improvements have allowed Spread to reduce the suggested retail price of its lettuce by 20% to JPY160 (US$1.55) for 100g, compared with JPY130 for a traditionally farmed equivalent. Meanwhile, in-store educational events and online promotions have made space for Spread to sell more than 60 million packets of its range of Vegetus branded products in Japan.

Spread is considering various potential partners to help take the business global but has yet to take the plunge. In the meantime, German urban farmer Infarm has arrived in Japan, flush with capital after securing $170m in Series C financing, taking its total funding to more than $300m, not far behind the $500m valuations commanded by US players such as AeroFarms and Plenty. 

Vertical farming is increasingly big business. An Emergen Research report estimates the sector’s global market value will expand at a CAGR of 20.1% to about $12bn by 2027, while analysts at Global Market Insights analysts suggest a market value of more like $20bn by a similar date. Such predictions are largely based on equipment sales rather than an assessment of the retail market, and should be taken with a pinch of salt, but the growth trajectory looks clear. 

Aurélia Britsch, head of commodities research at Fitch Solutions, suggests vertical farming will attract increasing investment in 2021 as import-dependent countries look to boost domestic food production via novel systems. “Space- and climate-constrained countries in the Middle East, city states like Singapore and Hong Kong, as well as northern and tech-advanced European countries like the Netherlands, Denmark, Sweden and Norway are likely to lead the trend,” she says, adding that though there will be some cases of government support, growth will chiefly be driven by private sector investment.

Infarm is already eyeing expansion beyond its footprint of ten countries and 30 cities, according to its VP for corporate sales, Daniel Kats. “We had a huge increase in demand from new clients because many countries could not import during the pandemic,” Kats says, picking out a new partnership with the UK online grocer Farmdrop as an instance of growth in the e-commerce channel picking up across Europe. Like Spread, Infarm distributes its own brand of vertically-farmed produce to retail partners but is unique in offering pods that can be installed in stores and supermarkets to help educate consumers, and give them the chance to pick and retain the roots of the plants. 

“We do a lot of tastings and have growers who come into stores to deliver the messaging – people think the produce tastes a lot better than what usually buy and it’s the same price as they paid before,” Kats says. Infarm has signed deals with European supermarket partners including Albert Heijn in the Netherlands, Aldi Süd in Germany and Marks and Spencer (M&S) in the UK. M&S tells just-food customer feedback has been “consistently positive” since launching eight varieties of Infarm’s herbs in seven stores, priced at GBP1.25 (US$1.69) per plant. “Our customers have told us the concept is easy to shop and they understand the benefits of vertically-farmed produce such as being more sustainable, high in quality and having a longer shelf life.”

A key competitive advantage in the vertical farming segment could be the ability to use aggregated data to refine increasingly efficient grow-cycle algorithms. Infarm appears to have a lead in this respect, having connected its combined 500,000 sq ft of growing space to the cloud, and broken new ground in vertically farming mushrooms and other new variants likely to be announced soon, according to Kats. 

Despite these developments, some remain unconvinced vertical farming will work on the scale required to revolutionize food consumption. Aarhus University agriculture professor Carl-Otto Ottosen, for example, is doubtful Nordic Harvest’s efforts will come to fruition. “It might be a niche market, but price is a limiting factor on widespread distribution, and many of Nordic Harvest’s agreements were sealed before Covid-19 devastated Denmark’s catering industry,” he says. “It cost GBP2m to get going, and they are competing with organic greenhouse growers 10km away rather than imports of tomatoes and vegetables sourced from places like Spain and Italy.”  

Ottosen is also unsure whether consumers care enough about vertical farming, not least because its sustainability is questionable as a result of high carbon costs; even if these are offset by power purchase agreements with renewable energy suppliers, as is the case in Nordic Harvest’s Copenhagen farm. Environmentalists such as Nate Maynard, host of the sustainability science show Waste Not Why Not, are equally sceptical. “This might work in places where the soil is contaminated, but in Denmark? Even if you’re buying renewable energy to displace your electricity usage, that still has a high cost compared with farming, and I wouldn’t pitch that as sustainable.”

Vertical farming’s sustainable credentials are also under the spotlight because the concept falls outside the EU’s definition of organic – predicated on being grown in contact with bedrock and subsoil – and into a certification grey area.

Christine Zimmerman, chair of the Association for Vertical Farming, says the Germany-based organization hopes to launch an industry-approved global certification next year. She also hopes the EU’s Green Deal may open up further funding. “There are three or four calls under the Green Deal that give vertical farmers an opportunity to apply,” she says. “The bigger problem is that the EU’s focus is on bio-economy, and vertical farming is a small pillar in that. Most of the money will go to traditional farming and organic.” 

Zimmerman also believes vertical farming remains highly dependent on individual market dynamics. “In the Nordics, consumers are used to paying a higher price, so they are ready. France and Italy are looking for high quality, fresh and local, and will pay more, but there is room to optimise further. In Germany, perishable food prices are low, so it is more difficult.”

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