Strategies for indoor farms

Strategies for Controlled Environment Agriculture (CEA) Players in 2022

Strategies for indoor farming

By Riyana Razalee 

Looking at 2021 for the controlled environment agriculture (CEA) industry, on one hand, there were huge milestones such as AppHarvest’s IPO. The company’s stock hit an all-time high of 44% on its debut. BrightFarms was acquired by Cox Enterprise which has owned a majority stake in the company since 2020. Outside of the U.S., we witnessed some wins with InFarm, having successfully raised $200 million in its Series D fundraising. This inflow of cash will fund their expansion into the UK, Denmark, and the Czech Republic. On the flipside, we also saw some farms encounter setbacks. AeroFarms announced its IPO but then had to withdraw. While no details of this withdrawal was shared by AeroFarms, Co-Founder and CEO David Rosenberg did state that moving ahead with the deal would not be in the best interests of their shareholders. As for AppHarvest, despite launching their IPO, unfortunately they recorded a net loss in its third quarter.

From a funding perspective, the varied outcomes across indoor farms indicate that while a lot of investors are still very optimistic about the controlled environment agriculture industry at large, as with most growing industries, there are still some kinks in the system that stakeholders would like more comfort around.

As an agriculture technology company and input manufacturer, we asked ourselves, “What are some ways indoor growers can strategize for the year ahead?”. These are our thoughts:

1. Keep a very close tab on fertilizer prices
In November 2021, executives at CF Industry Holdings announced during their earnings call that the shortage of nitrogen fertilizer was getting so bad that farmers won’t be able to get what they need for their fields in the near future. CF Industry Holdings owns the world’s largest nitrogen facility and therefore this statement unsurprisingly created waves in the industry. The soaring prices of natural gas which rose up to 87% as of November 2021 as well as nitrogen, both of which are the fertilizer industry’s key raw materials, have catapulted prices. With countries like China and Russia restricting import with set quotas on the amount of fertilizer that can leave the country, buyers like the US are feeling the effects. The US imports 20% of its urea and 40% of ammonium nitrate from Russia alone.

Fertilizer prices increase

2. Localize, localize, localize

We all know it: local production means less carbon footprint. Many investors, food brands, and retail buyers want to reduce this CO2e value, eliminating emissions from the food value chain. As for consumers, in contrast to pre-pandemic tendencies, an October 2021 analysis of global consumer trends released by nutrition leader ADM reports that an astounding 58% of consumers worldwide say that the pandemic has increased their focus on locality. These two points lead us down the supply chain path. Traditionally, food grown on one end of the country could very well find itself on the other end within 24 hours. In fact, on average, meals in the United States travel an estimated 1,500 miles from farm to plate. CEA must change this. It does not make economical or environmental sense to not take full advantage of a local business approach, which includes, if possible, all your agriculture input suppliers. Now, although container shipping prices are beginning to ease, the overall supply chain is still on the mend, especially with the shortage of truck drivers in the US and Europe. But there’s a way around this. As the Whole Foods Food Trend 2022 Report indicated, “ultra-urban farming” is the way forward. They’ve carried out partnerships which serve as great examples to consider, whether it’s their collaboration with Gotham Greens, creating the first commercial greenhouse farm integrated into a grocery store, or their in-store mushroom farm in their New Jersey location which is being run with Smallhold. If a farm can show its stakeholders that they’re taking the local method seriously, this could open up an entirely new avenue of conversation and ideas to better the business. 

3. Don’t just be a food “maker”, be a food “reuser”
Food will be continue to become more expensive to grow, manufacture, and ship. The opportunity though is that as food prices go up, controlled environment agriculture companies will likely feel more pressure to minimize waste – and this is a good thing. Recently, the U.S Environmental Protection Agency (EPA) EPA announced its reinterpretation of the 2030 Food Loss and Waste Reduction goal. Their goal to cut US food loss and waste in half by 2030. However, food that is composted or sent to anaerobic digestors is also now considered part of that half that needs to be cut by 2030. This signals to stakeholders that the ultimate goal should be preventing food waste from being generated in the first place. Most stakeholders, particularly investors, are on the hunt for their indoor farm “unicorn”. At the moment, most, if not all, indoor and vertical farming operations claim a lower cost of production for every unit of output compared to soil-based agriculture. Very few have been able to truly convince investors that this is the case. If done well and carried out at every stage of the production process, indoor farms could prove to their stakeholders, particularly investors, that their operations are strong by reducing waste as one of the methods of lowering cost.

Let us know if there’s a strategy we’ve missed especially as it relates to our overall mission of the circular economy and nutrient cycling for indoor growers by reaching out to us here.

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