Musings about the Indoor Ag Tech Industry from an Industry Outsider

 

I am excited about the indoor agriculture industry.   The promises and perils leave me with a sense of adventure into the unknown, a stark contrast to my previous endeavors.    After spending nearly a year exploring the indoor farming space, reading numerous articles, having the pleasure of meeting some industry insiders, and sharing my new found passion with my friends, I thought it would be a change of pace to give a perspective from an outsider looking in.  A little food for thought, pardon the pun, from a guy that's not tangled up in the web of a rapidly growing industry.

 

As an emerging farmer I've had the privilege of trying several techniques of growing including vertical farms (both horizontal and towers), deep water culture, and nutrient film technique, to name a few, but at first glance arguably the most appealing to a new farmer is the container farm.  For those that are uninitiated, these are recycled shipping containers that are 320 square feet or larger retrofitted with climate control and either growing racks or vertical growing towers.  It's the BMW of indoor agriculture, the ultimate turn-key experience in growing with all the latest tech gadgets that revs out exquisitely perfect leafy greens and herbs.

 

Until you try to figure out yield

 

There is a strong need for the industry to establish benchmarks for comparing data between different methods of growing so the farmer, entrepreneur, or investor can objectively analyze which method is best suited for their needs.  The indoor agriculture industry itself was born not only out of falling costs but creating transparency for the consumer.  The farmer deserves the same.  There appears to be many instances across the industry of seemingly outlandish marketing and product claims that are not backed up by ordinary statistical analysis nor independently verified.    

 

 

"There is a strong need for the industry to establish benchmarks for comparing data between different methods of growing so the farmer, entrepreneur, or investor can objectively analyze which method is best suited for their needs"

 

 

After spending most of my career working for the Wall Street types I'm sure you'll understand I view things with a certain degree of skepticism.  If someone on the street told me I could make 13.6 times my money in a year and every year thereafter I'd laugh until I couldn't breathe.  It's just not that easy.

 

That's not to say I not willing to take risks.  Yet, in the most extreme case, I've read that a 320 square foot container farm can produce as much as 10 acres when compared to conventional field agriculture.  To put that into perspective 10 acres would be equivalent to 5.67 times the surface area of the football field at the Lyon Olympic stadium in Decines-Charpieu, France. If you do the math (1 acre = 43,560 square feet) that would mean a 320 square foot shipping container would be able to produce 1,360 times compared to conventional field agriculture.  It's just too hard to believe. 

 

In my view these type of unsubstantiated claims, whether in a news article, interview, or company website, are damaging the reputation of the industry amongst both seasoned and emerging farmers.  Establishing benchmark standards would benefit the reputation of the entire industry and help customers make more informed decisions.

 

 

Photo: Lyon Olympic Stadium, Decines-Charpieu, France

 

 

 

Container farms get a bad rap, but...

 

Regardless of scale every farmer eats, sleeps, and dreams about increasing revenue and correspondingly yield per square foot to reward his or her time and capital investment.  Container farms can be found anywhere in the world.  So here's a challenge.  Develop a blueprint with instructions so anyone can build a container farm. 

 

The industry upside is to sell proprietary component technology to maximize yield and revenue -- a real value for the farmer.  The farmer, or whomever he or she chooses to hire locally, can build the container farm to reduce costs.  Farmers might potentially choose which components they need and can afford further lowering their upfront costs with optionality in the future.  And if you think about it, by comparison, greenhouses are built to suit the particular needs of the farmer.

 

                                  

 

 

 

 

 

"In essence the present cost structure of a small scale container or warehouse farm is priced for near perfect performance on the part of the farmer-entrepreneur."

 

 

 

 

 

 

 

Being the analytical type I like to check things out on a spreadsheet. Any spreadsheet analysis reveals the present small-scale container or warehouse farm model is too expensive.  Notwithstanding the intricacies of securing real estate or building out a facility (this is why the container style farm is so appealing), new farmers have to fund working capital until reaching breakeven.  A nebulous black hole no one seems to talk about. 

 

In the best case scenario it will likely take 6 months to a year to sell full production if we’re good at growing AND marketing AND distribution.  Don't get me wrong I really, really want to find a reason to buy one but most of us don't live in the Sahara Desert or Antarctica where we can get $6 for a head of baby lettuce to cover both the capital costs and the risks.  In essence the present cost structure of a small scale container or warehouse farm is priced for near perfect performance on the part of the farmer-entrepreneur.

 

Certified Indoor Agriculturist?


As the industry evolves consideration needs to be given on how to qualify and certify agriculture consultants to meet minimum competencies.  For example in the finance industry one can earn a CFP (Certified Financial Planner) or CFA (Chartered Financial Analyst) designation after studying for and passing a rigorous set of exams.  The latter is globally accepted.  The exams are not easy.  There are also work experience requirements. Neither, to my knowledge, is required by law nor are they administered by an accredited educational institution. 

 

Without the designations anyone can still call themselves a financial planner or analyst (and there are many good ones that do not have a designation).  However, the designations engender trust and are seen as favorable by the public and in many cases required by companies and other institutions for employment.  They each have an ethical standard which must be adhered to, otherwise the designation can be revoked, possibly ending a lucrative career.

 

In the indoor agriculture industry I have found that almost anyone and everyone calls themselves a consultant.  Some have agricultural degrees while others have 10, 20 years of industry experience.  Some have operated an indoor farm or greenhouse while others have not.  And the expertise of consultants seems to wildly vary depending on their particular background.

 

 

 

 

 

"Farmers invest significant capital and take on large amounts of debt. A minimum technical standard for consultants would go a long way in ensuring farmers receive sound advice.​"

 

 

 

 

 

 

 

 

 

And it's no wonder, consider all the disciplines an indoor farm consultant and farmer at any scale has to endure: plant biology, pest and disease management, laws and regulations, engineering, logistics, distribution, finance, chemistry, marketing, branding, packaging, data analytics, ... enough to make anyone's head spin!  Plus they have to cope with and evaluate all the new technology.  Many of these disciplines are dependent on one another, one component fails and the crop or farm is history.  

 

The complexity of indoor farming is rapidly developing along with competitiveness.  Farmers invest significant capital and take on large amounts of debt.  A minimum technical standard for consultants would go a long way in ensuring farmers receive sound advice.

 

Farmers really need help with branding

 

While the industry is continually providing information on the costs of production and the technical aspects of growing more attention needs to be placed on improving revenue and margin.  Here's where farmers really need help: branding, labeling, and packaging.  Lettuce and other leafy greens are commoditized products and farmers are likely to face increased competition as the industry expands.  The story of the indoor urban farm is likely to gradually lose its appeal.


In my local market I can hardly differentiate between farms unless I know the farmer.  A brand is that compelling and differentiated story about why a farmer chooses to farm.  It's their personal story, voice and tone, values and attitude in humanistic terms.  That compelling story is the real product of the farm.  Don't get me wrong, farmers still need to have great lettuce.  But a good brand can act like an employee that tells the story.  The farmer can't be everywhere.  This also gives the opportunity for the farmer to expand his operation as the brand comes to life.   

 

 

 

 

"While the industry is continually providing information on the costs of production and the technical aspects of growing, more attention needs to be placed on improving revenue and margin.  Here's where farmers really need help: branding, labeling, and packaging."

 

 

 

 

 

 

As an aside, your name and how you look are not who you are.  Similarly, a name and logo is not a brand.  The name and logo can, however, subtly reflect the brand story.

 

More on this in a future article.

 

Where is all the data?

 

There are more than a dozen indoor ag tech start-ups that are trying to collect data in various forms to help the farmer.  There is a need for data but farmers also need to know how to organize that data, analyze it, and translate it into a meaningful improvement in revenue and margin.  I am disappointed to have yet to find an open-source data stream on the internet.  Just one variety of lettuce please.  

 

The Takeaways

 

As an emerging farmer and an industry outsider there's a lot of information to digest.  While improvement can be made in the indoor agriculture industry I still remain excited about the possibilities technology can bring to the farmer.  The main takeaways from this article are:

 

  • There needs to be an established benchmark for farmers to be able to better compare and evaluate yields between emerging technologies and traditional growing methods.  Integrity of information is key.                                                                                                                                                                                                                                                                                                  

  • The cost structure of turn-key indoor ag farms is still too high to provide an adequate return for the risks.  A more flexible approach to building indoor farms is needed.   One possibility is a new, more flexible model for a container farm.                                                                                                                                                                          

  • As the industry evolves and becomes even more technically complex, there needs to be minimum standards set for consultants.                                                                                                                         

  • More information is needed on branding, labeling, and packaging to improve farmer revenue.                                                                                                                 

  • Farmers need a better understanding on how to use data to realize an economic return.

 

 

 

 

 

 

 

 

 

 

 

 

 

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