When asked to describe Newark, New Jersey, most Garden State residents struggled to say something positive. “Crime. That’s it,” offered one resident of Egg Harbor Township. “A lot of crime.” Others were more hopeful. “It’s in transition, it’s improving,” said Paul Hoffer of Moorsetown. “They’re trying to get more business and industry in Newark.” But few could have predicted that Newark — the so-called “Brick City” thanks to its large number of housing projects — would one day become the site of an indoor farming mecca. Home to the world’s largest vertical farm, AeroFarms, Newark was selected neither for its climate nor its soil. Its main selling point was cheap rent and easy access to the salad-munching hordes of the New York City metropolitan area. AeroFarms is not a modest actor. Self-described as an “environmental champion,” the indoor farm uses 95% less water than field farmed food and boasts a yield 390 times higher per square foot (thank God, because it’s only 63 acres). Seeds are swaddled in a feathery gauze that comes to life under Christmas-themed LED lights. Their roots are coaxed into action by an aeroponic mister that releases water and dissolved nutrients.
Twenty years ago, when Columbia University professor Dickson Despommier first proposed vertical farming, few gave the idea much street cred besides a group of rapturous graduate students. “This seems like the ramblings of a syphilitic brain,” commented Stephen Colbert during an interview in 2008. “You say that the future of farming should be in these vertical towers … of spiral farms.” But a decade later, that all had changed. In 2019, the US alone held over 2,000 vertical farms, each putting its own spin on the Promised Land narrative. At last, a solution that promised to feed the world and let you enjoy that $15 bowl of Sweetgreen every day, guilt-free! In 2020, after grocery shoppers were traumatized by rows of empty shelves and food fights, the industry experienced a bumper investment year to combat perceived food insecurity. Now that Costco’s restocked its shelves, how do investors perceive the “tower farms” today? Why Vertical Farming? If perfectly executed, vertical farming would eliminate costly supply chains and free farming from the cruel whims of Mother Nature. Food production alone accounts for ~15% of global greenhouse gas emissions, a percentage we only expect to get higher when we add 2.5 billion people to the global population by 2050. Vertical farming would conserve resources by drastically cutting down on water and land use, allowing former horizontal farmlands — which account for fully 44% of the United States’s land mass — to be returned to the wild. “We have become locked into an ancient, outdated system of food production that requires us to use more and more land to address the rising demands of a human population,” writes Despommier in his utopian blueprint, The Vertical Farm: Feeding the World in the 21st Century. “A city-based agricultural system would allow us to carry out our lives without further damaging the environment.” Vertical farming is a direct response to some of the more retrogressive 20th century agricultural practices whose consequences we are only now beginning to fully understand. The Green Revolution of the 1960s produced never-before-seen crop yields as a result of chemical fertilizers and mechanized farming. Unfortunately, many of these agrochemicals were used without fully understanding their long-term health or pollutive effects, and today agricultural runoff is the leading source of water pollution in the United States. The 2020 Roundup class action lawsuits are just the latest example of a “miracle” herbicide that was once marketed as perfectly safe for routine garden use, yet is now found to cause cancer. Vertical farming skirts the whole agrochemicals controversy by not using any. It caters directly to consumers’ (valid) concerns that their food contains trace amounts of poison and reassures them that indoor plants are protected not by cancerous glyphosate or by GMO’s, but by all-natural ladybugs and wasps. “They’re among our most valuable and prized team members,” says one vertical farmer. Vertical Farms: An Energy Guzzler One of the biggest critiques of vertical farms is their tremendous energy usage. Lights need to run for 12 to 16 hours a day and heating is a necessity during winter. Some experts estimate that vertical farms cost 20% to 30% more than traditional ones. Bruce Bugbee, a professor in the department of Plants, Soils and Climate at Utah State University, was an early critic of vertical farming’s saintly environmentalist claims. “You can have a vertical farm if you let me have a vertical nuclear reactor right next to it to power it,” said Bugbee. “It’s hard to replace free sunlight.” One researcher at Cornell University calculated that growing enough wheat under electric light to make a loaf of bread would run up a $23 electricity bill. “It is possible to operate a business growing specialty crops indoors sold to specialty markets,” said Bugbee. “But the idea of growing our staple crops in vertical farms is ridiculous.” It’s true that every vertical farm’s bread and butter is lettuce. Most facilities stick to leafy greens, microgreens, and herbs, while a few have ventured into tomatoes. These products are costly to refrigerate across long distances and can command a premium in grocery franchises and high-end restaurants. But no indoor farm has made significant headway with actual carbs, the only food group that can ever hope to adequately feed the world. “Vertical farms are growing the edge of the plate, not the center of the plate,” said Jonathan Foley, an environmental scientist based in Minneapolis. “There’s an opportunity cost to put all this technology, money and renewable energy — that could be used for other things that we need energy for — into growing arugula for rich people at $10 an ounce.” The Marvels of LED Lighting Valid as they may be, these observations fail to account for the vast potential of LED lighting, a technology whose costs have been falling for decades. In 2000, Roland Haitz, the “prophet of the last great lighting revolution,” predicted the speed and degree in which LED lights would outpace all other lighting technologies. Known as Haitz’s law, it states that every 10 years, the power of LED light will increase by a factor of 20 while the cost will decrease by a factor of 10. This metric has proven conservative: Infarm, one of the earliest vertical farm startups founded in 2013, has seen a 50% increase in LED efficiency in just seven years. While this curve will eventually plateau, it has already nudged some companies closer to the edge of the plate with potatoes. “Solid-state lighting is where the internet was in the 1980’s,” said Haitz in 2015. “Just as we could not then have predicted what the internet is now, 30 years later, we cannot foresee all that light and lighting will become in the next decades. We know simply that it will be wondrous and beautiful.” Besides, Despommier reminds us, most vertical farms are still in their infancy years. “What you’re really seeing is a rush towards profitability to get their feet wet, and to get their ledgers in the black and to pay off their investors, before they start diversifying.” Climate Change May Drive More Demand Recreating the sun’s free rays through thousands of energy-intensive lights might seem less crazy in a few decades when traditional farmland becomes less hospitable to plant life. In 2021, AppHarvest, a Kentucky-based vertical farm, already reported an uptick in sales thanks to the sudden cold strike in Texas that caused massive supply chain disruptions. And in the long-term, the possibility of a future with no more agriculture in California is not a remote dystopian nightmare. In 2018, University of California scientists published a study in Agronomy detailing immediate climate threats to the Central Valley’s long-standing identity as America’s fruit bowl. Avocado yields are predicted to shrink by more than 40% by 2060. Oranges, grapes, walnuts, and almonds will suffer a 20% decline. Some farmers, wary of the challenges, are abandoning almonds in favor of pistachios, a nut more acclimated to desert-like conditions. “Almonds are for yourself,” said one farmer. “Pistachios are for your kids and your grandkids.” John Duarte, a commercial nursery manager outside Modesto, first noticed significant weather changes back in 2012. “Everyone,” said Duarte, “is thinking about the impacts of warm winters and not enough water.” In conjunction with a saltier water supply, valley temperatures are forecast to rise between 3.5–6 degrees Fahrenheit over the next century. “When I drive to the Central Valley, I get goose bumps,” says Amélie Gaudin, an agronomist at University of California–Davis. “I see an agriculture that is basically hydroponics. It’s like a person being fed/kept alive by an IV.” Well, yes, but make it a misting IV in a temperature controlled vertical farm.
Another problem is soil. Decades of heavy tilling and dumping chemicals onto farmland has severely damaged topsoil. Without topsoil, it’s very difficult to hold water or nutrients in the ground. The Food and Agriculture Organization (FAO) believes that a third of the world’s topsoil is already degraded and fears that the entire supply could be wiped out within 60 years. “We are losing 30 soccer fields of soil every minute, mostly due to intensive farming,” said Volkert Engelsman, an activist with the International Federation of Organic Agriculture Movements. This erosion could be alleviated through regenerative agriculture techniques like cover crops and no-till farming, but federal incentives continue to prioritize maximum yield levels over more restorative practices. Keep Planting That Garden Out Back Vertical farms probably won’t do much to restore America’s farmland to its untamed glory for at least another half century. But they are very much a part of the continued movement towards more localized, environmentally conscious food choices. The industry expects significant growth over the next decade (one market research provider expects a CAGR of 25.7% from 2020 to 2027), but the concept and design is still so new that many startups may remain financially imperiled due to poor layouts and underestimating operational costs. David Rosenberg, co-founder and CEO of AeroFarms, expects to see a significant culling among his competition. “Biological systems scale in non-obvious ways,” he says. In 2017, four companies going out of business approached him for a sale. Those companies had “stupid designs,” he says. “They lost before they got going.” And what happens to the leftover warehouses not bought out by competitors? Marijuana steps in, perhaps the only leafy green that will ever pull in more than 100 dollars an ounce. About Colbeck: Colbeck is a strategic lender that partners with companies during periods of transition, providing creative capital solutions to meet their evolving needs. You can reach the team at inquiries@colbeck.com.
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