Infarm, Europe’s only vertical farming unicorn, has just opened its largest growing facility yet. It’s a 10k square metre warehouse on the outskirts of Bedford, a town in the east of England that’s more known for wool than leafy greens.
Once at full capacity, Infarm’s warehouse will house forty growing towers. They’re ten-metre high boxes — about as high as a house — and each can grow 500k plants a year, the equivalent of a football field worth of crops.
“It’s a five-star hotel for plants,” Jeremy Byfleet, Infarm’s UK head, tells me as we tour the new site, hair nets and lab coats donned.
Plants are grown hydroponically — meaning without soil — and are moved around by an autonomous system that waters them and moves them in and out of darkness to mimic sunlight levels. The system uses 95% less water and land than traditional farming and Infarm estimates that the new facility could one day serve 90% of the population living within a four-hour drive.
Investors have poured $741m into these startups in Europe in the last five years to engineer a world in which we produce more of our food closer to home. But as economic growth starts to slow down, more questions are being raised about the viability of these farms.
People have long questioned the profitability of the business model, which could become even harder during a potential economic downturn. And critics wonder when products will reach price parity with their horizontally grown counterparts — another potential risk to vertical farming companies if consumers are tightening their wallets.
So what’s ahead for these agricultural innovators and can they survive a slowdown in global economic activity?
The vertical farming market
There are at least 14 vertical farming startups in Europe. Infarm has received by far the most funding — $471m from investors including Atomico and Balderton. The second best-funded is France’s Jungle, which has raised €42m.
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Next was Agricool, which is also French and had raised €30m, but it went bankrupt in April this year — in what was perhaps a sign of trying times ahead for the industry.
Infarm tells Sifted that it has a road to profitability mapped out and that it’s secured $300m in contracts for 2022-23, including multiyear contracts with 30 of the world’s top retail chains.
“There are challenges in the financial and business world due to recession fears and to supply chains due to the conflict in Europe that could affect certain timelines — these are constantly being evaluated with the leadership,” a company spokesperson says.
Soaring electricity costs
Infarm declined to comment on its current profit margins, and on what its biggest outgoings are.
Cindy van Rijswick, food and agribusiness analyst at Rabobank, says electricity will be the most significant outgoing for vertical farms across the board.
Last year, she authored a study that suggested electricity accounted for 25% of the industry’s outgoings. That estimate was made before Europe saw surging energy costs from the war in Ukraine, so the percentage will now be higher. “It will be a lot higher now,” she says, “and energy prices are only going up.”
Some vertical farms may choose not to pass on the energy price increase to customers, van Rijswick says, in order to maintain their market share — but it could put a dent in their internal balance sheet.
But Infarm’s Byfleet says traditional agriculture is also facing price hikes. “To produce a single unit costs us a bit more than traditional agriculture but now traditional agriculture has some growing challenges,” he says.
Polytunnels use gas for heating and electricity for lighting. Vertical farms use less fertiliser than traditional farms so they’re slightly more immune to its rising cost, up 30% in 2022 because of the collapse of supply from Russia and Belarus.
Byfleet points out that vertical farms are able to position themselves closer to customers, which means they have lower food transportation costs and are less affected by rising fuel prices as well.
Consumer spending dwindles
As domestic energy prices soar, the cost of living is up and consumer’s budgets are down.
Anna Ottoson, an investor from food tech focused fund Trellis Road, says the reduction in consumer spending could hit vertical farms hard. “I wonder if consumers will be willing to pay a premium for locally grown lettuce in times of rapidly increasing food prices as well as lower disposable income in the event of a recession,” she says.
Van Rijswick agrees. “If someone is really struggling to feed their kids, they don’t care [about the climate]. You can see that already in the UK, the discount supermarkets are gaining market share,” she says.
She's studied grocery spending trends in the 2008 financial crisis, where she says people started to spend more on cheaper, processed foods like frozen pizzas. Lettuce, she comments, is not a staple food.
That said, those with large incomes will not be so impacted by the rising cost of living. “Vertical farming was a niche industry for the rich already, and that group will not be hit that much,” she says.
A rising need for food security
There are macro factors that could play in vertical farms favour further down the line.
“In the last two years, we’ve had a pandemic, we’ve now got a war in Europe and a cost of living crisis,” says Byfleet. “Across that time, certainly in the UK, retailers have thought a lot more about food security and supply chain disruption.”
Vertical farming could form part of the solution — it allows food production to become hyper-localised, close to urban centres and therefore less entangled with global supply chains.
Van Rijswick is not convinced. “I think food security is more about staple foods like grains,” she says, rather than leafy greens.
Scaling up to drive price down
Labour is also still a cost for vertical farms. At Infarm’s facility near Bedford, part of the process is still manual — staff sow individual seeds into pots before they go into the growing facility.
Byfleet says that’s something that can be automated over time, driving costs down and getting products closer to price parity with traditionally farmed goods. As the farms scale up, automation will drive the price down.
“Despite the conditions, we are still targeting growth while focusing on R&D investments in technology and crop science,” an Infarm spokesperson says.
Van Risjwick, despite her concerns over energy prices and consumer spending, thinks some vertical farms will make it through the downturn, although there’s likely to be some consolidation.
“Some companies that are very efficient will survive, because we will still continue to eat herbs, and restaurants will always be here and will serve those products, and yes we will continue to eat lettuce,” she says.