Are Vertical Farms Economically Viable? An Interview With A Vertical Farmer
An interview with Clayton Mooney from Clayton Farms
Vertical farms have existed for a while as a plausible, space age thought. While occasionally popping up in space set movies, Scooby Doo or Justice League televisions shows, there’s only a few dozen operational farms in the United States and very limited sales locations. It’s unsuprising that many Americans are unaware of this growing (pun intended) agriculture movement.
Clayton Farms is the Midwest’s only indoor farm growing directly for consumers. The company services about 1,200 households though it’s delivery service and they recently opened up a drive-thru salad restaurant.
This interview was conducted a few months ago and although he didn’t know it at the time, Clayton Mooney essentially predicted the downfall of vertical farming giant Aerofarms, which filed for bankruptcy on June 8th, although they are hardly the first vertical farm to file for bankruptcy. It seems that their primary business troubles were identical to what Clayton identified as industry challenges in the interview: operational size, energy sources, scaleability and competition with traditional farmers.
Clayton: Time will tell, we've taken a very contrarian approach to vertical farming so we could be really, really right or wrong…when you look at the West Coast and you see vertical farms like AeroFarms [they] have this kind of utopian view of the future, where people will be standing around in lab coats, perfecting strawberries.…I guess that could be the farm of the future. But, I think those vertical farms get it wrong because they are over-engineered, and become too capital intensive. They don't have a path to profitability..”
Some highlights from the interview:
“The statistic that keeps me up at night is, especially here in the Midwest, if you walk into a grocery store, all the food you see sitting there is missing 40%+ of its nutrients. And the biggest reason is the fact that it's older than three days post-harvest…We're not trying to reinvent the wheel. More nutritious food is about just getting it to you sooner.”
“I truly believe that the producers have historically ended up with the smallest slice of the pie. It's one of those situations that has created, in my opinion, a bad habit.”
“the industry [indoor farming] as a whole, needs to focus more on consumers and what they actually want instead of having the kind of shiny-object-syndrome of wanting these human-less vertical farms of the future.”
Check out the full interview below!
Image source: https://www.claytonfarms.com
Patricia: Can you give me a brief description of your business model?
Clayton: The one minute version of our six year history starts when Danen Pool, who is our co-founder and CTO and myself started a company called Nebullam Inc.
We wanted to become the John Deere for indoor farming. We thought we would design and build the growing equipment and the software that runs the equipment and then get it into the hands of new and expanding indoor farmers.
Everything from greenhouses, to hot houses, to vertical farms. Fast forward a couple of years, we established manufacturing partners, we set up a model farm here in Ames and the Iowa State University Research Park.
Then the pandemic hit.
We lost all revenue, lost the business model, and then pivoted to becoming the farm ourselves and offered the direct to consumer fresh produce subscription service. A few months in, we were forced to build, what I call the “fulfillment tech stack.” And that helped us to basically own our the supply chain.
Today, we're known as having built a direct-to-consumer indoor farm that offers fresh food subscriptions. We have our first farm here in Ames, and we just launched our second farm in the Twin Cities at the end of last year. We have expansion plans to launch more farms across the Midwest in the coming months.
Patricia: Awesome, what’s your energy source?
Clayton: As of right now, neither location has solar wind - it's the usual. In the resource part here [at Iowa State] they are looking to invest into some solar farms in partnership with Align Energy, but nothing is ‘sustainable’ in either location right now.
Patricia: What was the biggest issue with locating space for your facilities in the Twin Cities?
Clayton: We wanted to settle in a metropolitan area of more than 2 million people. The closest one outside of Ames was the Twin Cities. The space we searched for needed to be industrially zoned, because we operate as a ‘dark storage’ facility model [they fulfill and send their own orders].
We looked at warehouse spaces or office spaces that we could demo [fully design] and install our growing equipment – the intention was that any house or apartment within a 30 mile radius we would be able to say, “we'll serve you, we'll deliver, take to your doorstep here..”
Patricia: Did the FDA or the USDA, have to come in to inspect anything before you guys started directly selling to people?
Clayton: No. We grow raw agricultural products – we do not do any processing, [so the FDA isn’t involved]. So, for example, it would be like having a large garden and selling at a farmers market.
We are currently able to sell our greens to grocery stores, restaurants, and consumers. At the moment, we want to mix some of our microgreens or lettuces – but that would be considered processing. To process food, we would need to have dedicated processing space and go after additional licenses – and that hasn't seemed worth it so far.
It’s not public yet, but we actually are getting into the drive-thru game by launching our own salad drive thru [still testing]. And, actually, we just got the keys to a restaurant in Ames. We plan to convert the dining space to production space and then actually have a commercial drive through.
Patricia: That’s so cool. The FDA stuff is super interesting in regards to what triggers inspection and regulatory procedures and what doesn't.
Clayton: Yeah, it's something. And it's what happens with hydroponic growing – it's kind of a gray area.
Patricia: What do you think are the biggest barriers to vertical farmers?
Clayton: Time will tell, we've taken a very contrarian approach to vertical farming so we could be really, really right or wrong.
In my opinion of vertical farms, when you look at the West Coast and you see vertical farmlike AeroFarms. Most vertical farms have this kind of utopian view of the future, where people will be standing around in lab coats, perfecting strawberries.
The thought is that you're going to walk into a vertical farm and there's going to be no people in there - it's all going to be run by robots.
I guess that could be the farm of the future.
Farm Of The Future from What’s New Scooby Doo Episode: High-Tech House of Horrors
But, I think those vertical farms get it wrong because they are over-engineered, and become too capital intensive. They don't have a path to profitability and they require a larger footprint of, let's say, 50,000 square feet, whereas our approach is 1-10,000 square feet so we can be actually closer to consumers.
There's way more availability for real estate with a smaller footprint. And, when it comes to the innovation side, we've had to learn the hard way over the years. Fewer parts equals fewer problems. So, we're kind of at the middle of the pack for as far as the complexity of our growing technology and the software that runs it.
We've gotten more innovative by going direct to the consumer and owning the supply chain. By going direct to the consumer, we capture all of the value and that means we have better margins. The equipment pays for itself in 12 months compared to the industry average of almost three and a half years.
Most indoor farms want to have all the bells and whistles of the day. They either over engineered, or they figured out how to produce something for low cost. But then they turn around with the traditional mindset and AG as well or the farmers. So we need to be the wholesaler..
Patricia: Are your products eligible for SNAP?
Clayton: No, not this time, but we are definitely looking into that because at least once a week we have someone reaching out who is interested in that – we're just now starting to look into that.
Patricia: Do you have any thoughts on so many large scale farms? There's been quite a bit of commentary on the loss in nutritional density from foods grown on the average large scale farm.
Clayton: The statistic that keeps me up at night is, especially here in the Midwest, if you walk into a grocery store, all the food you see sitting there is missing 40% + of its nutrients. And the biggest reason is the fact that it's older than three days post-harvest.
It’s not the grocery store’s fault, it's not the distributor’s fault, and it's not the producer's fault – because they're segmented. They can't really fix this.
And that’s why we are seeing more and more options pop up in the supply chain. And so that's led us to placing the most importance on offering same-day harvest and delivery.
I'm not trying to grow more nutritious lettuce than any other farm, but I'll get the lettuce to you shortly after harvest instead of 8-10 days post harvest when it's on a grocery store shelf.
We're not trying to reinvent the wheel.
More nutritious food is about just getting it to you sooner.
I truly believe that the producers have historically ended up with the smallest slice of the pie. It's one of those situations that has created, in my opinion, a bad habit.
For hothouse tomato production, a producer is paid by weight, and if there's a harvest coming up, they're incentivized to flood their lines.
So, the tomatoes take on more water weight. And then that's why throughout the year, especially in the Midwest, you go into a grocery store, you buy a tomato, and you say, “Oh it tastes watered down.”
That's something that you can't get mad at a producer for, because they're paid by weight – that’s what the industry rewards.
You miss out on the flavor profile and it's less aesthetically pleasing. So, people have more seasonal diets. And that's something that I don't know how to fix… Outside of us trying to own a supply chain and getting the food to individuals right after harvest
Patricia: Are there any compliance challenges you guys have come across?
Clayton: Iowa is overly supportive of agriculture, broadly. Now in Minnesota, with our new location, we are excited that the Twin Cities market is full of foodies. People are deeply passionate about where the food comes from, and all of the inputs.
It's surpassed our expectations. There's no major hurdles to getting started outside of just having to search for capital and over half of the capital we've raised has come from the coasts. In Silicon Valley, there's just more capital available, but this is still a very new topic. As we've seen in Minnesota, and at the University of Iowa University Research Park, people are experimenting, trying different things.
So a vertical farm isn’t too out of the ordinary.
As far as real estate – in the spaces we found in the Twin Cities market that were pre-existing office space that we had to demo.
We were [on tours], walking through and saying, “Hey, we're going to install equipment here…these are the electrical capacity needs...these are our track needs, the temperature that has to be kept in this environment year round…”
More and more, real estate groups are learning their way through these waters. Some people are super open minded and want to be supportive and they'll build a suite and then other individuals are afraid of [new styles of real estate] having to do with zoning.
Patricia: What about processing food? Can you sell it out of your front door, or only deliveries?
Clayton: Actually, that's why we don't do a retail front. It's a subscription only [right now]. We operate as a dark storage model. So, [we stay in] industrial zoned spaces where we can be fulfilling a product that we actually grow on site. So, actually there have been a lot of zoning considerations in Minnesota.
Anywhere that we would want to launch, we want to make sure like industrial zoned space to operate [isn’t too restrictive]. Zoning for retail areas – if we grew somewhere that was retail, the price per square foot is three to six times more expensive.
Patricia: What are your best selling items?
Clayton: So leafy greens such as our lettuces, microgreens and sprouts, and then we have other crops like cherry tomatoes [are all popular]. Every quarter we're introducing new foods that are voted upon by our subscribers.
Our mission is to grow what people want, but we make that a data driven decision.
We grow 12 foods today, our most popular out of the leafy greens, which have picked up the most momentum setting aside romaine lettuce, would be our peppery arugula and some microgreens are very popular.
We introduced sunflower-shoot microgreens at the beginning of the year and they have really taken off. Way more people are adding them than had previously had expressed interest in our survey. Also, Cherry Tomatoes. By the end of this year, we want to be into other body crops like peppers and cucumbers.
Patricia: What's the price difference between a small package of cherry tomatoes, from your place versus like a grocery store?
Clayton: So most of our foods are going to be at the upper end of the price point when compared to what you would find in a Whole Foods. So, as an example of premium lettuce, if you walk into a Whole Foods and buy a four ounce clamshell, you're spending between $3 and $5 for that. That’s between $12 - $20 bucks a pound.
So, we're selling that item between $15 and $18 which includes everything - the cost of the item and the delivery.
Patricia: Do you want to stay focused in the Midwest or it is kind of like the ‘sky's the limit’ with your production?
Clayton: We want to be everywhere. I want to have thousands, thousands of locations and be a household name. And, I think we do that as long as we just continue to stay focused on what our actual customers want, and as we branch into the drive thru game, I think we're going to be the first drive thru ever that has onsite production for salads. That’s exciting for us.
Patricia: Do you have any sort of specialty crop insurance or anything through the USDA? Are you guys involved with their specialty crop programs?
Clayton: We're not – mostly because we are in startup mode. We have to stay as lean as possible… we’re learning by fire. But, we carry general liability insurance, workman's comp, everything from the state levels that we legally are required to carry.
Patricia: Is there anything that would be helpful for me to know about this space?
Clayton: My biggest thing is, as a food tech company, the industry [indoor farming] as a whole, needs to focus more on consumers and what they actually want instead of having the kind of shiny-object-syndrome of wanting these human-less vertical farms of the future and the perfect tasting strawberry.
I'll leave it at that.
Patricia: Are you talking about any company in particular?
Clayton: Look at Google’s vertical farm, for example, or indoor farm layoffs in the last six months at similar companies, about five companies that laid off over half of their teams.And if you look at the trend, all of the companies wanted this really fancy layout, and this really fancy automated vertical farm, and raised hundreds of millions of capital, and now they have to have a path to profitability.
I think this is a hard lesson the industry is having to learn. And that's specifically why I avoid going to trade shows for indoor and vertical farming. Right now, I feel like the industry as a whole just has a lot of maturing to do.
Patricia: Is energy a big determinant, assuming a normal model with profitability in different states, especially in states like California, where energy is more of an issue?
Clayton: Three years ago, I would 100% agree with you, [today] it’s more of a coin flip… Right now, the majority of startups going into the lighting space [are in] a race to the bottom.
At the end of the day, farmers are going to win because they're going to get the cheapest lights that produce the same yield. [That’s what I’ve] seen from when we started.
To give you an idea, it's like a random statistic when we first started in 2017, 2018, we would need seven rows of our full spectrum strip LED lighting for optimal growth.
Then a few years ago we would have needed six rows, and today we only need five rows to produce that same night yield in that same space. That's because there have been more efficient lights introduced every year. There are so many startups jumping in the space.
From material costs to energy costs, things are becoming more and more efficient.
I always think in terms of CapEx [Capital expenditure]. So, if somebody says that a $50,000 square foot vertical farm, [is valued at] $100 million once it’s up and running.
I want to know, what are they selling the outputs for?
The biggest [issue] in the industry is the traditional age mindset of ‘I'm the producer, so I have to be wholesaling..’ but they just can't, in my opinion.