Where Are All The Vertical Farms?

By Owen Yingling

Starting in the early 2010s, a number of founders, public officials, and to a lesser extent researchers, touted urban vertical farming as farming’s future: a cheap, environmentally friendly, and climate change resistant method of farming that could render traditional farming completely obsolete. 

Pitches flew: “90% less water usage,” “complete control of the growing environment,” “seasonal crops grown all year round,” etc. Between 2014 and 2020 investors staked around $1.8 billion in vertical farming companies, captivated by their marketing that promised resilience, high tech innovation, and large crop yields without the often expensive investment in arable land needed in conventional farming. 

But where are all the vertical farms?

Over the past decade, vertical farming has received more funding than any other agricultural technology, perhaps driven by the ability of these companies to market themselves as tech companies and seek investments from that sector rather than placing themselves within the agricultural industry. The founders could speak Silicon Valley’s cant—the language of “disruption,” “artificial intelligence,” and “ambitious growth forecasts'' — so there was an abundance of funding opportunities from the classic start-up sources: Softbanks’s Vision Fund, Google Ventures, and a smattering of billionaires.

Yet much of industry appears to have imploded almost as fast as it came into existence — Pennsylvania based Fifth Season dramatically collapsed at the end of 2022, the stock of publicly traded AppHarvest trades in cents, down 95% from its high, and companies Infarm and IronOx both recently laid off half of their staffs.

When asked about the failure of Fifth Season, the former vice president Chris Cerveny claimed that “tech investors in Silicon Valley…had expectations of how fast things were going to come out,” but that “it’s all designed to be profitable later.” The initial costs to construct a vertical farm are indeed enormous: potentially over $100 million for a single building. And according to Cerveny, “when [Fifth Season] built the farm and designed it, [they] didn’t know what they were going to grow.” But there were deeper cracks in the business model — Grant Vandenbussche, the former chief category officer, said in an interview that it was “really hard to find enough margin to be able to have…unit sales cover the cost of the broader enterprise.” This hints at a potentially much broader problem, where the failure of these companies is not just a result of “bad timing” as Cerveny claims, but instead that the business model of these large vertical farming operations is fundamentally unprofitable due to its costs and inability to compete with conventionally farmed products.

The notion that at present, vertical farming is fundamentally an unprofitable business is bolstered by a variety of sources. For instance, a Cornell professor estimated that a loaf of bread produced by wheat from a vertical farm would cost $27 due to energy costs. And a paper published in 2020 from researchers working at the University of Florida, Columbia, and Princeton argues that while indoor farming uses less land than conventional farming, it is “unlikely to be economically competitive with current market prices” due to “high energy costs for artificial lighting and capital costs.” And while Chicago Architect Martin Felsen is optimistic about the future of urban agriculture, he also cautions that large scale vertical farms are just “not a viable business anywhere in the United States”

Interestingly enough, the one vertical farming company that seems to have had some success is the luxury strawberry growing company “Oishii.” Why have they been able to succeed where other companies with larger market sizes and more funding and production capacity have failed? The answer is simple: conventional farms sell a pound of strawberries for around $3, Oishii can sell eight individual strawberries for $20.

In the near future, vertical farms are not going to be able to compete on prices with conventional farmers — if one has to pick between two identical loafs of bread, one that costs $15 and one that costs $2.50, the rational consumer will always take the cheaper option. The large commercial vertical farms saw this and thought the only path forward was looking for ways to lower the price gap. They placed the farms directly next to grocery stores to minimize transportation, used solar panels to lower energy costs, and focused on growing crops with the highest value per plant but ultimately none of that was enough to make them competitive with conventional farming.

But there is another option. Organic farmers have much lower crop yields and higher labor costs than conventional farms, but they are profitable precisely because they don’t try to compete with industrial farms on prices, recognizing that they will always lose. Instead, they attack conventional farming at its one glaring weak point: the “story.” People buy products made by industrial farms in spite of the “story” attached to it, while they buy organic because of it. Consumers will pay a 30% premium for goods with the USDA “organic” label because it signals healthier, better tasting food, and a humane and “natural” production process.

The recognition that the “story” is often what sells is what Oishii has brought to the vertical farming industry—they have realized that through scarcity, advertisement, and the novelty they can craft a “story” that lets them compete with conventional farming in a way that no other vertical farming company can.

At the end of the day it doesn’t matter whether anyone can actually show that Oishii strawberries taste better than normal strawberries — consumers are already primed by language efficiently calculated for its audience. Visions of a “perfect environment” created through meticulous calculation of “optimal temperature and breeze” and production “guided by the same principles of the fine wine wine industry” pepper their website. And of course they include the classic lure of tech sector investors by disclosing that they “leverage artificial intelligence to predict yields.”

Photo by Allec Gomes on Unsplash

Oishii’s decision to plaster their website with pictures of strawberries that can only be described as “seductive,” their minimalist “eating instructions,” and the reliance on social media to sell their product makes me skeptical about whether their products are essentially any better than normal strawberries. If they were, I’m not sure why this level of psychological priming would be necessary. But it doesn’t matter — Oishii’s success is enough to prove that the psychology here is enough.

So it seems like vertical farming does have a path, albeit a limited and fairly risky one. If vertical farming companies can sell the “story” — “cutting edge technology,” “complete control over crop growth,” “maximized flavor profile,” etc. in the same way that the organic industry has sold its story of “healthiness”, “authenticity”, and “environmental friendliness” — it can compete with commercial farming. Oishii is proof that consumers can and will pay a premium for the vertical farming story and their focus on a single fruit leaves plenty of space for other companies to position themselves similarly using different products.

Vertical farms, like farmers markets, probably won't be the main source of produce for households, but they will be a welcomed supplement to normal grocery shopping.

Further Reading:

• Discourse | Zoning Out American Families by Emily Hamilton

• Mercatus Policy Brief | Housing Reform in the States: A Menu of Options for 2023By Salim Furth & Emily Hamilton

• Farming Abundance | Phony Demand and Underpopulation: Problems Plaguing American Farmers By Matthew Yglesias

• Book | Order without Design: How Markets Shape Cities by Alain Bertaud