Vertical farms must trim costs, hone business models to achieve profitability

Key Points

• In recent years, investors have put billions of dollars into indoor vertical farming, a subsector of controlled environment agriculture (CEA), to produce and distribute food closer to urban consumers.
• However, cash flow has been impaired by high upfront investment and operational costs, namely labor and huge energy expenses, coupled with the inability to capture premium pricing. Weak cash flow has been a significant impediment in attracting traditional types of financing to vertical farms, thus forcing them to rely on venture and private capital funding.
• Successful vertical farms have invested outside the grow house in technologies to not only increase productivity and quality of produce, but to also increase efficiencies in warehouse management and distribution.
• Industry consolidation appears to be the ultimate outcome. Survivors will have sufficient funding to outlast competitors through extended periods of negative cash flow and will be able to acquire the liquidated assets of competitors exiting the industry.

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