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Vertical farming has found its fatal flaw

Vertical farming has found its fatal flaw

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On the outskirts of the English town of Bedford, a huge new vertical farm opened in June. At a swanky launch event, Members of Parliament heard that the gleaming facility would one day produce 20 million plants a year. It was the latest opening for Infarm, a European vertical farming company that had raised over $600 million in venture capital and promised a future where vegetables are grown in high-tech warehouses with LED lights, rather than open fields or greenhouses.

But now the future of Bedford farm is far from bright. On Nov. 29, Infarm’s founders emailed employees to announce that they were laying off “about 500 employees” — more than half of the workforce. The email details the company’s plans to scale back its operations in the UK, France and the Netherlands and focus on countries where it has stronger ties to retailers and a higher chance of eventually turning a profit. In September, Infarm had already laid off 50 employees because of the need to reduce operating costs and focus on profitability.

Just six months ago, the mood at Europe’s largest vertical farm was unrelentingly optimistic, so what has changed? According to Cindy van Rijswick, strategist at Dutch research firm RaboResearch, in 2022 several pressures that have always existed for vertical farms have really come to a head. First of all, the industry is extremely vulnerable to rising electricity prices. Powering all these plant-growing LEDs uses a lot of electricity, and between December 2020 and July 2022 consumer energy prices in the EU rose by almost 58 percent. Eighteen months ago, vertical farms in Europe would have spent about 25 percent of their operating costs on electricity, but that figure may have risen to about 40 percent, van Rijswick estimates.

At the same time, investors are beginning to tighten their belts and look for faster routes to profitability. Vertical farms are expensive to build compared to traditional outdoor farms. AppHarvest — a US-based company that builds high-tech greenhouses — is struggling to raise enough cash to fund its ongoing operations, despite going public in 2021. In its latest earnings report, the company said there were “significant doubts” about its ability to continue going forward.

The poor global financial outlook is also putting pressure on consumers. Most vertical farms grow herbs, sprouts, and other lettuce vegetables. Leafy greens are the most popular product in the industry because they grow quickly under LEDs and have a short shelf life and premium price. But with inflation high, consumers may prefer to forego expensive vertically grown herbs for something more budget-friendly. This is especially true for vertical farms in Europe. “The European market is a difficult place for vertical farming because there is so much competition from crops grown in fields or in greenhouses,” says van Rijswick.

Vertical farms may have a better chance of surviving by looking further afield, to lands where energy is cheap and growing crops outdoors is difficult. One obvious place is the Middle East. The countries of the Gulf Cooperation Council – a group consisting of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates – import around 85 percent of their food and 56 percent of their vegetables. “When selecting new markets to expand and establish a farm, we will look for places that have an increasing need for food production and food security,” Infarm founder Erez Galonska said at the Vertical Farming Congress in Abu Dhabi on Dec. 14 of the world’s largest vertical farms opened in Dubai earlier this year. The facility is almost three times the size of Infarm’s Bedford cultivation center and supplies leafy greens to Emirates airline and local shops.

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