This week has seen the tale of two vertical farming industries play out once again.
Plenty Unlimited announced it had filed for voluntary Chapter 11 bankruptcy on March 23, and a day later, Oishii announced it had acquired robotics company Tortuga AgTech, a move the company says will accelerate growth and cut its Koyo strawberry harvesting costs by 50%.
Plenty is the latest in a slew of bankruptcies that have plagued the vertical farming industry in recent months, while companies like Oishii, 80 Acres Farms, Eden Green and others have continued to grow and expand.
What do these differing stories say about the current state of vertical farming?
“It shows us that we’re making progress,” says Nick Genty, CEO of Ageye, a Raleigh, N.C.-based provider of turnkey vertical farming solutions, artificial intelligence-powered farm management and crop intelligence software.
Tom Stenzel, executive director of the CEA Alliance, agrees.
“The way I would characterize Plenty is, sure it’s a bankruptcy, but it’s really a reorganization,” he said. “They’re not going out of business. The reorganization gives them time to sort debts and their financial situation while they look for new investors to help get them over the hurdle. I think there’s a path forward for them, and I remain optimistic about [the future of] vertical farming.”
Plenty, which in December announced the closing of its leafy greens facility in Compton, Calif., is also pivoting away from the highly competitive leafy greens arena to focus solely on its vertical strawberry farm in Richmond, Va.
“There’s no question that leafy greens are so competitive, and indoor growers are still competing with outdoor growers with much lower costs,” said Stenzel. “I do think the strawberry category is going to be very different. It’s another reason why I’m optimistic of Plenty being able to get through this.”
Missteps and miscalculations
Both Genty and Stenzel attended February’s Indoor Ag-Con in Las Vegas, where much of the vertical farming conversation centered on what went wrong and the lessons learned in the last decade that will position vertical farmers for success in the next 10 years, including:
- Taking “easy money” and too much of it.
- Trying to be both a tech company and a farmer.
- Scaling too quickly with a lack of focus on doing one thing consistently well.
- Skewed valuations.
- Protecting intellectual property above all else, which led to a lack of communication and learning exchange among the vertical farming community.
Not-so-easy money
“In the early years there was so much money spent, and it was easy money to spend,” said Stenzel. It led some companies to get off track, he said.
“If you look across the board at all the verticals, the ones who have been more successful were very careful in their spending, whether it’s [the self-funded] 80 Acre Farms, Eden Green or others, they’ve just been extremely cautious and not spending more than they had to actually put up the farm and grow,” he said. “The ones who have struggled more are the ones who had the most private equity and operated more like a tech startup instead of a farm.”
Genty agrees.
“It was very cheap and inexpensive capital that went into these operators,” he says. “And that allowed a lot of money to be put in crazy valuations, and ultimately, some pretty massive failures.”
It was also the “wrong type of capital,” Genty said.
“You had West Coast, Silicon Valley money — VC money — coming in to fund these operations at massive valuations. You’re pulling in hundreds of millions of dollars in outside institutional capital with valuations — some in excess of a billion dollars — with the idea that you could scale a food company the same way you could scale a technology company, but it just doesn’t work that way.
“So, a lot of capital got put into these companies that forced them to blur the line on whether they were actual operators or technology developers,” Genty continued. “You saw a lot of internal development of software, of robotics — all the systems needed to create and run these operations were being developed in-house.”
It got very expensive, very fast, he says.
“Imagine an outdoor row crop farmer in the Midwest. You would never see them take VC money to scale their operations, right? It’s the wrong type of capital, first and foremost, and secondly, you would never see a large row crop farmer try to build their own tractor or combine to compete with John Deere,” said Genty. “I mean, it’s just laughable to think about, but that’s exactly what was happening. You had these large companies that were raising money as an operator — as a farmer — that then shifted to become a technology developer, and they ended up not doing either very well.”
While Genty says many industries face the question of whether there’s a competitive advantage to build versus buy, with indoor farming it’s not only a capital-intensive proposition, it’s also about the reality of how much a head of lettuce can fetch.
“At the end of the day, the base economic unit of that farm is still a head of lettuce or a basil plant, right? So, the base economic metrics didn’t line up with the capital that they were investing into building out that infrastructure,” he said. “It was just a clear mismatch.”
Ageye thinks vertical farmers are better poised for success by focusing on farming and leaving the technology piece to the tech experts.
“Operators need to focus on being operators and scale accordingly, and tech vendors should focus on being tech vendors and not blur the line to become a grower,” Genty said. “And if you look at the successful operations like Vertical Harvest, they use external vendors for their technology, they’ve had a very good run and they’re expanding to a second facility.
“I think it’s a good testament to the way this industry is going to succeed, by having strong technology vendors that support strong operators,” he said.
Smart scaling
Scaling “methodically” and not until you have a customer are other best practices key to vertical farming success, say Genty and Stenzel.
“The biggest piece is making sure that there’s off-take agreements, or there’s some type of buyer in place when you build these facilities,” said Genty. “Because even if you get everything else right costwise, equipmentwise, if you don’t have a buyer lined up for the majority of your output, it’s going to be a failed experiment.
Genty recommends having off-take agreements in place for at least 50% of the operation before scaling from there.
“Unfortunately, it’s been a little bit of the inverse, where facilities have been specked out based on output or square footage alone and not necessarily taken into account who’s going to buy it, when they’re going to buy it and how it’s going to scale. As hard as it is, we encourage growers to find your buyer first, and then focus on building your facility.”
Information exchange
During a panel discussion at Indoor Ag-Con, Tisha Livingston — a co-founder of 80 Acres Farms and the CEO of its wholly owned technology subsidiary, Infinite Acres — discussed how a pervasive lack of information sharing in vertical farming has also hindered the industry from advancing and reaching profitability as quickly as it might have.
“The thing that has disappointed me most in the industry is that after 10 years in now, finally, we’re starting to open up visiting one another,” she said. “We’re all struggling with the same things, and we’ve been struggling with the same things for the past 10 years.
“If we had been more open and less afraid of sharing our IP, think about what we could have done as an industry,” she continued. “From my perspective, the best way to advance the industry and really think about standardization is benchmarking — looking at best practices and sharing those across the industry.”
When vertical farmers share their common struggles, “you solve the problem a lot faster and a lot cheaper than if you try to protect everything,” she said.
Path to profitability
On the path to profitability, Genty says being lean and mean matters.
“Early on, there was a big push to have these mega ultra-farms, and some of the ones that have ended up failing were that model. Those 100,000-square-foot facilities are very expensive to operate,” he said. “The ones that have done well are smaller, say sub 25,000 square feet or less. Those operations get profitable quicker.
“If you look at where we are now, I think that across the board, the operators are focused on very lean operations and a very clear path to profitability, either already profitable, or a short path to get profitable in the near term,” Genty continued. “I think that’s the common theme amongst operators that we talk to.”
Both Genty and Stenzel remain optimistic about the future of vertical farming and its role in growing produce more efficiently, using fewer resources and in closer proximity to the consumer to increase access and consumption of fruit and vegetables.
“All of the challenges that led people to start indoor farming are still there,” said Stenzel. “Climate change, droughts, floods, food insecurity, disruption of supply chains and now add the possibility of tariffs to all of that. I believe that indoor agriculture is part of the solution to those challenges.
“To me, the story of vertical farming has had its ups and downs, but in the end, it’s still a success story,” Stenzel said.
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