Last year marked a time of turmoil for controlled environment agriculture.
Greenhouse grower Lakeside Produce of Leamington, Ontario, filed for bankruptcy January 2023. Bankruptcy filings also followed for Orlando, Fla.-based vertical farming company Kalera in April, New Jersey-based vertical farming operation AeroFarms in June and Kentucky-based indoor grower AppHarvest in July.
Paul Sellew, founder and CEO of Massachusetts-based Little Leaf Farms, says he’s seen the CEA industry grow from 1% to 4% of the market share for leafy greens. This growth, he told The Packer, is still in its early stages.
“It attracted a lot of capital over the last eight years and different business models, different kinds of financing structures, different technology platforms,” he said. “Free markets are really good about sorting through winners and losers. Eventually, a company has to demonstrate that it can turn a profit.”
Despite the turnover, those in the CEA space say they are still optimistic about the opportunities ahead.
“I think there has been some negative press because there have been some well-documented struggles of some very high-profile CEA companies that have maybe raised a lot of money or done a lot of marketing and public relations,” said Viraj Puri, co-founder and CEO of Gotham Greens. “Let’s not throw the baby out with the bathwater. There’s a lot of companies that are increasing their sales, increasing their supply and proving to retailers and consumers that there’s a real value proposition.”
South Carolina-based City Roots Farm opened a new 75,000-square-foot greenhouse to increase microgreens production. Co-founder and CEO Eric McClam says it was necessary to add additional growing space as interest in microgreens continues to grow from foodservice and retailers.
Last year Leamington-based greenhouse grower Pure Flavor added the nearby Cervini Farms C5, Merlin, Ontario-based DeTemporada Farms and MightyVine of Rochelle, Ill., as well as a distribution center in Texas. Chris Veillon, chief marketing officer for Pure Flavor, says CEA has become a hot buzzword as demand continues to grow, which in turn fuels expansion in the space.
“Expansions a decade ago ranged from 2 to 10 acres for the most part,” Veillon said. “Today, expansions are ranging from 25 to 50-plus acres in one shot to maximize operation efficiencies.’’
Veillon said innovation will continue to play a big role in the future of CEA.
Industry trends
Veillon says consumer demand for snacking vegetables and greenhouse-grown organics are trends Pure Flavor continues to follow.
“According to the Food Marketing Institute’s ‘Power of Produce’ report, more than 3 in 10 shoppers believe they will purchase more value-added produce in the next year,” he said. “One-third also said that providing more fruit and vegetable snacking items is a good way retailers can help consumers increase fresh consumption. Our own research conducted during our #LoveForFresh campaign in spring 2023 supports this.”
Jeff Richardson, vice president of sales for Leamington-based Great Lakes Greenhouses, said his company also follows the snacking trend closely and has added 28 more acres of bell peppers and expanded its line of Persian mini cucumbers.
Veillon said Generation Z consumers, who want more organic and greenhouse-grown produce, help fuel the demand for organic produce at the retail level.
“Demand for greenhouse-grown organics is going to continue to grow as more consumers become educated on the environmental benefits of sustainable, protected agriculture,” he said.
Daniel Natelborg, vice president of customer strategy and development at Mastronardi Produce in Kingsville, Ontario, says the current economic climate has created some unique opportunities for those in the CEA space.
“We are seeing growth on value items such as roma tomatoes and even stronger growth on high-flavor, premium items like our Bombs line of snacking tomatoes on the vine,” he said. “While some consumers are looking to stretch their dollar as far as possible, we are still seeing a large segment of consumers willing to pay a premium for a high-flavor, unique eating experience.”
Alex Kalausich, produce lead for the fresh foods group at market research firm Circana, recently told attendees of the Global Organic Produce Expo 2024 that his company’s data shows that consumers continue to opt for produce in value-added and convenient packaging.
Gotham Greens and Little Leaf Farms have both announced new salad kits to tap into consumer demand.
“Just as shoppers are seeking more convenience, we can marry up that convenience with the best attributes of greenhouse-grown produce,” Puri said.
Challenges ahead
Those in CEA say managing costs will continue to be a challenge for the industry.
“I think all businesses across the economy, not just in produce and food, are dealing with inflationary pressures,” Puri said. “It’s obviously slowing down a little bit, but it’s not it’s plateauing. It’s not necessarily going down to 2019 levels.”
Labor, fuel and inputs all cost more, and while costs go up, consumers look to stretch their grocery dollars.
“Cost control is something that is a challenge that a lot of CEA growers are going to continue to face this year,” said Puri, who added that cost-conscious consumers are also a consideration.
Richardson said Great Lakes Greenhouses has seen an increase in cost from film to trays to corrugate and logistics.
“We’re a family-owned and operated farm,” he said. “You can only absorb so much, and when you’re talking double-digit cost increases for your materials, it’s got to get passed on. You can’t absorb all that. For us, that’s a real big challenge that we’re facing — and just like everybody else in our space.”
McClam said City Roots Farm is switching to top-seal packaging based on retailer feedback, though that change comes with a cost. Instead of passing the costs onto the consumer, he said his business tries to streamline production to ensure it’s as efficient as possible.
“It is up to us to look at how can we drop our cost of production down,” he said. “And for us, that’s designing a system that works better, that’s more energy efficient — because energy is also becoming more expensive and less available.”
Opportunities for growth
Richardson says an advantage for CEA growers is providing a constant source of fresh produce without interruptions from weather events.
“If you talk to any retail partner, consistent steady supply is at the top of their radar [and] causes the most amount of stress from a cost perspective,” he said. “If we can help with that, I think we’ll be in a good space.”
Sellew of Little Leaf Farms said CEA growers offer a unique value proposition, giving consumers a better product at an affordable price.
Puri said CEA leafy greens will not surpass field-grown leafy greens, as they will always be in supplement of each other.
“What’s really important is collectively communicating to the consumer that while the product may be on the higher end of the cost side, if it’s going to last longer and you’re going to be able to consume all of it, then maybe you’re getting a better value at the end of the day,” he said. “The retailers are certainly seeing value in the lower shrink.”
