Why vertical farming failed - notes from a survivor

Summary of vertical farming boom and bust

• Global CEA investment surged to ten billion dollars before rapidly collapsing
• Some vertical farming companies failed due to weak technology readiness
• Tech focused founders have tended to apply software models unsuited to agricultural realities
• Price competition with traditional farming proved unrealistic for early startups
• Surviving players now differentiate through branding and clear consumer value

A brief history of vertical farming – whereby crops are grown in stacked layers using artificial light, hydroponics or aeroponics – tells a classic tale of boom and bust.

Before the hype, very little had been invested in controlled environment agriculture (CEA) – the umbrella term for enclosed systems that manage light, temperature, humidity and nutrients for year-round production. The sector then exploded, securing an estimated $10bn globally by 2021, before funding dried up.

In recent years, some of the biggest names in the business have gone under, from Infarm to Jones Food Company and Agricool. Very few vertical farming businesses survived the shakeout.

But some did, including US-based 80 Acres Farms. Co-founder and CEO Mike Zelkind says that for all practical purposes, 80 Acres Farms is the “only vertical farming company left”. Why did this operation survive, when others failed?

1. Tech bros don’t have green thumbs

There are four key reasons, according to the last man standing.

One links directly to vertical farming founders, suggests 80 Acres Farms’ Zelkind. That may sound obvious, we know the importance of a good team in the start-up world, but actually the vertical farming CEO is referring to a very specific type of founder or CEO – a “tech bro”.

“Most early pioneers were tech bros,” he says. “And I mean no disrespect. They were software guys who wanted to change the world.”

Indeed, vertical farming technology does promise to change the world. Their systems are designed to maximise space, reduce water usage, allow for year-round production, and when placed in urban areas can localise supply. But the “tech bro” model, essentially a software business model, didn’t align with farming. The approach was to “spend ahead of revenue” and “build before you have it”. It didn’t work in farming, and still doesn’t, suggests Zelkind.

2. The technology wasn’t ready

Like many new innovations that don’t hit it big from day dot – think the first iterations of plant-based meat or non-alcoholic wine – vertical farming suffered from a lack of technology readiness.

“Early tech in 2014 was basically some lights and fans,” says the 80 Acres Farms CEO. “You grow the crops, figure out what doesn’t work, redesign, codify, and start again.”

Expecting that the technology would be fully prepped for year-round successful harvests is out of step with the reality of farming. “Crops still take time to cycle”, stresses Zelkind. Even using 80 Acres Farms’ 20-day cycle as an example, 10 years is still a “very short” period to go from prototype to “full smart-farm automation”.

And yet, that’s what was expected. “Vertical farming only had a decade. Greenhouses had a century. Traditional farming had millennia”.

3. They tried to outprice traditional agriculture

One of the biggest mistakes made by vertical farming start-ups was to attempt to undercut traditional agriculture on price from the beginning.

The 80 Acres Farms co-founder suggests this pressure came from investors, rather than the start-ups themselves. But either way, the strategy was doomed to fail. “There was this maniacal focus from venture capitalists that you had to beat traditional agriculture on price immediately,” he recalls.

We’ve seen from other industries that this approach doesn’t work, at least in the short term. On average, plant-based milk alternatives are still priced higher than conventional dairy. And perhaps those products will never undercut milk from a cow; that just may not be the right strategy.

“It is beyond reasonable to expect that just because you have cool tech, you can outprice a system whose fixed costs have been paid off – and who is operating mostly on variable cost.

“It was a bad plan, and fools should be parted with their money.”

4. No focus on consumer value

And finally, we come to consumer value – or lack thereof. And this point is partly the fault of vertical farming pioneers, and partly due to the structure of the fresh produce category.

When first products came to market, they sought to compete with conventional agriculture from the get-go. And in this way, these products failed to put the consumer front-of-mind.

“We were all so fascinated with the tech – tech, tech, tech – but we forgot the consumer," recalls 80 Acres Farms’ Zelkind. But if you’re charging more, and they all were, then the consumer must receive something of higher value. “That part was forgotten”.

The structure of the fresh produce category, which is typically unbranded, also came into play. That doesn’t help when a supplier is trying to offer something with added value, whether it be longer shelf life or better nutrient quality.

So what’s the solution? Differentiation

But there is another solution. It’s not conventional, but it does offer a way of differentiating produce within the leafy greens aisle – and this is the approach 80 Acres Farms is taking.

The strategy is centred around branding. In North America, 80 Acres Farms is launching a new line of packaged salad greens that promises nutrient-dense, naturally produced leaves.

One offering, Power Crunch, is marketed as an “immune-boosting blend” – an obvious value-added signal to consumers. Other points of differentiation include that it’s locally grown without the use of pesticides. Consumers don’t need to wash the produce, and importantly, it maintains its freshness for longer.

“We’re creating a new sub-category in produce,” says Zelkind. “And it doesn’t cost more to grow, because of how the farm is designed. This is about differentiating produce.”