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Global Firms Betting Big on Nascent Vertical Farming Industry

Supriyo Bose
The Zacks Analyst Blog Highlights: VMware, Schwab, HCA Healthcare, Cognizant and Hilton

A competitive landscape, evolving farming technologies and supply chain constraints have largely fueled growth of the vertical farming industry across the globe. This nascent industry has offered startling opportunities to develop high-efficiency facilities for faster growth of plants and vegetables to support the demand of a burgeoning global population.

As the seeds of these novel agricultural engineering processes bear fruit, various firms from diverse sectors have joined the bandwagon to capitalize on the inherent growth potential. Before we discuss such business endeavors, let us dig a little deep into the nuances of this budding industry.

Vertical Farming: The Concept

As the name suggests, vertical farming involves upward growth of plants in shelf-style structures, resembling a bookcase. This farming is based on hydroponics — a method of growing plants in a water-based nutrient-rich solution without the use of soil, or aeroponics — the process of growing plants in an air or mist environment without the use of soil or an aggregate medium.

Leveraging robotics, data analysis, computerized controls, and sophisticated algorithms, vertical farming has managed to get rid of pests, diseases, and seasonal temperature changes to maximize production at a controlled environmental set up. This, in turn, has contributed to faster plant growth rates, which is reportedly about 390 times faster than the conventional farming process.

The Pitfalls

However, much of this technological prowess involves a steep price tag due to the mandatory requirement of high-end equipment, including custom ventilation, shading devices, and high-powered lights. State-of-the-art HVAC (heating, ventilation, and air conditioning) and electricity bills add to the operating costs which, sometimes, outweigh the superior yield.

The Payoffs

Despite the added technology costs, the sheer benefits of growing plants and vegetables virtually at any place, devoid of any location, climate, seasonal conditions, and weather advantage, with lesser space and water make this innovative concept a runaway hit. Moreover, with increased adoption and mass publicity, equipment costs will likely come down and translate to higher return on capital.

The Beneficiaries

Ocado Group plc OCDDY, an online grocery retailer with headquarters in Hatfield, the U.K., recently invested £17 million ($21.5 million) to grow organic produce alongside its robot-run distribution centers through vertical farming methods. This includes a 58% stake in Jones Food Company, which operates the largest vertical farm in Europe that grows about 420 tons of basil, parsley and coriander annually. The combined entity aims to open 10 more similar firms, over the next five years, by banking on Ocado’s expertise in robotics, and AI and Jones Food’s industry know-how.

Ocado’s investment also includes the formation of a new joint venture — Infinite Acres  —  with U.S.-based vertical farming business, 80 Acres, and Priva Holdings, a Netherlands-based horticultural technology provider. The project aims to develop off-the-shelf vertical farming systems that can be sold to retail and other businesses worldwide. Notably, Ocado has technology deals in place with leading retailer The Kroger Co. KR, under which it licenses its robotic warehouse technology. With such significant investments, Ocado intends to give tough competition to retail giants like Amazon AMZN, which is fast expanding its grocery deliveries.

Infarm, a Berlin-based startup firm, has raised $100 million to develop the vertical farming technology for grocery stores and restaurants. San Francisco-based Plenty Inc. has also raised about $200 million from SoftBank Group, while Alphabet Inc.’s GOOGL Google Ventures has invested into New-York based urban farming startup Bowery Farming Inc.

With such focused investments and active funding, the industry currently appears to be in the limelight and is well poised to benefit the surging human population through superior and faster crop yields.

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