Sustainability Innovation: Vertical Farming

Written by: Helena Prado, Maximilian Giers, Ernar Sagatov, Krystal Cho, Sean Ahn

Back in 1798, Thomas Malthus predicted that population growth would eventually exceed the world’s food supply potential, resulting in the shortage of food and threatening humankind. What he did not account for, however, were the advances in agricultural technology.

For decades, agricultural science has managed to increase farming productivity. It has achieved enormous yield gains as well as lower costs for large-scale farming. But this success has come at a high environmental cost, such as the unsustainable use of natural resources, increasing impact on climate change, and continued poverty and malnutrition.

Furthermore, the growing population will be increasingly urban. More people will become consumers instead of producers of food and will take up land that previously produced crops for consumption.

The UN predicts that the world’s food demand will double by 2050. As a result, because of land exhaustion around cities and resources limitations, yields per hectare will need to triple to satisfy the anticipated demand for food.

As we look at this industry going forward, we need to question ourselves which kind of model are we going to use to increase productivity. Considering the industry’s dynamics as it is, there is no shortage of issues that urgently need to be addressed.

 

Water usage

Globally, the agricultural sector consumes about 70% of the planet’s accessible freshwater^[1], and is responsible for an enormous amount of waste by using leaky irrigation systems and cultivating crops that are heavily-dependent on irrigation and not suited to some environments. Also, excessive irrigation can also increase soil salinity and wash pollutants and sediments into rivers.

Loss of biodiversity

Monoculture has allowed technological advances in crop production, as it favors economies of scale through the ability to mechanize planting, weeding, and harvest. On the other hand, over-reliance on a single genotype makes the entire crop susceptible to a single pest outbreak. Moreover, certain nutrients become depleted from the soil due to the crop’s specific nutrient demand. Soil that is nutrient deficient can be dry and susceptible to erosion, not to mention that it requires a heavier use of chemical fertilizers.

Climate change

Global warming is disrupting the ecological balance, as plant species can only survive, compete and reproduce within the range of climates to which they are evolutionarily and physiologically adapted. Also, with milder winters, plant diseases are spreading through the winter period which would historically have been dormant. On the other hand, agriculture contributes to climate change by anthropogenic emissions of greenhouse gases and by the conversion of non-agricultural land (e.g., forests) into agricultural land. Agriculture, forestry and land-use change contributed around 20 to 25% to global annual emissions in 2010[2].

Pesticides.

Pesticides are known to impose tragic impacts on the environment, human health and society including an estimated 200,000 deaths a year from acute poisoning[3]. However, the world still heavily relies on them to maximize crop yields and decrease variability as most producers do not have access to alternative solutions.

Food safety concerns.

One of the most severe problems in agriculture is food wastage, most of which happens during distribution. The time it takes to get products from farm to shelf is critical to food safety, and, because of limited space in urban areas, we end up sourcing our food from increasingly far distances.

 

Vertical Farming

As concerns about food security and rapid urbanization have been raised, urban farming – the practice of cultivating food in an urban environment – has received increasing attention. Urban farming has become popular from the 2000s mostly from big cities due to the growing demand of fresh and nutritious food produced by the local community. Combined with technology innovation, urban farming recently has focused on a larger scale production using less resources, represented by vertical farming.

In a vertical farming system, plants or crops are cultivated in multi-stacks or vertically-inclined surfaces of buildings, warehouses, or greenhouses located in cities and urban areas. This distinct feature of vertical farming enables effective utilization of limited space in urban areas, which leads to larger scale of crops and vegetables production. The form of vertical farming is not new. Farmers in East Asia have been growing rice in vertical tiers to conserve space and water from long time ago.[4] As urbanization spreads and agricultural land decreases, vertical farming has been adopted and widely spread across the globe.

On top of its scalability, vertical farming also enjoys effective and steady production of high-quality plants and crops by creating a fully-controlled, indoor growing environment. Vertical farming system artificially creates the environment optimized for each variety by controlling water, light, temperature, humidity, and pollinator preferences, the most essential elements for the agricultural production. The system minimizes the variability of the agricultural production since it is independent from climate and local weather conditions, and enables year-round high yield production with an improved quality.

 

Current state of Vertical Farming

Vertical farming is getting an increasing attention in the start-up scene of the major cities including Singapore and Boston. Instead of constructing a new facility, many startups use anything scalable – from existing buildings to freight containers and transform into a vertical farming system. Most of the startups are producing mainly vegetables such as lettuce and kale, which is relatively easier than cultivating other crops. However, governments are also conducting numerous studies about producing other varieties to contribute to food shortage in the future.

Vertical farming is considered as an effective alternative to tackle various issues traditional farming raises. First of all, vertical farming has a lot of potential to reduce water usage. Most of the vertical farming system are using the technology called hydroponic, in which plants were grown without soil by dipping the roots of plants in water containing nutrients.[5] This technique saves a lot of water since the excess water that plants didn’t absorb can be recycled within the system. Moreover, vertical farming facilities mostly are equipped with a system that captures evaporated water from the greenhouse atmosphere with cooling traps and returns to the system, leading to significant water savings. One study found that each hectare of a recirculating hydroponic greenhouse could save 75,000 tons of fresh water annually.[6]

Furthermore, vertical farming is expected to address the global warming by greater reabsorption of carbon dioxide from the atmosphere. Vertical farming reduces the necessity of converting the land for the agricultural purposes, which significantly affects the carbon dioxide absorption capacity. Pollution created through shipping and transporting plants and crops produced in vertical farms should be reduced since the production will be locally distributed. Lastly, plants and crops which are grown under vertical farming are free from pesticides, thus healthier compared to productions from the land farming system.[7]

 

Possible Business Model Innovation

 

We propose a business model innovation for the vertical farming company – Sustenir that we got to know in class. Sustenir is a vertical farming company at the forefront of the trend. Its current vision is to conquer the Asian sustainable controlled environment agriculture (CEA) market by growing commercially viable produce and selling it directly to restaurants and shops.

 

Analyzing its business model exhibits the following strengths and weaknesses of the company:

 

Strengths

• Sustenir is one of the early adopters, as a result, they have first-mover advantage. Additionally, they have best-in-class growing technology and know-how, which got developed through a lot of experimentation. This IP, protected by a global patent, is hard to replicate and in our opinion its largest current asset

 

Weaknesses

• Sustenir’s current business model is very broad. Keeping one-to-one relations with end-of-the-supply chain is time-intensive and not easily scalable
• The capital requirement of scaling the current business model across the continent will limit expansion significantly

 

Threat

Sustenir is an early adopter and, in our opinion, an innovation leader in the industry. At the same time, it is likely that as this technology develops and enables players to be profitable, many players will enter this market and challenge Sustenir for market share. In an expansion phase, which is likely to be constrained in speed by capital requirements, this could seriously hurt Sustenir’s aspiration of becoming the Asian leader in providing vertically grown produce.

 

Opportunity

This is where the model innovation can help. Sustenir has the opportunity to innovate its business model that will allow them to 1) capitalize on its IP and 2) spread the know-how much faster. This will thereby result in enabling a much larger scale and impact of its technology.

 

As more and more entrepreneurs seek their fortune in vertical farming, Sustenir could make use of this momentum and capitalize on it by providing these companies with the right technology and know-how.

The new business model

Sustenir could use its existing operations and technological achievements as legitimacy (and proof of concept) to position themselves as a leading technology and know-how provider. With the knowledge they gained, there are some innovation approaches that Sustenir could take advantage of:

• Focus: By stopping to be an end-to-end provider and instead focusing on its core process (i.e. experimenting, building and supplying the best CEA technology), Sustenir could achieve additional benefits of cost optimization and accelerated technology development.
• Modularization: Sustenir can modularize the key components (watering systems, nutrition mix-sets for hydroponic growing, growing containers) and thereby offer customized solutions for other businesses.
• Splitting: While the technology and development hub should be kept in Singapore, the actual products can be produced, assembled and shipped from a lower-cost country
• Resequencing: By doing so, Sustenir would have the chance to resequence an entire industry approach of getting the product to the market. While today a lot of people keep doing the same experiments and working to figure out CEA, Sustenir could enable all new players to directly get the right products and to start farming in day one
• Subscription: In the end there could even be a way to sell seeds and produce on a subscription basis

 

Growth through impact

This business model would effectively multiply the positive effects of vertical farming, as every product shipped enables a complete new farm to operate. Focus, modularization, and splitting can improve profitability through optimizing costs and the subscription model creates a new reliable revenue stream.

 

Game Changer

At this time, there are no key players with B-2-B technology for commercial vertical farming.

With this innovation, Sustenir can be a first-mover in B-2-B CEA farming environment. It could significantly reduce the entry barriers for market entrants who consider starting vertical farming.

 

Costs and Risks

There are costs associated with shifting the business model (losing customer relations and current revenue streams). In addition to that an entire production and shipment model for farm equipment would need to be designed and implemented.

Word count: 1768

 

[1] https://islandpress.org/book/world-agriculture-and-the-environment?sku=1-55963-370-0

[2] https://web.archive.org/web/20141127222605/http://www.ipcc.ch/report/ar5/wg3/

 

[3] https://documents-dds-ny.un.org/doc/UNDOC/GEN/G17/017/85/PDF/G1701785.pdf?OpenElement

 

[4] Sky urban solutions, Khoo Hong Meng, Nanyang technological university

[5] Sky urban solutions, Khoo Hong Meng, Nanyang technological university

[6] http://sustainability.ei.columbia.edu/files/2016/01/Sustainability-Certification-for-Indoor-Urban-and-Vertical-Farms

[7] http://www.internationaljournalssrg.org/IJAES/2014/Volume1-Issue1/IJAES-V1I1P101.pdf