Investment in CEA has surpassed $2.0B across North America and Europe spurring new start-ups, innovation and corporate engagement across the supply chain. With increased demonstration of the viability of controlled growing, a newly launched report predicts that CEA will support more than 10% of US vegetable and herb production by 2025 leading to significant opportunities for growers over the next decade.
The new report, Growing Beyond the Hype: Controlled Environment Agriculture, launched by S2G Ventures reveals how innovation in the field of Controlled Environment Agriculture (CEA), including greenhouse and indoor farming, will lead to ripple effects across the food system and more sustainable methods of production.S2G Ventures is a multi-stage investment firm committed to advancing sustainable solutions in food and ag – its portfolio companies include Beyond Meat, sweetgreen, Lavva, Apeel Sciences and more. The report predicts the maturation of CEA will lead to differentiated, quality products, cost-competitive pricing and a more resilient, traceable and trustworthy supply chain. These new supply chains may represent a transition for the changing urban real estate landscape post-covid.
"Controlled farming has the potential to offer consumers and supply chain stakeholders resilient, sustainable, local, high-quality products," said Walter Robb, Executive-in Residence at S2G Ventures and former co-CEO of Whole Foods. "It is a growing part of our evolving food system and can work alongside outdoor production to mitigate climate risk and help solve systemic nutrition and food access challenges."
S2G Ventures expects that CEA will have far-reaching implications for the future of our food system in three key areas.
Local production and controlled environments will lead to a more resilient, traceable and trustworthy supply chain
Despite being a $1.2 trillion global industry, fresh produce faces significant supply and demand challenges resulting in a systemic lack of high-quality, affordable products reaching consumers. According to the Lancet, only 36% of the global population in 2015 had adequate availability of fruits and vegetables to meet the WHO age-specific minimum nutrition targets.
In the United States, for example, the fresh produce market is challenged by the limitations of outdoor production, including climate, field loss exposure, resource intensiveness, and limited ability to iterate or diversify, as well as geographic constraints resulting in products traveling 7-10 days on average from farm to consumer. As a result, the U.S. is reliant on other countries to meet demand with 53% of fresh fruit and 32% of fresh vegetables imported annually according to the FDA.
If just 13% of vegetables and herbs shift to local CEA production by 2025, the United States can add $2.3bn additional production capacity and reduce our need for fresh vegetable imports by 15%. Local production can save up to 9 Trillion food miles through shorter transportation routes minimizing shelf life time spent in transit and reducing the amount of food waste by retailers and consumers. Additionally, controlled environments improve food safety, traceability and consistency of production.
Technology and operations advancements drive improvements to CEA unit economics that can compete with or beat outdoor production.
In order to gain market share, CEA production must become cost competitive with outdoor production. High upfront capex costs of facilities and equipment as well as energy costs, labor and product inputs, have historically made costs of CEA growing prohibitive. But innovation of grow inputs, improved grow systems, and optimization of facility productivity are driving more cost-effective production. Those innovations combined with CEA's higher number of grow cycles, 10+ for Greenhouse and 20+ for Indoor, will enable CEA to achieve unit economics that are at cost parity with outdoor.
CEA will usher in the next wave of biodiversity, nutrient density, and flavor innovation providing retailers with differentiated, quality products.
According to the UN's Food and Agriculture Organization, about 75 percent of the world's food comes from just 5 animal species and 12 plants. Almost half of our plant-derived calories come from just three foods: wheat, corn and rice. Germplasm for these plants are bred for long storage time and disease resistance, at the expense of flavor, color, and nutritional value. The lack of biodiversity and nutritional value in our global diet restricts the value that plant molecules can play in human health.
Indoor Agriculture offers new grow formats, methods and technologies that promise to increase the quality, consistency and diversity of produce. Advancements in CEA-tailored seeds bred for traits such as flavor, color, nutrient density and ripening will expose consumers to new flavors and more varied products. Ultimately, indoor agriculture will support customized grow recipes as IP, branded produce, local production of hard to access specialty ingredients, spices and superfoods and eventually inputs for food as medicine.
"Controlled growing is a critical solution to address both the current supply challenges brought to light by COVID and the pressures on outdoor growing exacerbated by climate change," said Sanjeev Krishnan, S2G Ventures Managing Director and Chief Investment Officer. "We believe CEA can grow its US market share by five times over the next 10 years in response to these pressures and continued consumer demand for fresh produce."
Growing Beyond the Hype: Controlled Environment Agriculture is based on S2G Ventures desktop research and interviews with over 20 industry experts including CEA growers, systems providers, policymakers, academic institutions, outdoor growers, ag input suppliers, philanthropists, and other investors. The report outlines the opportunity for CEA to resolve the current lack of high-quality, affordable produce driven by limitations in outdoor production and customer geography and outlines three areas indoor production must overcome to take significant market share including cost, product selection and productivity.
To read the full report, download at https://www.s2gventures.com/reports