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“A high-tech greenhouse is not necessarily the right tool to create a profitable business”

Driven by low-interest rates, the North American CEA industry has seen a serious boom of investors' money being injected, and many reports expect the industry to continue to grow. "Some reports showed CEA space to have a multiple-digit CAGR (Compound Annual Growth Rate). Then you look back and compare to the annual consumer consumption increase of vegetables, which increases between 3-5%", Chris Higgins with Hort Americas says. "The math does not add up. There are talks about a shift from open fields to greenhouses, but speaking as an American consumer, the shift is not clear or evident. I have been doing this for 20 years, and there's currently less production of tomatoes in greenhouses than there was 20 years ago: 20 percent less production area, to be precise."

Chris might seem like a weird duckling in the pond. On the one hand, he oversees one of the most successful horticultural supply businesses in North America and supports a diverse range of growers, education, and research projects wherever possible. Yet, on the other hand, he regularly takes a step back to look at the industry holistically to identify current trends and potential upcoming hurdles. Partly so he can identify solutions, Hort Americas can help growers with, but also because the industry fascinates him, and he wonders about its place in North America and in the food production industry. Recently, he and his colleagues published an analysis of the developments in the CEA industry. "As an industry, we must learn to operate successfully. We seem to continue to struggle because we seem to make the same mistakes as 20 years ago. Are we to learn from that, or will we continue making the same mistakes? Should the conversation be about high-tech or about (the) right tech?"

Right tools for business
"What we have learned from our own research, and what we show in our market approach, is a high-tech greenhouse is not necessarily the right tool to create a profitable business – or at least by defining high-tech solely as a Dutch glass Venlo greenhouse. Depending on the location, experience, and business deal made, it can even be one of the biggest mistakes growers are making: the cost per acre is simply too high for it to be a blanket solution. I fully understand why investors are making these decisions, as there are a lot of "marketers" and consultants being very vocal regardless of their experience in a crop of geography. It does not mean I do not believe in the glass Venlo greenhouse for Maine or New York but in all locations. Until I see the data defined by greenhouses not only growing a profitable product but remaining in business for more than 5 years, I will remain skeptical."

In order to meet continually evolving consumer demand that inherently drives investor interests, "companies often take the products they have, and without making any significant changes to their business, the product, or the process, they create a story to explain why their product is more sustainable, produces better quality and helps to feed the world. But, at this time, it is not about feeding the world: for a commercial greenhouse to be profitable, they must have a 20-40% premium position in the market (more if possible). So what future are we feeding?" So then, what problems are Chris and his team interested in solving? "What am I interested in solving? First, we want to admit that we do not think we know everything. Second, we want to solve the problem of profitability. We want to ask the right questions about the technology. We want to work with companies with great technologies and reputations. Third, we want to use the momentum we have as an industry to address opportunities by crop and geographic location. If we do this and it leads to profitable greenhouse-grown vegetable businesses, we will then advance in areas like water and labor savings as we work together as an industry to become more efficient and target bigger markets while being able to deliver on those big promises."

"Sustainability and quality seem to be a justification for the technology spent," he adds. "Yet, in reality, the imports of fresh produce from cheaper countries have gone up. In the United States, there is good quality fresh produce coming from Mexico. It delivers quality that is relative to the consumer. It also delivers this quality at an acceptable price. We cannot ignore that as US-based farming operations."

Let's talk about the right tech instead of high-tech
Now, the American and Canadian growth of the CEA industry has slowed down due to higher interest rates and the financial performances of recent start-ups. The profitability of indoor farming is under a microscope and under pressure. "We went from high-speed grow at any cost model to an operational excellence model in a matter of months," he calls it. "I believe Paul Sellew with Little Leaf is telling the right story. He does not consider Little Leaf a tech company, he considers them a farming company that has all intentions of staying a farming company. Their business is straightforward, they make decisions based on the crops they grow. They make operation decisions that fulfill customers' needs, and they do it in a fiscally responsible manner."

So, what's next? Start identifying the real problem(s)
How will this affect Hort Americas? "All the changes in the North American CEA industry will have an impact on Hort Americas. How can it not? But I like to make the joke that we are like old man pants: we have stretchy waistbands so our bellies can go in and out based on how much we can afford to eat. We have been built to be able to expand and contract to move along with the market. We have had good years in which we could invest in university- and educational projects and reinvest in our industry. Will we continue to be in a position where we can do so? We wish we had a crystal ball that would allow us to answer that question with 100 percent confidence. But we know that if we are to advance commercial horticulture, we must continue to stay focused on asking the right questions. Take a lesson from Paul Sellew and focus on operations that fulfill our customer's needs. We are certain that our conversations with our customers should be focused on identifying the problem(s) based on crops and geography. Once we properly understand the problems, we should provide solutions that keep in mind the locally available natural and human resources that can create a business scenario that is profitable for a farm. Remember, Hort Americas needs profitable customers in order to be profitable. This is why we focus on finding affordable solutions for growers."

New challenges
Over the last years, new challenges have arisen for growers, driven by global events – which, even to Chris, came as a surprise. "Not many of us could have predicted a global pandemic. Even fewer of us knew exactly what the impact would have on our general economy as well as our global economy, including our customer base and labor force. What we do know is that getting back to basics and focusing on smart, easy-to-implement technology that addresses labor efficiency is needed today."

An example is the Tom System, enabling growers to reduce the amount of labor required in a crop. "We have been looking at it for years, but we did not think the product was ready for our market or that our market was ready for their product. The advent of "compostable clip," which had real advantages when managing plastic waste while continuing to improve and offer more labor efficiency, made the time for adoption right." Also addressing the labor challenge is the training provided by Hort Americas, both in Spanish and English. "Labor inside the facility is going to be a Spanish-speaking group of individuals."

He explains how tech solutions like LED lighting fit in the vision of helping growers. "As we discussed earlier, we want to address problems based on the needs of the crop and the region. At Hort Americas, we have more commercial greenhouses choosing to start or reinvest in geographic regions that require supplemental light. We know we can count on certain expenses like electricity to increase every year, plus we know that older technology, like HPS, will not be available forever. So, from our perspective, LED is a tool where we can reduce cost and operate more energy efficiently (overall). This sets growers in a northern climate up for big potential gains."

So, finally, what will be the position of US growers in feeding the US population? "I don't know if this matters," Chris says. "The base of the conversation should be looked at from a North American perspective. Is the US having a problem with accessing high-quality, affordable produce? No. Our shelves will be full of affordable quality produce. Traditional agriculture, a maturing Mexican and Canadian greenhouse industry, as well as other countries around the world, are doing an exceptionally excellent job," he continues, "like every other country in the world, the problems we need to focus on our complex. Do we need to worry about protecting natural resources like water and topsoil? Yes. Do we need to worry about making fresh produce accessible to those who want it? In my opinion, yes. Can the greenhouse and CEA industry play a role in addressing these problems as well as others? I sure hope so. That's why I continue to invest all my energy in it."

For more information:
Chris Higgins, CEO
Hort Americas
[email protected]