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Diving into expenditures, profitability and more:

Improving the productivity of vertical farms

Despite the struggles and high inputs of running a vertical farm, I see great potential for the industry in the coming years. Especially when using vertical farms for cosmetics and nurseries. Cosmetic companies favor pesticide-free ingredients for their products. And using vertical farms as nurseries, given the control of such an environment, growers can play around with the size, shape, and features of a crop, which is a major advantage," says Francesco Orsini, Professor at the Department of Agricultural and Food Sciences at the University of Bologna in his latest panel on how to improve the productivity of vertical farms.

First off, when it comes to the productivity of agriculture in general, the research highlighted the total kg per m2 of leafy green and tomato production per year, resembling the yield differences with open-air-, greenhouse- and vertical farm producers.

According to Leo Marcelis, Professor at Wageningen University, Vertical farms could double greenhouse yields and increase the current open-air production by 50-fold.

The research leading to this work has received funding from the Italian Ministry of Education and Research (MUR) within the call for Research Projects of National Interest (PRIN) within the project 'VFARM-Sustainable Vertical Farming.'

Source: L. Marcelis et al.

Operational expenditures (OpEx)
When it comes to OpEx, Leo Marcelis compares greenhouse producers with vertical farms using general industry estimates to showcase the annual estimated values of euros per m2.

On average, a greenhouse producer uses annual estimated values of 84-94 EUR/m2, which includes an average of 5-34% in energy, 14-39% in labor, and the remaining 44-77%. However, when it comes to a vertical farm, the expenses are peaking significantly higher as the energy use annually is 58-73% annually when it comes to energy. That number includes light, climate control, and crop operations. Yet, labor is another massive cost, given it can vary from 20-400% of the OpEx.

Source: L. Marcelis et al.

Capital expenditures (CapEx)
Vertical farms are eight to 15 times more expensive than greenhouses regarding capital expenditure (€) per m2. From 2014 to 2022, open-air-, plastic tunnel- and container farm producers haven't seen a positive movement in their CapEx as it remained the same. For open-air producers, that's 0.5-50 EUR/m2, whereas for plastic tunnel producers, it stayed 8-30 EUR/m2. For container farms, it's been 3023 euros per m2 throughout the years.

Remarkably, from 2014-2017, vertical farms used more energy than in 2021-2022, namely 4000 EUR/m2 vs 2500-3500 EUR/m2. Vertical farm costs have decreased from 500-1500 EUR/m2 in the past eight years due to R&D.

Looking at greenhouses, they've almost tripled in cost as in 2014-2017, they used 100-165 EUR/m2, and in 2021-2022, these costs rose to 300 EUR/m2. Yet, when having both numbers parallel, it shows that vertical farms are 8-15 times more expensive than greenhouses when it comes to Capital Expenditure.

AI-generated images of 'stereotype vertical farmers' today

A transforming identity
Formerly, your 'typical' European farmer would be above the age of 40, whereas only 11% were below. The gross investment per farm is 5000 to 10.000 euros, and 50% are family farms that own less than 1 ha. Regardless, nowadays, there has come a new farmer's 'identikit' as most farmers are below the age of 40 with a degree, master or PhD. These growers spend significant amounts of money on R&D and often come from non-traditional sectors such as business, engineering, and IT.

(Sources: EC, DG Agric Rural Dev, 2021; Pietola et al., 2011; Lowder et al., 2016; Agritecture, 2022; FAO/EBRD study on Urban Agriculture, upcoming.)

In 2014, the Japanese Ministry of Agriculture studied a total of 160 Japanese farms, and back then, 40 vertical farms (25%) were making a profit. The remaining 120 (75%) farms were not making a profit. Four years later, though, they had seen an increase of 24% in new farms, whereas 105 vertical farms (50%) were profitable, and the other 105 were not (yet).

However, as showcased in the CEA Census (2019) in the global landscape of vertical farms, 38% of vertical farms were profitable back in 2019, leaving the remaining 62% of farms unprofitable. However, a year later, 53% of vertical farms were profitable, and 47% were unprofitable.

Retail prices
How is profitability translated into affordability for the consumer? Well, highlighted in his commentary, Francesco uses an FAO-EBRD pricing spot check by E. Pedersen et al. that was conducted in September 2022 across 29 retailers in 11 different countries. The analysis was performed on e-grocery landing pages and considered different types of salads, including lettuce, arugula, corn salad, and iceberg, that are washed, cut, and packaged.

The result? Vertical farm produce was 5% more expensive than regular produce; non-vertical farming produce, on average, costs EUR 27,20/kg, whereas vertically farmed produce costs EUR 28,5/kg on average, which is not significantly higher. How can vertical farms tackle brand loyalty so consumers will stick with them year-round?

Francesco on stage

Improving environmental performances
After diving into prices, performance, and expenses, Orsini is highlighting the main parameters to improve the environmental performances of indoor vertical farms, based on his life cycle assessment of indoor vertical farms back in 2022, together with Martin.

Electricity and climate control: The largest share of environmental impacts comes from the energy demand for LED lights and HVAC systems. The results are highly sensitive to the energy source.

Perlite and peat substrate appear to have a large impact as well, other than coir products, for instance, depending on which growing system is used, e.g., ebb and flow vs aeroponics. When it comes to infrastructure, 10-15% of the overall GHG (Greenhouse Gas) emission contributes to the resource depletion in indoor farms. It has a large impact on the assumed lifetime of materials for new structures of existing spaces.

Stay tuned for the second half of the research.

The University of Bologna is organizing its 3rd International Workshop on vertical farming, VertiFarm 2024, on January 16-19 at the University itself. Click here to obtain more information.

For more information:
Francesco Orsini, Professor
University of Bologna
[email protected]