The biggest problem with making an incredibly high-tech solution to growing lettuce is that, at the end, you just get lettuce. And people are not willing to pay a lot of money for lettuce.

This is the problem that a lot of vertical farms – and other incredibly high-tech solutions to the problem of feeding people – face when trying to make a profit. They are just not able to make enough money when competing against traditional farming methods.

A study from Cornell University in 2020 found that it cost half as much to grow lettuce on farmland in California and truck it to New York than it did to grow it in a vertical farm in New York.

Losses for vertical farms

The already-suspect business model came under more pressure since the Russian invasion of Ukraine, as energy prices surged. Unlike traditional farms, which rely on the sun for energy, vertical farming is generally connected to the grid.

When the bill for power goes up, so do losses at vertical farms.

No wonder, then, that this year has seen a range of bankruptcies in the industry, with US pioneer Aerofarms being among the most recent to seek protection from their creditors.

Another major player, AppHarvest, said in a May 10 filing that they “expect to incur significant expenses and continuing losses for the foreseeable future.”

AppHarvest, which was valued at $3.7bn (€3.3bn) just two years ago, currently has a market capitalisation of $57m (€52m).

The rapid fall plunge in value of companies in the sector points more to the huge over-hyping of their potential during a period when venture capital was easily available, than anything to do with bad management.

One expert we spoke to said there was a lot of money looking for a return on investment during 2020, as interest rates were at zero.

Venture capitalists would never invest in traditional farming, as it is seen as a mature industry, with little room for out-sized returns.

The clever thing the promotors of vertical farming did was to sell the idea to investors as a high-tech solution, which ‘disrupts’ a traditional industry. The implication being that they would revolutionise farming and profits would flow back to investors.

Usually, when a company is a disruptor in an industry, it is the product that is different. Look at Tesla, for example – its unique selling point is its electric cars.

In turn, its success forced the rest of the global automotive industry to take electric cars seriously, and by doing this, Tesla has changed the industry.

Vertical farms grow lettuce. Despite all the investment and innovation that goes into vertical farming, the product at the end is, to all intents and purposes, the same as what comes off a traditional farm.

Alternative protein industry continues to fail to deliver

There’s an old saying in investment, which says: “You only see who’s swimming naked when the tide goes out.” It means that it is only when investment dries up that you will see which companies are truly able to stand on their own.

Right now, in the investment world, the tide is going out, as central banks around the world raise interest rates in an effort to slow down inflation.

This means that the cost of money has increased and investors have become worried about an economic slowdown – all of which means they are much less likely to support speculative investments in things like lab-grown “meat” and plant-based “milk”.

Fake meat suffers ‘poor image’

On the fake meat side, Beyond Meat and Impossible Meat are among the most established players and both of them continue to be in trouble amid the drying up on investor cash, consumer apathy in the face of higher inflation and some image problems due to their products being so processed.

Recent arrivals in the industry are having an even harder time, with many of them closing their doors for good in 2023.

In the UK, Meatless Farm laid off its whole team after losing almost £50m (€58.2m) in the last three years. An analysis of that company’s accounts by The Grocer magazine showed it was selling its product at a gross margin of 0%, meaning it was relying on investor funding to cover its overheads.

In the fake milk space, things are a little calmer, as the barriers to entry are lower and there is already an established market leader in Oatly. But even there, the potential seems limited, with shares in the company trading more than 90% below the price they first listed at, just over two years ago.

With cow milk, there are natural, vegetarian-friendly protein sources readily available, so the market for plant-based “milk” is likely to remain a small subset of the dairy sector.