Long read: the only way is up as farming goes vertical

In August last year, Kurt Kelty announced he was leaving Tesla, the US electric car maker, based in California. Kelty had been one of the longest-serving executives at Tesla and led the team that developed the battery technology used in the engines of the company’s range of electric cars.

Prior to that, he had worked for more than a decade at Panasonic, the Japanese electronics giant. At the time of his departure, Tesla said Kelty was leaving the company to pursue “new opportunities”.

To the surprise of many in corporate America, these new opportunities turned out to be taking up a role as head of operations and development with Plenty, a San Francisco-based startup company specialising in vertical farming.

Announcing Kelty’s appointment in October last year, Plenty said his role would be to grow its vertical farm footprint by developing indoor growing rooms in cities around the world.

Plenty, which was founded in 2014, develops indoor vertical farms that produce fruit and vegetable produce. Produce is grown on 20ft-tall towers using LED lighting, micro-sensor technology and big data processing. The company claims its system can grow up to 350 times more fruit and vegetables than conventional farms on a similar land area, while using 1% of the water needed for conventional farming.

Agriculture remains one of the last frontiers to be disrupted by new technology startups in the same way that the music industry, mobile phone and print media have been utterly changed over the last decade

The idea has struck a chord with investors in Silicon Valley. In July last year, Plenty attracted $200m in Series B funding (its second round of major financing), which was led by SoftBank Vision Fund, a Japanese fund that invests in the technology sector.

This $200m capital injection was the largest ever single investment in an agritech company, with SoftBank betting it has the global connections to accelerate the company’s international expansion.

Further investment

Plenty is not the only vertical farming company to attract investment out of Silicon Valley. In March of this year, Larry Ellison, executive chair and founder of US computer technology company Oracle Corp, launched his latest startup company, called Sensei.

This new company will begin growing organic fruit and vegetables using vertical farming techniques on the Hawaiian island of Lanai, which Ellison paid $330m for in 2012. Sensei said it will build 10 greenhouses on just under five acres of land on the island, with the aim of selling vegetables to the local retail market under the Sensei Farms brand.

These vertical farms will employ hydroponic techniques to grow produce, while energy will be provided by solar technology developed in partnership with Tesla. Sensei says this will slash the energy and water usage needed to grow food compared to conventional farming.

Launching his new company, Ellison said agriculture was one of the last major industries that had remained unchanged by software applications and his aim was to transform the sector.

The global vertical farming industry was valued at more than $21bn in 2016.

Farming investment

Ellison is right when he says agriculture remains one of the last frontiers to be disrupted by new technology startups in the same way that the music industry, mobile phone and print media have been utterly changed over the last decade.

Up to now, venture capital funding has been slow to invest in on-farm applications, mainly because investors don’t fully understand farming. The seasonality of sowing crops or calving cows makes technology development slower in agriculture and less attractive to investors that are used to companies developing at warp speed.

However, this perception is changing and investors are starting to see the financial returns possible in agriculture, evidenced by John Deere’s recent acquisition of Silicon Valley startup Blue River Technology for more than $300m.

Capital investment

But vertical farming has always been a concept that has attracted, and will continue to attract, significant venture capital funding. The global vertical farming industry was valued at more than $21bn in 2016 and is forecast to grow at a compound rate of just under 7% per annum up to 2023 when it will reach close to $33bn in value.

The key driver behind the growth in vertical farming is that investors understand the principle that more food will need to be produced from less land to feed an increasingly urbanising global population that is forecast to reach 9bn by 2050.

Producing food from less land and water right in the heart of a large urban centre makes sense for tech investors, particularly when set against a background of global warming and a greater need for controlled climate agriculture.

Sky Green Farms in Singapore.

In a place like Singapore, one of the most urbanised nations on the planet, vertical farming is becoming increasingly important to how the country feeds itself. Singapore imports 90% of its food requirements for its population of nearly six million people.

While the city-state will always be reliant on importing food, vertical farming is allowing Singapore to create its own food supply that could act as a buffer in times of supply chain disruption.

Sky Green Farms became the world’s first commercial vertical farm when it opened for business in 2012. The company started from an initial farm of just over 200 towers, after receiving $100,000 in seed funding from the Singapore government. Today, Sky Green Farms produces 0.5t of vegetables every day from more than 1,000 9m-high A frame towers.

The company plans to invest a further $26m to expand the farms to have more than 2,000 towers growing vegetables on less than 10 acres.

If realised, the company believes it will be able to produce enough vegetables to feed 4% of Singapore’s population.

Limitations

The concept behind vertical farming is sound, especially as populations become increasingly urbanised. However, there are limitations to these systems. In theory, any crop can be vertically farmed but the system is primarily used to grow potatoes, peppers, cucumbers, lettuce, herbs and fruits such as strawberries. By far the most common item grown on vertical farms are tomatoes.

Overall, vertical farming is likely to have an increasing role in future food systems, particularly in Asia where population growth and urbanisation have been most rapid over recent decades. China, with 1.4bn citizens, accounts for almost 20% of the global population yet it has just 7% of the world’s arable land. Of the land that is deemed arable in China, about 40% is suffering from moderate to severe soil degradation.

For countries such as China, where regional food security is a priority, vertical farming presents an opportunity to somewhat alleviate the dependence on food imports for staple vegetables and fruits.

The processes of vertical farming still have a way to go with significant challenges remaining around getting enough light to stacked rows of plants as well as improving the overall quality of the end product.

However, with more venture capital investment funnelling into urban farming startups, and people like Kurt Kelty taking leadership positions within the sector, vertical farming is only going to get better and create a greater disruption in the traditional agriculture sector.