New Age Vegetable Farms

Industrial agriculture has perhaps sown a few more seeds than intended.  Widespread use of chemical fertilizers and pesticides to increase crop yields has inspired an entire marketing theme.  Chemical fertilizers remove nutrients from the soil and that means crops have less nutritional value to pass on to consumers.  Pesticides are poisons and can lead to a range of health woes from respiratory problems to cancer.  Most grocery stores are emblazoned with signs and labels for ‘organic’ content and products that avoid the unhealthful elixirs of intensive farming.  

In 2017, the organic food market in the U.S. recorded $45.2 billion in sales value.  That was about 6% of food sold in grocery stores around the country.  Only about 5% of all food produced in the U.S. qualifies as organic, far less than the estimated demand for food free of chemical pesticide and fertilizer.

A few entrepreneurs have targeted this large unmet demand for safer, more nutritious food with an unconventional approach  -  vertical farming.  This lofty agricultural method does not fit in the pastoral setting of Van Gogh’s The Harvest.  Nor will it stand up to the intrigue of Wood’s American Gothic.  Nonetheless, vertical farms represent a potential safety net for a planet with an agricultural crisis in the making.  Besides fouling our food, intensive farming damages soil structure and biology, leaving it unproductive and vulnerable to erosion.  Once the soil is gone…well we have a problem.  

This final post in the series on the looming problem of top soil loss looks at the pioneers of vertical farming  -  growing plants without soil in stacked layers indoors.  Their products are being gobbled up by the very hungry market for organic foods.

Mixed Greens

Based in the Garden State of New Jersey, AeroFarms, LLC operates the largest aeroponic vertical farm in the world in an abandoned steel mill.  Layer upon layer of shelves with plant trays fill the 70,000 square foot structure.  Two of the company’s other farms are in repurposed buildings as well  -  a former night club and a laser tag arena. 

AeroFarms raises a mix of greens that are marketed in the immediate region under the company’s Dream Green brand.  Grocers get year-round availability of highly marketable fresh produce that is pesticide free and grown from non-GMO seed.

AeroFarms does not need soil or direct sunlight to grow its greens.  A mist filled with nutrients and mixed with oxygen bathes the roots of each plant.  The company boasts water savings near 95% compared to irrigated outdoor fields and 40% water savings compared to hydroponic growing systems.  Light Emitting Diode (LED) lights trigger the photosynthetic process using a spectrum of colors and intensity best for each crop.  All crops are monitored daily and collected data is used to fine tune inputs and processes.

Investors have jumped on the opportunity to support AeroFarms.  The company completed a Series D financing round in May 2017, raising over $34 million from the likes of IKEA and David Chang’s Momofuku Group.  The company has raised a total of $136 million since its inception in 2014, and has supplemented that with $40 million in debt. 

It seems more likely than not that AeroFarms will need to look for some sort of exit strategy for their sizeable venture capital following.  They may also need to expansion capital.  Reportedly, the first aeroponic farm required a $30 million investment.  That could mean an initial public offering of its common stock, which case minority investors of less prodigious means could get involved.  Farmers have not often come to the public trough for capital, so investors are not familiar with the business.  However, vertical farming has more the familiar look and feel of manufacturing.

 

Urban Skies

Not all vertical farms are the same.  Sky Greens based in Singapore has tiers of plants just like any other vertical farm.  However, there the similarity ends.  Sky Green ‘farmers’ grow food crops in urban areas close to consumers with a unique, patented system.  Tiers of growing toughs rotate on an A-shaped frame that can be as high as nine meters.  The troughs can be used for soil or hydroponic growing mediums and are rotated on the frame with a proprietary hydraulic water-driven system.  Sky Green’s system also relies on natural sunlight rather than artificial lighting.

From inception through 2014, Sky Greens, owned by Sky Urban Solutions Holdings, Inc., raised over $28 million in public and private financing.  There has been no news of additional funding rounds made public since.  The company’s lettuces and salad greens have been well received by Singapore consumers.  It is possible given Sky Green’s low-cost system that the company has become profitable and thus self-funding.  As a private company Sky Green will keep investors guessing about the details of its financial performance.

Ready to Roll

Investors ready to put capital into green leafy vegetables need look no further than Green Sense Farms, LLC.  The company has recently started a Series C equity financing round with the objective to raise $3.5 million.  All investors must be qualified and that might eliminate all but a few looking for a green trade.

Green Sense started its first vertical farm in Indiana in 2014, delivering lettuces, herbs and mixed greens to Whole Foods grocery stores in the area.  Since then the company has expanded within the U.S. and has even set up shop in Shenzhen, China.  In the U.S. Green Sense owns its own farms, but internationally relies on partners to license its technology and operate turnkey systems.  New facilities are under development in Indiana, Michigan, Nevada and outside the U.S. in French Polynesia.

More Greens

By this paragraph investors must be getting hungry for something orange or red.  Alas, vertical farming seems to be focused exclusively on greens and Plenty is no exception.  However, Plenty relies on soaring towers of planting medium rather than trays on stacked shelves.  Lighting is provided by LED grow lights.  Workers address the walls for planting, maintenance and harvesting.  The approach may pave the way for a wider range of crops than others.  Strawberries and tomatoes are reportedly under exploration.

Plenty raised $200 million in an early financing round let by SoftBank Vision Fund.  Apparently, the numbers have made sense to investors.  Plenty’s leadership claims its vertical farming methods can yield 350 times more produce per acre with 1% of the water required by fields producing the same crop. 

The company appears to be making plans for a major international expansion by recruiting a high-profile chief financial officer who has significant large, public company experience.  Japan and Abu Dhabi are reportedly under consideration.       Plenty is also expanding through acquisition.  It acquired equipment supplier Bright Agrotech to build its capacity to outfit small farms with vertical growing systems.  Bright Agrotech has a strong product line of greenhouses and indoor farming equipment that could help facilitate the build out of new Plenty farms.

Vertical Farm Option

The equipment required for vertical farming is an alternative to investing in vertical farming start-ups.  Urban Crop Solutions and American Hydroponics  provide turnkey vertical farming solutions.  Soil not included…and not needed.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.