May 21, 2015
Indoor agriculture quickly gaining speed

Indoor agriculture is quickly gaining momentum in the United States.

While the movement has drawn its share of skeptics, some advocates of the new technologies – most of which are still in their very early stages of development – see it as providing a promising step toward supplementing food systems in a sustainable manner.

A recent white paper produced in conjunction with Local Roots, a Los Angeles-based indoor farm operation; Newbean Capital, a registered investment adviser; and Proteus Environmental Technologies, a Santa Monica, California, sustainability consultant, was released at the third annual Indoor Ag-Con held in Las Vegas.

The report, “Indoor Crop Production Feeding the Future,” outlines the 15 existing commercial-scale rooftop greenhouse and vertical farms in the United States, makes the economic case for indoor growing and discusses the “$9 billion potential for the U.S. indoor agriculture industry.”

“Indoor farming will never replace conventional outdoor farming methods,” the report’s authors concluded. “It will instead augment the food chain to create a diverse, distributed system more resilient to supply shocks and better prepared to meet the demands of a global population.”

Indoor farms mostly use farming techniques that allow for improved control over the variables involved in the growing of produce, the report stated.

“We estimate that there are 15 commercial-scale vertical farms and rooftop greenhouses in North America today, and that a further 30 will be added in 2015 alone,” said the report’s authors. “With a total addressable market of over $9 billion – or 17 times the current U.S. market size – indoor agriculture is poised to be the next major enhancement to the American food supply chain.”

Strong growth in “local food” demand, the market for which has expanded from an estimated $1 billion in 2005 to nearly $7 billion last year, has meant “a unique market point for indoor farms, higher price-point products, whether this means leafy greens harvested that morning for lunch service or microgreens grown to order for a local supermarket,” according the report’s executive summary.

“While seasonality, soil conditions and access to land have traditionally made year-round local produce sourcing impossible, indoor agriculture is well positioned to satisfy the largely unmet need for local produce by growing year-round in any climate.”

The report indicated indoor farms have historically struggled to compete on cost with outdoor counterparts but that “field parity” – growing at the same per-plant cost as outdoor farms – is “quickly becoming a reality thanks to rapid falls in technology costs in areas as diverse as lighting, seed development and control systems. Continued advances in technology are driving the industry toward wide-scale economic viability.”

The indoor crop production movement is aided by the fact that facilities can be located anywhere, including retailer parking lots, urban rooftops, vacant lots and rural locations. It’s believed farmers can more easily grow “just in time” and can supplement outdoor growing by supplying produce “off season.”

“Combined, this means lower transportation costs, less spoilage and better quality produce on supermarket shelves,” the report stated. “It helps supermarkets cut the $15 billion they lose annually on unsold and spoiled produce. This flexibility has encouraged supermarket chains, restaurants and campuses to source produce from indoor farms.”

The report’s authors point out that about 12 percent of global ag-tech investment dollars have gone into indoor cultivation this year. In the United States, at least $32 billion in venture capital-like funds was invested in indoor agriculture in 2014, more than 60 percent of that total raised from 2011 onwards.

“Like many young industries, the indoor agriculture sector looks to a variety of stakeholders to aid its expansion,” according to the report. “Local governments have a role to play in clarifying regulation and zoning for indoor farms, while their federal counterparts can provide better data and extend existing funding programs to the outdoor sector. Chefs can use their voice to incorporate indoor crops into menus, to educate consumers on its benefits and to work with farmers on innovative flavor profiles.”

The burgeoning industry is referred to by a number of names: closed loop systems, Controlled Environment Agriculture, plant factories (a common term in Asia in particular), protected environment agriculture, soilless growing, urban agriculture, vertical farms.

The white paper authors specifically used the term “indoor agriculture” to refer to the growing of produce using hydroponic and aeroponic technologies within greenhouses, warehouses and containers. Their focus encompassed a full range of soilless growing techniques and environments, from the most basic greenhouse to fully automated, remotely controlled, clean-room systems.

There was a wide variety of indoor agriculture systems identified in the report, including four broad categories:

Hydroponic greenhouses. Like soil-based greenhouses, these greenhouses grow crops in a single layer. Transparent roofs are employed to utilize natural sunlight, augmented with supplemental lighting during dark days and off-peak growing seasons.

Warehouse farms. Industrial warehouse space is built or retrofitted with hydroponic, aquaponic or aeroponic equipment and crops are grown vertically to achieve economies of scale. Artificial lighting systems are used at all times.

Container farms. These are standardized, self-contained growing units that employ vertical farming and artificial lighting. In contrast to custom-designed warehouses, container farms strive for standardization.

In-home systems. These small, standardized growing units are for use by consumers in home settings. These focus more on convenience and design than on yield.

The report’s authors acknowledged the indoor agriculture industry is still in its infancy. “Its substantial market potential has been only marginally penetrated by traditional greenhouse hydroponics, which in 2013 had total revenues of $555 million, with large greenhouses across North America.

“We estimate that there are no more than 50 businesses in the United States focused on commercial-scale vertical farming, most with single farm locations and limited investment from institutional capital,” according to the report. “Approximately 15 are currently farming at commercial scale – that is, with multiple large purchase contracts supporting a dedicated full-time staff. There were none as few as four years ago. Even the largest players are still solidifying business models and exploring strategies for rapid growth.”

But future projections for the indoor agriculture industry are positive, according to the report.

“The potential is large. The diverse group of indoor agriculture entrepreneurs is rapidly expanding, attracting those looking for new solutions, and inspired to meet the challenges of creating the food system of tomorrow.”

Gary Pullano

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