Mirei Takashima Claremon, PhD & Jared F. Northrop, MBA

How the convergence of indoor farming technology and smart, human-focused solutions can create a more sustainable approach to feeding ourselves

Over the last decade, indoor farming, often referred to interchangeably as vertical or controlled environment farming, has continued to gain momentum as a promising new approach to food production. While the benefits of indoor farming are starting to capture headlines, it is important to unpack the range of realities — both in terms of opportunities and challenges — that are associated with this movement. In this article, we attempt to assess indoor farming in a holistic manner.

While this type of farming is unlikely to scale to the level of conventional farming methods anytime soon, its immediate impact and benefits are too important to ignore. Indoor farming is a viable, present-day, supplementary approach to conventional farming, especially in urban environments.

Despite the rapid technological advances and broad societal benefits of indoor farming, initial upfront investment and high operating costs continue to limit its proliferation as an alternative to conventional farming. However, indoor farming offers a compelling solution that provides numerous benefits to cities, including revitalization of vacant spaces, high-value job creation, and increased local access to nutritious foods that can enhance health and well-being.

As we highlight many of these benefits and challenges below, the ongoing conversation need not be a zero-sum argument between alternative approaches to farming. Both businesses and communities can benefit today from the implementation of indoor farming, even if its scale is limited. It is important to note that long-term planning and support require leadership at all levels — government, industry, and community — to accelerate progress towards this highly efficient and controllable means of producing food for a larger population, both locally and globally.

A Quandary of Loss and Waste

According to a new study conducted in California, more than one-third of edible produce is typically left unharvested at farms. This phenomenon is a significant contributor to the total amount of food wasted in the U.S., an amount estimated to be about 40 percent of what is produced. Though sometimes the distinction between food loss and food waste is blurry, food loss typically refers to unintentional losses that occur at the farm due to factors that are often beyond control. Examples include food loss related to environmental and climate factors, diseases, pest infestations, and market prices. Food waste is typically defined as food that is discarded due to more controllable factors such as restaurants purchasing more food than they need, or consumers cooking more than they can eat and throwing away the leftovers. In these ways, both food loss and food waste can occur at any point along the supply chain, including at the farm or production site, during transportation, at retail, or at home.

Indoor farming can also meaningfully reduce food loss and food waste. Since crops are grown in perfectly controlled conditions and are protected from extreme climate fluctuations and other environmental factors, water and fertilizer can be used more effectively. This enables indoor farmers to grow crops that are less variable in their weight, size, and general aesthetic appearance. Consequently, wholesale buyers and retail consumers will be less likely to reject such products due to aesthetics. Moreover, as consumer tastes change and the demand for new crops arise, indoor farms can pivot and repurpose their operations to match new market trends much more quickly and easily than conventional farms can, due to their smaller size and more controllable operational structure. Relatedly, indoor farms will have more predictable harvest periods and yield curves, a fact that will enable farmers to produce and harvest at regular, predictable cycles without overproducing.

Additionally, since indoor and vertical farms do not require vast agricultural lands, they can be built essentially anywhere and operated locally. Complex logistics of food warehousing and distribution that are required when transporting food across long distances become unnecessary. Food spoilage, which is estimated to account for 17.7 percent of estimated loss of fruits and vegetables, and environmentally-damaging transportation-related emissions can therefore be significantly reduced, since the harvested crops will likely be distributed locally to restaurants, grocery stores, and consumers.

Moreover, when labor costs rise, conventional farmers at times have no choice but to leave some of the crops unharvested to turn back to soil. In contrast, because indoor farms require less intensive manual labor, in large part due to automation trends, they will likely be better shielded from increasing labor costs in the market. Indeed, automation in indoor and vertical farming translates to a significantly lower need for manual labor hours per equivalent acre-harvest than in traditional farming. As a result, indoor farms also tend to be less susceptible to food loss due to insufficient access to labor. In these ways, indoor farming can be an effective part of the solution to mitigate food loss and food waste.

Broader Access To Healthier Outcomes

For decades, the U.S. has been fighting a serious obesity epidemic. According to the CDC, obesity-related annual medical costs in 2008 were estimated to be $147 billion. In the period between 2017 and 2018, 42.4 percent of the adult population was considered obese. Though obesity is not caused by a single factor, poor diet is considered to be a significant driver. Moreover, while the incidence of obesity is higher among disadvantaged communities, these communities are simultaneously and disproportionately affected by food insecurity as well. According to Feeding America’s most recent projections, food insecurity may impact more than 50 million people, including 17 million children.

Though the fact that these two issues disproportionately affect the same population may not make sense at first glance, they can both be attributed — at least in part — to the virtual lack of access these communities have to healthy, clean foods. Members of these communities often don’t have access to reliable transportation, may not have a usable kitchen to cook in, and live in food deserts where grocery stores or supermarkets don’t exist. Instead, these communities are littered with fast food chains, liquor stores, and dollar stores that only offer food options that are highly processed and have limited nutritional value.

Given this context, indoor farming can be a meaningful solution to simultaneously tackle the related issues of obesity and food insecurity. As indoor farming continues to develop and scale, producers will be able to offer a larger variety of fruits and vegetables. Combined with related methods of alternative food production such as indoor fisheries where salmon and shrimp are cultivated, such systems will play a key role in making nutritious food more widely available to local communities.

Beyond simply providing more equitable access to fresh produce, indoor farms can also help change the conversation about how we view food and its impact on our health. Specifically, communities will have more direct opportunities to learn about how real (non-processed and whole) food is grown. Indoor farms can partner with schools to educate students and even encourage the community to grow their own food. For instance, Green Bronx Machine, a food education-focused nonprofit organization based in the Bronx, NY, provides opportunities for children from vulnerable communities to learn how to grow their own food through urban farming and indoor hydroponic towers. Such initiatives can start to dismantle systemic barriers that make it extremely difficult for certain community members to maintain a healthy diet, which leads to higher academic performance and a more promising future.

Gaining access to opportunities to learn about and taste fresh produce grown in their own community will enable people to appreciate healthier food options, and understand that food can be both healthy and tasty. Critically, helping people come to the realization that real food is nourishing, healing, and can make a significant difference in health outcomes is likely to have ripple effects across communities. The more people incorporate fresh produce into their diets, the more we can reduce the incidence of a host of chronic diseases and medical conditions, improve cognitive and physical development in children, and ultimately reduce healthcare costs to create a more productive society.

Shifting Landscapes of Job Impact

When compared solely to conventional farming, indoor farming tends to be a net jobs destroyer. However, advocates of indoor farming point out that indoor farming is a lever for skilled-level job creation in urban markets. Indeed, indoor farming can benefit the overall job environment, as we will discuss below.

It is a known fact that conventional farming relies heavily on unskilled, seasonal, and often unauthorized labor out of necessity. In the last five years, 56 percent of California farmers have been unable to find enough laborers to meet demand. Consequently, these seasonal worker shortages continue to be a challenge for conventional farming. As indoor farming increasingly automates management of year round growth and harvest cycles, indoor farming will shift to a more consistent, years-long demand curve and can become a net creator for a wide range of job requirements. A shift to indoor farming certainly won’t resolve the current labor challenges facing conventional farming in its entirety. However, indoor farming will meaningfully reduce the risks and costs associated with the unpredictability of when workers will be needed, both in terms of managing shortages and in smoothing out the peaks and valleys of demand.

In conventional farming, labor accounts for a significant portion of variable production costs, at 48 percent and 35 percent for fresh fruits and fresh vegetables, respectively. Using AI and new automation deployments in indoor farming, these seasonal labor costs have been significantly reduced. For example, IGS (Intelligent Growth Solutions), which has developed an automated system, enables highly efficient production using modular structures. The company claims to have reduced labor by up to 80 percent and power consumption by up to 50 percent. These ongoing resource savings project a recurring benefit to lead future lower production cost savings and efficiencies.

However, the necessity to transfer knowledge about conventional farming advancements and to integrate new technologies and innovations into indoor farming creates a host of skilled jobs that will have significant current and future applications. Surely, automation and technology will require an entirely new set of skills and training requirements, a fact that opens the field to a broader range of careers.

Moreover, indoor farming’s proximity to urban locations offers several advantages for local job creation, as is frequently noted. Specifically, since optimal indoor growing site locations are low-cost industrial zones that are typically in or near lower income neighborhoods, indoor farms can tap into a labor pool that is typically unable or unwilling to relocate to conventional farming locations far from city centers. As a result, indoor farms have access to a much larger workforce with a broader range of skills that is necessary for indoor farming.

From the perspective of the workforce, some argue that indoor farming is biased towards higher-skilled, higher educated workers. Though this may be true, indoor farming can also provide retraining and development opportunities that could benefit economically disadvantaged communities. Lastly, the initial redevelopment phase provides demand for construction project crews to retrofit and prepare adaptive reuse buildings. This could benefit local construction and real estate businesses as dormant buildings are repurposed and reutilized.

Due to a combination of the factors discussed above, indoor farming offers a compelling argument in favor of overall positive impact on jobs both at-present and in the future.

The Economics: Making It Work

As discussed earlier, one of the most beneficial elements to indoor farming is the ability to control the environment for consistent optimization and utilization. The indoor environment can be engineered to achieve optimal crop yield, specific nutritional values for produce, and mitigation of waste typically associated with unpredictable or uncontrollable environmental factors. As a result, a range of issues and challenges can be minimized or essentially eliminated. Additionally, the amount of human labor required can be reduced, as transfers of the farm’s growing towers around the warehouse as well as harvesting can be automated.

Furthermore, due to the closed environment and controlled lighting, second generation vertical farms can on average yield 55 times more produce per unit of area compared with conventional farms.

Given all of these benefits, the question becomes, what is holding us back?

A key reason is that initial investment and capital expenditure (CAPEX) is high. A small-scale indoor environment deploying a low-tech approach and early generation technology can cost around $280K. While this investment is feasible under limited conditions, rolling out a scalable solution to feed a larger population with this deployment barely scratches the surface. In considering more complex operations that do provide an ability to scale and feed a larger segment, investment setup costs can exceed $15 million to employ the latest generation technologies. In this context, the economics still present a challenging investment horizon.

The result of these high initial and ongoing operational costs is that the current market prices for 1 kg of leafy greens are around $33 for vertically-grown produce and $23 for organic produce. These price levels make it difficult to capture market share even in the niche premium end of retail food purchases, let alone mass markets and disadvantaged consumers.

The good news is that according to a study that compares the economics of vertical farming to greenhouses, the conclusion is that the cost-divide is narrowing.

Research indicates the following costs per pound to grow and deliver greens grown in each of the following formats (including depreciation):

Combined costs per pound to grow and deliver, by farming type

The challenging economic realities are being favorably impacted by evolving technologies that cut down on operating expenses (OPEX). Further, the efficiency and localization benefits of indoor growing are unmatched when compared to conventional farming.

As reported in an article in the Wall Street Journal, “Efficiency of such farms allows nearly 95% of indoor seedlings to be grown to maturity and harvested, according to Gene Giacomelli, professor of biosystems engineering at the University of Arizona. By contrast, the survival rate for outdoor crops, from planting to harvest, vary from 90% in good years to 70% or less in drought or flood years. The latter have been increasing because of climate change, with record-high temperatures often accompanied by extreme weather patterns.”

Real-time monitoring technology allows growers to maximize yields and enhance crop quality. Tracking inputs and monitoring indoor environments enables the creation of a scientifically adjusted environment that has the ability to learn and adapt using AI (artificial intelligence) and ML (machine learning).

For example, it is possible to modify the irradiation output of lighting to approximate the peak absorption zone of chlorophyll. Different plant species have different illumination requirements in terms of PPF (Photosynthetic Photon Flux). Therefore, lighting panels are not operated at maximum power, but at different power levels depending on the PPF requirements of the plant species. Furthermore, the desired duration of illumination is adapted to the needs of the plants, which ranges between 12 and 16 hour periods depending on the plant species. Furthermore, to save power, the LED can be operated in a shutter sequence. All of these elements combined translates into a higher efficiency of crop yield and better resource utilization.

A company offering this type of technology is AGxano, which uses a data-science approach to controlled environment architectures. Jim Doyle, CEO of AGxano, describes the company’s use of “predictive insights” to align growing systems to “temperature cycles and to quantify the impacts created by other environmental conditions.” Mr. Doyle continues explaining that by using “proactive diagnosing of pests and soil defects, nutrient deficiencies, and moisture imbalances, the farming operation can optimize intelligent scheduling and automation of facility systems for input reduction.”

Water consumption is another major concern for many areas of the planet. On average, agriculture accounts for over 70 percent of the fresh water usage globally. Anthony Vilgiate, CTO at CABA Tech, former indoor farm operator, and advisor to commercial growers, indicates that “agriculture is responsible for 80–90 percent of water consumption in the United States, according to the USDA. Indoor farms use up to 95 percent less water than traditional cultivation methodologies, greatly reducing the impact on our most precious resource.” Low water dependency has the added benefit of reducing nutrients and fertilizer requirements. Further, this water can be cleaned and recycled for additional use, and does not carry fertilizers and contaminants into the groundwater supply as does traditional agriculture. The processing costs for these treatments is presently high, but this offers another area of opportunity for scaling and improvement.

The outlook is promising as the industry continues to see OPEX reduction trends, as illustrated by the examples presented above. Ultimately, continued activity in technology advancements, automation improvements, and efficiency gains should reduce OPEX by 12 percent and over 20 percent, respectively, by 2030. These decreases in production costs, consequently, make nutritious food more affordable and accessible to a wider array of people across the socio-economic and geographic spectrum.

Implementing the Future, Today

It’s clear that farming and food production have significant environmental, economic, and social implications that intersect. Indoor farming is a solution that can create positive value both environmentally and socially. Given that there are various benefits, why isn’t adoption happening faster? And, more importantly, how do we accelerate it?

We discussed the enormous initial investment requirements that continue to be an inhibiting reality. It is also difficult to change people’s behaviors due to status quo bias and inertia. People are hesitant to make investments and make changes, especially if their livelihood may be at risk.

Critically, when discussing the economics and practicalities of indoor farming, it is important to not lose sight of our overarching goal in terms of food production — to create a more sustainable and equitable approach to feed our communities. Indeed, there is little argument that investment in innovation and technology to produce food efficiently has become a globally competitive race and state-sponsored imperative in many nations. Nations such as the Netherlands are taking action to alleviate food insecurity challenges in both domestic markets and in other countries that lack the resources for adequate food production. Singapore has identified food production as a national security concern and aims to produce 30% of its nutritional needs by 2030. Similarly, indoor/vertical farming has gained considerable interest in India. With a rising population and urbanization as well as depleted land resources, the country faces serious health and food security issues. Additionally, a more sustainable method to enhance availability of fresh produce is urgently needed in a country where a large portion of the population is vegetarian.

Thus far, the focus of US indoor farming producers has been on high-value crops that enable them to justify their higher initial investment; as a result, the widespread adoption of indoor farming is still limited. Going forward, the conversation needs to expand outside of traditional agriculture communities so that collaboration can take place among industry stakeholders, government policy makers, and non-profit organizations. Both short-term and long range implementation of indoor farming will benefit from a prioritization of the following: major technology advancements to reduce costs (including inexpensive/clean power production), fluid management systems, use-case studies to measure the effects/benefits of this farming approach (one of many examples might include obesity reduction due to nutritionally-dense foods), improved land-use policies, and tax incentives for adaptive reuse in food deserts.

As the positive implications of indoor farming become increasingly clearer and more quantifiable, validation and justification for continued investment in both the short and long time horizon should become easier.

Striving to build a better world via behavioral insights and cross-cultural perspectives. Educator/ Researcher/ Consultant. Founder & CEO of Illumirai. MBA/PhD.

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