"We are always looking at where we can add value, whether that be through commercial production, genetic research, postharvest applications, etc. We are very excited about the idea of high-value nurseries to produce more crops to be planted by AeroFarms, other indoor growers, and even in the field," said Marc Oshima, Co-founder, and CMO at AeroFarms last summer to VerticalFarmDaily.com.
Last week, AeroFarms filed for Chapter 11 bankruptcy protection, seeking legal protection to restructure their finances and operations. So how could this have been prevented? Are microgreens too much of a niche and not for large-scale production? How could we avoid the growing pains of energy costs? Let's have a look at what the industry thinks.
'Problematic for the industry'
"This news is problematic as vertical farms are dying so rapidly that it's more a fundamental thing, whereas AeroFarms, in particular, is so embarrassing for constantly creating their alternative realities even now that they filed for chapter 11," says Mark Korzilius, Creator of Opportunities.
As he continues to elaborate, the term startup in any sector is relevant as long as you pursue new ideas, identify roadblocks and define ways how to potentially overcome them. When applying that to the vertical farms, you realize that not only did they not highlight the massive roadblocks, but instead reinvented the wheel by ignoring existing tech solutions eg, in the Netherlands. They also ignored the issue that globally leafy green and produce farmers suffer economically. Also, from a consumer perspective, they didn't offer something more relevant.
The wrong focus
"Instead, everyone focused on 10 billion people, 95% water BS, AI, the most optimal light recipe, developing 'proprietary LED,' robotics, and above all, pesticides. Pesticides are truly a nightmare for everyone, but if consumers would wholeheartedly care, then they would have to stop eating bread, drinking beer, and plenty of other things or vote green in order to impact politics. But none of that took place, and the argument just doesn't get consumers to buy plastic packages that contain vertical farm salads when the fresh organic alternatives look so much more attractive," Mark claims.
According to Mark, the issue was addressed by &ever, and together with partners, they tried to overcome the key aspect, which is energy efficiency. Therefore moving to Kuwait was a logical consequence as &ever realized early on that with given solutions, indoor farming in Europe is not going to work at scale.
"Scale means 10 hectares or 100.000 m2 grow space. Thus, it will hopefully be niche players who cater to a dedicated community that will survive the massive shakeout. AeroFarms, Infarm, and Crop One, constant and shameful exaggerations harmed the interest of those who still believe that there is light at the end of the tunnel. I'm convinced that there are ways to grow hyper-locally as long as the fundamental strategy suits the market. That is why we are right now in the process of starting a new company where we hope to present a smarter way forward," Mark affirms.
Replacing sunlight is costly
"I know the team at AeroFarms poured their hearts into trying to make vertical farming work in North America, and they very nearly got there. Energy, labor, and construction costs were simply too high for vertical farming in the North American geography," shared David Vosburg, Chief Innovation Officer at Local Bounti, on his LinkedIn page.
Commenting on that, Javier Suarez-Vargas, Agronomist at Via Verde Hydroponics, expressed his concerns and thinks this is the future of all vertical farming operations. "Why? Just because greenhouses already exist, the same greenhouse industry that developed and keeps on perfecting CEA also takes advantage of free power, which is the sun," he finds. David agreed, saying that it's rather difficult to make the unit economics work without sunlight.
Joe Schwartz, VP at AmHydro, commented on that, "Great point, the economics are almost routinely left off the discussion table until things go sideways. I would also add that crop quality (or lack thereof) is a big factor as well. In almost 40 years, I have yet to see a 100% artificially lit system produce market-competitive products on a consistent basis. Ambient sunlight plus supplemental (when needed and at the concentration/volume appropriate) has consistently produced the best quality crops with the most positive economic outcomes. Success leaves clues."
Others find that vertical farms can actually be a supplement to agriculture in places where there is a gap to meet food security and where food is already expensive due to imports.
High operating costs
Yet, Diego Rivera, Director of Cultivation at ZY Labs LLC, believes that is due to the fact that high amounts of money were dedicated to developing technologies that already are developed outside. Adding onto that, they had, high salaries, high employee turnover, inexperienced growers and engineers, their Standard Operating Procedures weren't executed to detail, poor training, environmental controls not controlling the environment, misdirected research, and not sharing the same goals between companies.
Diego finds that "these are just some factors affecting expected growth in the industry. This situation came sooner than expected. Some excellent people will suffer after the decision. Hope the whole industry evolves over the future."
Not surprised?
"We are not surprised about this news because we are clearly getting the evidence that things have to be handled differently in vertical farming. We are happy that our model does work and that it is becoming increasingly clear that there are first and second-generation farms and business models," says Ard van de Kreeke, Founder and CEO of Growy. Yet, it is a pity that pioneers in the sector who have done so much to develop a new sector fall over, he adds.
FarmTech Society is taking notice with concern about the admittance to file for bankruptcy by an international market leader in vertical farm operations and technology development. "In terms of the timing, it is not surprising as the sector has been facing real-world volatility, as the last 12 months have been extremely challenging to the economies and agriculture in particular," Thomas Zoellner, Secretary at the FarmTech Society, explains.
But what is normal in agriculture? He continues. "Entering the fray of high-risk operations like growing plants for a living has been a continued saga of disappointing 'over-promised and under-delivered, leaving farmers wondering what all this noise was all about."
Despite raising almost obscene amounts of capital (completely new to agriculture at large), as Thomas finds, and employing high- to mid-technology, the challenge of validating an actual cash-flow positive unit economics has not been the strength of some of the 'first generation' vertical farm startups. "Pragmatically, this may be a normal but painful market correction that will allow only cash-flow-positive farms to scale up and grow into the mainstream agriculture adoption."
As Thomas points out, there is also a take-home message for us all here. As it is equally important to find out what doesn't work as it allows an evolutionary process in the innovation field to eventually reach that magic adoption by the mainstream market.
"Also, our heart goes out to all staff, supporters, and customers, as this is a bitter process and requires retooling, which may open doors to many of them starting their own farms, having gained tremendous knowledge and potential to help transform the image of this mission-critical sector to a more adaptable and affordable technology to grow more with less."
"Basically, we all know that Vertical Farming is at a critical point not only since energy costs went up - that accelerated a development that was obvious in the past 3-5 years. Most of the players, that developed their own technology became growers to persuade investors that their systems are working with the metrics/numbers of their business plans and were confronted with the complex reality of CEA," says Christine Zimmernmann-Loessl, Chairwoman of the Association for Vertical Farming.
Thus, she finds that systems had to be improved, adjusted as well as business models, and more money was needed to do so. Markets were not ready to take on large production volumes - but only a certain size of a high-tech farm was economically viable. According to Christine, It is a tricky situation that caused a lot of expectations and often the industry couldn't deliver. "Trust and transparency were and are missing. Often the "noise" of the big ones drowned out the success stories of small/medium players, who proved that Vertical Farming is a possible and necessary part of food production in the future. Our mission has not changed - we need to implement more vertical farming around the globe because of the climate crisis, shrinking resources, and a growing population to feed."
Aerofarms has its fifth generation farm ready to probably fulfill the claims and it took them much longer than anticipated. Many others in the industry share this experience and had to give up. But Aerofarm's situation could be different as investors still see the potential and that consumers and customers are more ready, contracts are in place, and profitability possible. Restructuring is necessary for this as well as a clear-cut with too costly technology enhancements and a lot of honest communication.
"We need success stories but also admit mistakes and learn from them - finally."
Microgreens cultivation at scale?
Grahame Dunling shared his opinion saying, "Try too many top-heavy salaries that have to be paid for by selling microgreens?" Does this mean that large-scale production of microgreens cannot be viable?
Agreeing with him is Joe Swartz again, "The microgreen market always has been (and likely always will be) a very small part of the retail leafy greens segment. Nothing to justify the level of investment or application of technology. Not even close.
Financial background
According to Crunchbase, the company has raised $238 million in funding over the past 19 years. In October 2021, AeroFarms was set to merge with Spring Valley Acquisition Corp, a SPAC, to reach a pro forma equity value of $1.2 billion. Although it was expected to raise $357 million in gross proceeds for the company, it didn't go through.
Back then, CEO and co-founder David Rosenberg commented that the transaction would not be in the best interests of their shareholders. 'The decision was purely made to ensure an optimal position for AeroFarms to pursue its growth strategy.'
The investors, known by Crunchbase, involved with AeroFarm's fundings are; Abu Dhabi Investment Office (unknown amount), Ingka Group ($100 million), Meraas ($40.5 million), Foundation for Food and Agriculture Research ($1 million), Newark Venture Partners ($35 million). Other investors of the remaining $61,5 million are unknown to date.
For more information:
AeroFarms
[email protected]
www.aerofarms.com
Ard van de Kreeke, Farmer
Growy
www.growy.nl
