Over the last year and a half, the vertical farming industry in Europe has experienced significant turbulence. We have seen numerous setbacks and bankruptcies testing the sector's resilience. However, as we approached and moved past the new year, a resurgence in new investments and promising developments began to surface. This article delves into the challenges that have shaped the vertical farming landscape, explores the resilience demonstrated by market players, and analyzes how they have reached a new equilibrium, a platform from which the industry may now stabilize and potentially thrive.
Initially, it seemed the industry was unraveling at the seams. There were bankruptcies, administrations, and even fires. Infarm, once Europe's largest vertical farming company, entered external management, laid off the majority of its workforce, and exited numerous European markets. Not too long before, France's Agricool went bankrupt after struggling with similar financial and operational issues. All blamed high energy costs and supply chain disruptions as critical challenges.
Insight to failures
One of the companies that reportedly just recently had to start filing for insolvency is Austrian FarmNOW from Vienna. We sought insight from Dr. Yuliya Salanenka, the Chief Plant Science Officer at FarmNOW, to understand the reasons behind these failures. "I was surprised to read reviews showing that many well-known companies, like InFarm, either didn't calculate their energy consumption beforehand or started too late to take an interest in their monthly electricity costs," she explained.
"Of course, they were shocked by the high OPEX when energy prices spiked. Plus, the technology requires a significant initial investment in CapEx in itself, therefore fast returns on investments, which investors often seek, are fairly unrealistic. When 2022 with its turbulence came, trust in vertical farming plummeted. Eventually, we also couldn't get through." By September last year, Sifted had identified at least 15 vertical farming companies headquartered in Europe that had gone bankrupt.
Signs of recovery
But by the end of 2023, things rebounded. Italian Planet Farms secured $40 million in a funding round. Unfortunately, two months later, a devastating fire, reportedly due to failing machinery, virtually destroyed its flagship facility, leaving industry players speechless and jeopardizing the company's ambitious plans for expansion in Italy and the UK. Nevertheless, the funding of Planet Farms confirmed the revival of investor interest.
In 2023, venture capital investments in European vertical farming nearly reached EUR 280 million, significantly exceeding the previous year's total. Companies like IGS in Scotland and Futura Gaïa in France received funding (EUR 22 million and EUR 11 million, respectively) to expand their operations.
IGS is an exemplary vertical farm-mastodon afloat and expanding. At the end of 2023, they launched a partner Potager farm in Berlin and began constructing an 80,000-square-meter farm in the UAE, poised to replace at least one percent of leafy greens currently imported into the country and to cultivate tree saplings along with greens.
But other technology providers are also making strides. London-based Vertical Future received a £1.5 million grant from the UK Space Agency for their 'Autonomous Agriculture for Space Exploration' project, intended to be completed in 2026. Finnish iFarm also successfully weathered a challenging period thanks to projects in the GCC and Indonesia and has re-emerged on the European scene by installing its top-notch, fully automated StackGrow system in Switzerland.
Retail partnerships
New large-scale partnerships have also formed between retail and vertical farmers. For instance, the Coop network enlisted indoor farmers Kilometre Verde in Italy and Avisomo in Norway to deploy facilities for their major supermarkets. Additionally, large foreign companies are expanding into Europe's target niches. For instance, Elevate Farms from Ontario, Canada, announced plans to enter Central Europe, indicating continued confidence in the region's sector's growth.
Shifting industry dynamics
The industry has transformed. Only vertical farm developers who managed to optimize their technologies, reduce costs, and increase flexibility have overcome the hurdles of COVID-19 and the energy price spikes caused by the Russia-Ukraine war. The profile of medium-sized investments has significantly altered. Previously dominated by high-tech companies and venture funds, the sector is now increasingly attracting traditional agriculture players. They are now focusing more on research activities and laying the groundwork for future advancements. While their investments still seem exploratory and relatively small, but they are becoming more targeted, moving beyond merely testing commercial models to setting up polygons, and exploring the possible transformation of their niches.
"Ag-tech Market undergoing a correction, with the wheat being separated from the chaffs," writes Agtechnavigator. "The EU has been taking steps to make farming more environmentally friendly, requiring farmers to cut the use of chemical pesticides and fertilizers, in some cases even reducing subsidies if more sustainable practices are not adopted." So players are hustling to create at least nominal ventures that will show their willingness to meet modern ESG requirements. This prepares the ground for market growth and suggests a viable future for the indoor farming industry.
The global agriculture industry 'faces significant challenges, including extreme weather events, rising costs of essentials, unpredictable economic conditions, and a shrinking skilled workforce'. Nevertheless, the industry is poised for significant growth in 2024, authors of a new Markets and Markets research insist, emphasizing that the 'focus on automation and novel farming systems, such as automated farm machinery, agricultural biotechnology, and vertical farming, is accelerating this growth'.
Numerous experts agree that indoor farming is poised to return to a growth trajectory. "Many companies will become profitable in 2024, which can trigger additional investment into the sector," said David Verbitsky, Managing Director and Head of AgTech & Sustainable Food at NOMURA Greentech, an international investments consortium.
Chart 1. Average monthly electricity wholesale prices in selected countries of the EU (2020-Apr 2024), in euros per megawatt-hour, according to Statista.
Labor and electricity are the two largest costs that vertical farms face, and the inability to manage these expenses often leads to farms' premature deaths. However, the horrendous war-induced spike in energy prices seen in 2022 is now a thing of the past (see chart 1).
Ongoing innovations
Additionally, the revolution in lighting efficiency continues: the cost of LED lighting has dropped more than tenfold in a decade, and some believe that the true lighting revolution is yet to come. In addition, electricity from renewable sources has recently become so sharply cheaper in Europe that it has even been observed to be priced negatively. The high cost of labor will be countered by automation, making it the most interesting battleground to observe. The winners will not be those who offer complex robots but rather those who provide the simplest, most cost-efficient solutions, akin to Amazon's warehouse robots. Therefore, continuous investment in research and development can further strain the financial viability of the industry.
Army of robots
And the flurry of agtech innovations we are witnessing is inspiring. Seasony, based in Copenhagen, aims to change the industry with Amazon-like warehouse robots, having recently secured €1.5 million in funding to ramp up their production. The eSoil technology, invented by Stanford scientists, provides a low-power bioelectronic growth scaffold, enhancing crop seedling growth.
In the Netherlands, Certhon has unveiled Thevi, a precise lettuce yield forecasting software, and Artemy, a harvesting robot for greenhouses and indoor farms equipped with advanced vision technology. Infinite Acres collaborated with Siemens, Delft Technological and Wageningen Universities, and just opened a pioneering agricultural research center in Hague to research high-tech approaches. Some are aiming for the moon: Interstellar Lab has introduced a new device designed to grow flowers in the lunar environment.
Future lookout: integration, research and niche markets
Dr. Yuliya Salanenka shares an optimistic view of the industry's potential: "I'm confident that the industry will continue to move forward both from an infrastructural and production point of view." She envisions more farms integrating into urban architecture, creating energy symbiosis with buildings by utilizing the heat produced by vertical farms. Traditional greenhouses, she believes, will be upgraded with stacked layers, precise control, and innovative HVAC systems, combining the benefits of both approaches.
"I'm also sure that many high-tech approaches will necessitate vertical farming. For instance, agronomic biofortification of plants with added minerals of interest. Take plants fortified with iron, which generally comes from animal sources—imagine how beneficial it'd be for vegetarians and vegans," she adds.
"Vertical farming could also be effective in growing tree saplings for reforestation of large deforested areas. Additionally, it can serve as a research hub for various advanced agricultural technologies, including gene editing, biopharmaceutical production (plant molecular farming), and speed breeding. The aim may be to create plants that are more stress-resistant or to use plants as bioreactors, providing a sustainable way to produce valuable molecules for medicine and human nutrition."
A new equilibrium
Taking stock, it appears that the industry's impulse to migrate entirely to the Middle East will not come to fruition after all. European cities, both in the north and south, will develop their facilities. Investors will continue to explore new niches, and consumers will discover new products. We can expect to see farms that successfully utilize renewable energy sources, achieving energy self-sufficiency. Complex setups brimming with electronics and AI will emerge as test beds and development grounds, particularly in sophisticated areas like medical or biofortified plant production. Surely, keeping a vigilant eye on the evolving landscape of vertical farming will undoubtedly unveil a cornucopia of developments and successes soon.
Authored by Konstantin Buzin