The Future of Controlled Environment Agriculture: Navigating Challenges and Unleashing Opportunities

Recently, I wrote an email to our investor community about the CEA sector and I thought I would share a variation of it for a wider audience here.

Dear CEA Investor Community,?

I hope this email finds you well. I am reaching out to you as an investor interested in the field of Controlled Environment Agriculture (CEA) to share some insights on the current state of vertical farming. Recent developments have highlighted both challenges and promising opportunities in this rapidly evolving industry, and I believe it's crucial for us to navigate these changes wisely.

I recently wrote an article titled "What Does Aerofarms' Bankruptcy Signal for CEA's Future?" which sheds light on some of the challenges facing the vertical farming sector. [https://foodinstitute.com/focus/what-does-aerofarms-bankruptcy-signal-for-ceas-future/] The article discusses the bankruptcy of Aerofarms, a prominent player in the industry, and raises questions about the long-term viability of CEA for some.

What not to do:

Here are the 6 reasons why I think that vertical farms are struggling to succeed and mistakes you should avoid if you operate or invest in a vertical farm:

1. Product-Market-Missmatch: Vertical farming companies must align crop selection with consumer demand to grow economically viable crops in high demand. Focusing on niche or exotic crops with limited market potential or simply competing with lower-cost options can lead to failure. Do extensive market research before building, investing in, or expanding a vertical farm.
2. Variable Costs: Energy costs associated with artificial lighting, temperature control, and ventilation can be substantial, limiting profitability. Maintenance and replacement of complex vertical farming systems add to the financial burden. Prudent planning and budgeting are crucial.
3. Hype: Some investors are attracted to the idea of sustainable agriculture without fully understanding the complexities of vertical farming. Bold claims about reducing carbon footprints can inflate expectations and hinder acceptance of challenges faced by the industry.
4. No Farmers, No Food, No Future: The absence of experienced agronomists or farmers in leadership positions can lead to suboptimal crop performance and reduced market competitiveness. Prioritizing agronomy expertise is crucial for vertical farming success.
5. Addicted to R&D: Overprioritizing research and development can hinder operational scalability and commercial viability. Striking a balance between innovation and implementation is essential for efficient scaling and profitability.
6. Are you a technology company or a farm?: Vertical farms must strike a balance between leveraging technology and adhering to agricultural best practices. Prioritizing products, customers, branding, marketing, distribution, and operations is crucial for successful operations. Look towards Agritecture's partner network database for vetted CEA solutions worth integrating.

Where the CEA opportunities are:

While recent failures and shutdowns in CEA raise valid concerns that there will be more failures in CEA, I firmly believe that it's essential to view the situation from a broader perspective. It is important to recognize that the challenges faced by one company do not reflect the entire CEA landscape. In fact, there are significant opportunities that lie within emerging markets, legacy markets, acquisitions, government initiatives, and new startups.?

• Emerging Markets:?CEA continues to rise in the GCC and South East Asia. We are also seeing growth in Canada due to leafy green supply gaps and Australian and NZ CEA companies have been picking up pace. The Nordics, Mexico, and North Africa are also seeing a boom in CEA.?Look to new markets for some of the most exciting CEA first-mover advantages.
• Mergers and Acquisitions:?This is a great time for some investors and existing operators to pick up pre-owned equipment or entire facilities that have shut down operations. Additionally, I am getting a lot more interest from CEA companies seeking to merge or be acquired. Finally, there are lots of experienced CEA talent on the market now that can benefit operations that are ramping up growth and lacking skilled labor.?
• New Startups:?There are some very exciting new startups across the sector including 100% renewable powered 3.0 vertical farms, more sustainable inputs providers, and also other innovators like CEA controls startups that are ready to grow.?Just take a look at this startup Pure Life Carbon Inc. which has developed a "charged carbon" reusable and sustainable substrate for growers as an example.
• Legacy Markets:?From the Netherlands to Spain and Canada where some of the oldest and largest CEA markets are, growth is steady and opportunities exist for investors seeking a lower-risk bet like a legacy greenhouse.?While research gaps still exist, one report notes that "the global commercial greenhouse market size accounted for USD 34.8 billion in 2021 and is expected to hit around USD 78.9 billion by 2030, poised to grow at a compound annual growth rate (CAGR) of 9.52% from 2022 to 2030"
• Government initiatives:?Governments and policymakers around the world are increasingly prioritizing food security, realizing the importance of locally grown produce. The fundamentals of climate change and supply chain shocks continue to accelerate the shift towards indoor agriculture, driving the demand for innovative solutions from all levels of government. The right CEA placements to match government incentives can reduce some of the high capex risks that are a part of CEA.?

This is not a time to give up or write off CEA, it's a time to get smarter about CEA investing, planning, and development.?

At this critical juncture, Agritecture Consulting is at the forefront of guiding investors,?towards success in the CEA industry. Our team possesses extensive knowledge and expertise in vertical farming, greenhouse operations, and the wider CEA ecosystem. With a deep understanding of the challenges and opportunities within the field, we offer a range of consulting services to help you make informed investment decisions and maximize returns.

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Our due diligence services are designed to provide you with comprehensive insights into potential investments, market trends, and competitive analysis. We go beyond the surface to examine the viability and scalability of CEA projects, helping you mitigate risks and identify opportunities for growth. Our proven track record and network of industry experts make us your trusted partner in navigating the evolving landscape of vertical farming.

I would be delighted to discuss further how Agritecture Consulting can support your investment goals in CEA. Shoot me a message and we can set up a call so we can explore the potential synergies between your investment objectives and our expertise. I look forward to the opportunity to speak with you further and assist you in capitalizing on the exciting prospects within Controlled Environment Agriculture.

Sincerely,

Henry Gordon-Smith