Growing up: how Vertical Farming works / Sesame Insights

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To face an increasing food demand combined with a shortage of arable lands and a will to preserve the environment, companies turn towards an alternative to the traditional open field agriculture: vertical farming.

Indoor agriculture implies that every natural factor influencing plant growth (such as lighting, temperature, or watering) must be artificially recreated. It also means that farmers can monitor all these factors to optimize plant growth and increase crop yield: this is Controlled-Environment Agriculture (CEA).

We can note that mushrooms have been grown indoors with a controlled environment for hundreds of years, just as plants have been grown in greenhouses. Vertical farming takes those examples further by introducing multiple crop layers to maximize yield, improved irrigation and climate control equipment, as well as powerful artificial lighting.

Most farms use hydroponics, a method of cultivation in water. Seeds are placed in an inert material (such as stone-wool, sand or gravel) and irrigated with a water-based solution containing nutrients (nitrogen, phosphorus, calcium, etc.). The “nutrient mix” can be adapted to match each crop specific requirements, maximizing plant growth.

After water is administrated, it is sent back to the main reservoir, creating a closed loop that reduces water consumption by more than 90% compared to traditional farming. There are four main hydroponic watering techniques adapted to various plant needs.

? Ebb and flood system. Also called “flood and drain”, this method consists in flooding the trays with nutrient-filled water for several minutes, then draining it. It mimics plants’ natural water intake, encouraging them to absorb nutrients and oxygen. It is mainly used to grow microgreens.

? Nutrient Film Technique (NFT). A small amount of water runs continuously through narrow troughs, creating a thin film. Plants are suspended over, usually in net pots, and bath in the solution several times daily. It allows the bottom of the roots to be watered while the top of the roots remains dry and absorbs oxygen. This method is efficient to grow baby leaves, greens, or fruits like strawberries.

? Deep Water Culture (DWC). This time, roots are completely and continuously soaked in water. Plants are put in net pots and set on floating rafts made of polystyrene. Because the roots are submerged, oxygen is added directly into the water by moving it at high speed to aerate and mix it, and by putting air stones in the water tank. Salads grow well in this environment.

? Drip irrigation. With this method, you can deliver small amounts of nutrients directly over the roots in a targeted way, which makes it useful to water large and diverse crops such as tomatoes and peppers.

Alternatives to hydroponics

Hydroponics is a common growing technique in vertical farms, because it is easy to install and maintain, but other derived methods are gaining in popularity.

Aquaponics is a combination of aquaculture (fish farming) and hydroponics. It incorporates aquatic organisms in the water reservoir and creates a small ecosystem: as plants grow, they filter the fish water; in turn, fish waste serves as a fertilizer for the plants, limiting the need for an outside supply of nutrients. It is more complex to manage because of fish care, but these farms can harvest edible fish in addition to the crops.

Aeroponics was first motivated by NASA’s will to find a way of growing plants in space. Plant roots are placed in air chambers in which nutrient-rich water is misted. It is a sustainable technique because it uses much less water than hydroponics. Moreover, bare roots can be inspected easily. Plants are however highly susceptible to variations in pH levels, temperature and lighting, because roots are directly exposed without any material acting as a buffer.

How to invest and should you invest

At the moment, there are only limited options to invest in companies active in vertical farming. Some of the names we have seen emerge over the past quarters are AppHarvest (ticker: APPH US) and Kalera (ticker: KAL NO), but we have refrained from including them into our Actively Managed Certificates, as their business model still looks flimsy.

Founded in 2017, AppHarvest is a US-based developer and operator of advanced, large-scale greenhouses. It decided to go public through a merger with a SPAC (Novum) in 2020 to raise $475mn in funding, for a valuation that hovered around $1bn.

The company is focused on building large-scale controlled environment agriculture facilities in Central Appalachia with the goal of providing quality domestic supply of fresh fruits and vegetables to the U.S. population. AppHarvest plans to initially grow two varieties of tomatoes at the Morehead facility (Kentucky) opened in October 2020 - tomatoes on the vine and beefsteak tomatoes - and potentially expand to other tomato varieties and other vegetables such as cucumbers and leafy greens in the future at other facilities by 2025. We stayed on the sideline for now as (i) the company barely completed its first growing season and still lacks learning cycles to understand how viable its operations are, and (ii) it only relies on a single facility for all of its operations.

AppHarvest’s first controlled environment agriculture facility has a hybrid lighting system that features a combination of natural sunlight, Philips GreenPower LEDs and high-pressure sodium lighting. AppHarvest’s growers are aided in their work by climate and greenhouse operations software designed by high-tech company Priva. This allows AppHarvest’s growers to carefully monitor microclimates inside the farm and calculate the precise levels of light, water and carbon dioxide that each plant needs to thrive. It also allows for exact dosing of nutrients as well as temperature and humidity control.