Energy costs spell 'lights off' for vertical farms
Side view with diminishing perspective of stacked indoor growth benefiting from hydroponic technology system, including LED lighting.
Vertical farms, an indoor cropping idea which attracted hundreds of millions in venture capital investment, are reportedly falling on hard times.
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And their difficulties may be a telling clue for market analysts trying to explain why fruit and veg supplies ran out in some supermarkets recently.
There are fears for the future of vertical farming, which is cropping in vertically stacked layers, partly relying on artificial lighting. It was hoped to reduce deforestation and pollution caused by agriculture, and to help urban areas be more self-sufficient. Instead, there are widespread layoffs and shutdowns in the sector mainly due to rising energy costs.
InFarm, a vertical farming company based in Berlin with worldwide locations, has laid off over half the workforce (around 500 employees), citing the doubling of energy prices in Europe, inflation, supply chain disruptions, and rising material costs, as the reasons for a re-organisation.
Meanwhile, Agricool, another firm based in France, has been sold for a fraction of its huge previous valuation. Like many similar businesses, electricity was always its biggest cost item, even before prices rose.
Glowfarms in the Netherlands closed after two and a half years, mainly due to rising energy prices, and Future Crops was registered as bankrupt in January.
In the USA, high-profile vertical farm casualties include Fifth Season, which supplied more than 1,200 stores. AppHarvest has warned of “substantial doubt about our ability to continue as a going concern”, having reported net losses of $83 million in the first nine months of 2022. AeroFarms reported 2021 losses of $39 million.
Higher energy costs have also hurt the more traditional greenhouse farmers who grow a large percentage globally of crops such as tomatoes.
In the Netherlands, greenhouse production is estimated to be down from 800 hectares to 100 due to the very high energy costs. That hits the supply of fruit and veg across Europe. Many delayed their planting rather than grow crops through the cold months, and must wait until May for harvests.
Belgium, France, the UK, and Germany also have large greenhouse acreages, but many growers suspended winter production because of the hugely increased costs of heating and lighting.
The Lea Valley Growers Association members normally produce an estimated 75% of the UK's cucumbers and peppers, but half of the 80 members cut back vegetable planting significantly last year rather than risk financial losses.
The NFU has predicted salad UK crop will fall to the lowest levels since records began in 1985. This is attributed to production costs rising as much as 50% since 2019, outpacing price rises from retailers and food manufacturers. Shortage of workers is another problem for UK growers.
Even more pivotal in the EU market is the supply from the Almería province in the south of Spain, a huge area of plastic greenhouses (said to be visible from space) estimated to supply 40% of Spain’s fruit and vegetable exports.
But the cost of greenhouse tomato production rose by 34% due to the EU energy crisis, according to the ASAJA-Almeria growers organisation. They were also hit by restrictions on the use of water for irrigation.
That brought their production cost to €21,000 per hectare, of which labour accounts for 40%, fertiliser 13%, and plant protection 11%, according to ASAJA-Almeria.
Like the vertical farming sector, many in the EU greenhouse industry fear for its future unless energy prices stay at normal levels. Prices have fallen back to the levels of a year ago, but are still about 10% higher than 2019 and 2020 prices.
Like all farmers, they also have to contend with unpredictable weather, often the difference between profit and loss. European farmers dealt with hot weather last summer and autumn, which took a toll on fruit setting, and a January freeze which hit greenhouse yields.
Even Morocco, an increasingly important supply source for the EU and UK, was hit by cold temperatures, heavy rain, flooding, and cancelled ferries.
With growers' costs increasing, the obvious outcome is higher prices in the shops. Instead, many supermarkets persisted with slashed fruit and veg prices, to compete for customers.
"There are chains that don't understand the situation and the rise in prices and prefer to have empty shelves", said Mariano Zapata in Spain, president of Proexport, which markets about a million tons of fruits and vegetables. He said many supermarket chains paid a few cents more in recognition of farmers' increased costs, but others didn't - especially in the UK - which helps to explain some of the empty shelves.
Growers in Ireland too have been squeezed out by rising costs leaving profit margins inadequate. IFA President Tim Cullinan last week said potato growers are the latest to be affected by this trend.
“We are facing an exodus similar to the vegetable sector if action is not taken urgently,” he said. “Commercial potato farming is simply not viable this year with land rental, fertiliser, fuel and storage costs. Many potato farmers will be forced out of business unless the packers and retailers are willing to increase returns to their farmer suppliers.”
