Sep 14, 2020
As has been well-documented here at Agritecture, vertical farming has exploded over the last several years as a way of meeting the growing demand for fresh and safe produce while avoiding the pitfalls of lengthy and overly-complex supply chains.
But along the way, several exciting vertical farms have had to close their doors due to various financial challenges and growth pains (for more, see our 2017 panel on shuttered vertical farms).
Urban Crop Solutions, founded in 2014 to create a more viable vertical farming model, announced recently the release of their ModuleX Plant Factory - a “best-in-class” vertical farming system focused on helping entrepreneurs achieve profitability faster. Here, we analyze the ModuleX system in the context of the vertical farming startup journey that Agritecture has grown quite intimate with.
You can think about a vertical farm’s startup journey in four phases...
Phase 1: the “planning” stage. Here, an entrepreneur’s goal is to first gain a proper understanding of general vertical farming economics in order to understand whether they have a strong business case to proceed with, and then develop a fully fleshed out business plan.
But this is more challenging than it may sound. Because vertical farming is still such a new industry, there’s less of a clear roadmap for how to succeed as a startup business. On top of that, due to the controlled environment element, it is naturally more technology-centric than other farming methods. This translates into a much higher initial investment than a typical outdoor farm of the same size, greater complexity in the planning stage, and more overall risk.
Compounding these challenges of planning a feasible business is a lack of accessible data on operational aspects such as crop yield, energy usage, and equipment depreciation.
Urban Crop Solutions CEO, Tom Debusschere, addressed some of these challenges in the company’s launch webinar on September 9th. “We have filled our website with a lot of data, a lot of numbers,” said Debusschere. “We’re committed to being transparent because we know how important it is when you’re dealing with an upfront cost of several hundred thousand euros.”
Furthermore, qualified leads can access the company’s free feasibility calculator, and a full business plan is available for an added fee. Data from years of R&D trials is also made available by Urban Crops at this stage, with an extensive library of some 220 crops.
Phase 2: the “implementation” stage. With a strong business plan, a new vertical farm will need to finalize their site, equipment, and operating plan. Entrepreneurs may need to juggle working with multiple vendors at once, scheduling installations, traversing the local permitting procedure - all while building their actual farming team and warming up potential customers.
In creating a standardized approach, coupled with hands-on support and training, the ModuleX solves for many of these major hurdles, and Urban Crop is able to target an aggressive 6-month timeline from sale to first harvest by housing all of the manufacturing under one roof.
“We’re not slowing down at all during COVID,” said Debusschere, citing a recent client they were able to take from lead to first harvest without ever meeting the team in person. “Being able to harvest and sell your first crops within six months of choosing a solution I believe is very important for the industry.”
Phase 3: the “launch” stage. Many indoor farms start small, and for good reason, given the high upfront cost. Furthermore, many vertical farming entrepreneurs are new to the industry.
Agritecture and Autogrow found in their 2019 Global CEA Census Report that 41% of indoor farming founders had no agriculture experience prior to starting their new venture. Debusschere used an even more drastic estimate. “From the leads that we’re getting in, we see about 80% with no prior agriculture operating experience,” he cited. And even for those with past exposure, growing indoors may still be entirely new to them.
Often what a new farming business needs at this stage is the ability to be adaptable. Feedback from a farm’s initial customers will likely lead to a Plan B or Plan C in terms of crop mix. This is where Urban Crop’s library of crop recipes can be particularly valuable - not just to have a reliable understanding of performance, but also to be able to reprogram a “module” (individual grow container) to adapt to that crop’s needs through a different climate profile.
Phase 4: the “scaling” stage. Once you’ve built a successful pilot, how do you scale up to create a sustainable business?
Even for a highly focused entrepreneur, it may take 16-24 months to prove their concept, according to Agritecture’s Director of Business Development, Jeffrey Landau. This means piloting the farm’s operations and developing relationships with customers, with the goal of securing larger and longer-term offtake agreements. “Often it’s not until this point, once they have really developed these sales channels, that they are able to seek further investment to scale their operation,” says Landau. But that may also come with more challenges, such as starting the search for a new space all over again.
One of the most appealing features about the ModuleX system is its ability to scale. Urban Crop offers systems beginning at two growing modules all the way up to 64, and modules can easily be added at any point in time. This means that a commercial grower can allow their business to grow naturally into a larger physical space while avoiding the pressures that can be brought by either going too large too fast, or not moving quickly enough to capture new customers.
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With their release of the ModuleX, Urban Crop Solutions seems to be showing an acknowledgment of past mistakes and existing challenges of vertical farming operators, by focusing first and foremost on the startup journey.
At a CapEx of €1800 per m2 of growing space, Tom Debusschere and the Urban Crop team are confident that commercial growers will be enticed. But at a minimum investment of roughly €340k, will there be enough capital to fund these projects at scale? Time will tell.
You can go deeper on the ModuleX and request more info at urbancropsolutions.com.