Vertical Farming: Unearthing the Promise and Challenges of Agricultural Innovation

Written by: Brakeley Bryant

July 27, 2023

Oren Harari once said, “the electric light did not come from the continuous improvement of candles, ” a sentiment often heralded by innovators and echoed in innovation theory itself with Schumpeter's key concept of creative destruction.

Over the past decade, vertical farming has been touted as just such a disruptor in agriculture. More crops, longer shelf life, no pesticides, fewer bacteria, less land, 99% less water, climate independent. These benefits sound like a magic fix to a litany of sustainability challenges, particularly as China, U.S. and Europe are currently sweltering in heat, staple crops suffer, and the number of mouths to feed globally rises. Plus, to be fair, it looks pretty cool.

However, as of late 2021 it appears the innovation, and the high-tech controlled environment agriculture sector as a whole, have hit what Gartner refers to as a “trough of disillusionment”. Layoffs soared, files for bankruptcy rolled in, with vertical farm after vertical farm unable to reap the returns they thought possible from greens and vine crops.

While the idea of creative destruction and disruptive innovation is a compelling concept, it is not a guarantee that change will always happen rapidly, or that established practices will be quickly replaced, as vertical farming entrepreneurs and investors are quickly finding out. 

The pace of creative destruction can vary depending on various factors (e.g., market readiness, regulatory environments, technological complexity, and the willingness of industries to embrace change) and conventional agriculture has gotten a 12,000-year head start on the learning curve. 

The Emergence of Vertical Farming

In June 2023, a journalist and an investor sat down and loosely calculated that “Indoor farms like the one {the investor} had supported would require every megawatt of America’s current renewable energy production to grow just 5 percent of America’s tomato crop." 

So how did indoor farms widely become considered agriculture's superman in the past decade?

Dickson Despommier is considered the modern father of vertical farming, propelling the concept to what it modernly resembles with 9 of his classes while he was a professor at Columbia University. In the late 1990s, they pitched a 30-story urban farm skyscraper that would be able to feed 50,000 individuals.

It represented a big solution to climate change, growing population, and urbanization. Yet, if one steps back and considers the vertical farming technology in the context of agriculture’s history, an obvious question comes to mind: Did Dickson Despommier and his classes assign vertical farming too big of a task?

12,000 years ago, humanity traded the nomadic ways of hunting and gathering for the revolutionary practice of agriculture. The ability to control our food supply gave rise to surplus production, enabling specialization, trade, and the blossoming of diverse cultures. Agriculture spurred the development of our societies. 

Since this shift, the practice of vertical farming has surfaced only a few times in the pages of history, from the hanging Gardens of Babylon and the Aztec’s “Chinampas” to the minimally documented vertical farming that occurred in Armenia sometime before 1951.

Despite its technological appeal, the heavy dependence on energy resources for artificial lighting and climate control, as popularized in the 2010s, raises concerns about economic viability. Innovation in agriculture has historically been slow, with factors like thin profit margins, resistance to change, and policy uncertainty playing a role. While vertical farming is aesthetically and technologically innovative, the cost-effectiveness compared to conventional or traditional farming methods using sunlight remains a challenge. 

As renewable energy transitions and cost curves continue to evolve, the viability of the vertical farming sector is still uncertain. Examining the necessary conditions and parameters for its establishment raises questions about whether it will ever fully match Despommier's ambitious concept.

Multi-Level Perspective and Vertical Farming

Agricultural innovation differs from innovation in other sectors due to the complexity of biological systems, long production cycles, and close ties to the environment and climate. Overcoming these challenges requires considering socio-economic factors, food safety, and regulatory frameworks while leveraging technology to ensure sustainable and efficient food production for a growing population.

With so many factors at play, the multi-level perspective theory helps to understand the dynamics of how this niche innovation interacts with the existing socio-technical regime of conventional farming and the broader societal landscape. The theory highlights the potential of vertical farming as a disruptive force that can transform the agricultural sector, while also acknowledging the barriers and complexities involved in its widespread adoption. By recognizing the multi-level interactions, policymakers, industry players, and researchers can better navigate the transition to more sustainable and efficient food production systems.

The framework has been used before in the context of vertical farming, as can be seen above. The socio-technical landscape in the context of vertical farming comprises “Climate change/ Increase of oil price / Risk of natural disasters / Renewable energy landscape.” These landscape developments are highly influential on agriculture in most geographic contexts, and have opened up opportunities in the sociotechnical regime (i.e, Market, user preferences, Industry, Policy, Technology, Science and Culture) for niche innovations (e.g., vertical farming). 

Despommier’s concept prescribed vertical farming to landscape challenges and overlooked the integral consideration of what parameters were needed in the agricultural regime for the innovation to fully establish itself. 

Strategically aligning vertical farming offerings with consumer preferences ensures effective demand fulfillment, while diversifying revenue sources through initiatives like farm tours and workshops engages the community and generates additional income. Embracing the convergence of technology, agriculture, and the food system enables advanced automation systems for efficient production, optimizing resource usage, and clarifying vertical farming's position within the broader agricultural landscape enhances stakeholders' understanding of its value proposition. Engaging in ongoing dialogue with policymakers, staying informed about agricultural policies, investing in research and development, educating stakeholders, and fostering collaborations with research institutions all contribute to the success and acceptance of vertical farming practices

Trialing Creative VF Business Models 

While some innovations will topple existing regimes easily, others need time to establish the viability of their unit economics and trial different business model combinations. In the agri-food system context, considering smaller business models for vertical farms can offer advantages over assuming it will wholly replace conventional agriculture. Smaller-scale vertical farms can be more agile and adaptable, allowing them to respond quickly to local market demands and efficiently cater to niche markets. They can complement rather than replace conventional agriculture by supplying fresh produce to urban areas with limited access to farmland and reducing the carbon footprint associated with long-distance transportation.

To enhance financial stability and adaptability, vertical farms can diversify their revenue sources through various strategies. Direct-to-consumer sales enable farms to sell their produce directly to customers, cutting out intermediaries and establishing direct relationships with consumers. Restaurant and chef partnerships can create consistent demand for the farm's produce, while CSA programs secure a predictable income by offering subscriptions for regular produce deliveries to subscribers. Additionally, offering value-added products like prepared meals, juices, or packaged salads can add value to the produce and expand market opportunities.

Education and farm tours provide experiences and knowledge about vertical farming, attracting additional revenue by engaging the community. Collaborating with research institutions for R&D partnerships and licensing innovative technologies can generate revenue from intellectual property. B2B sales allow vertical farms to sell their produce to retailers, grocery stores, or wholesalers, broadening their market reach. Contracts with local institutions, such as schools and hospitals, for the supply of fresh produce can provide stable revenue and contribute to community health initiatives.

Lastly, vertical farming equipment sales can involve selling or licensing proprietary technologies to other farms or agricultural companies, creating an additional revenue stream. By leveraging these revenue diversification strategies, vertical farms can enhance their overall financial resilience and contribute to a more sustainable and diverse agricultural landscape.

Although vertical farming holds great promise as a disruptive innovation in agriculture, it faces challenges in establishing itself as a widespread solution. The concept of creative destruction and disruptive innovation may not guarantee rapid and complete replacement of conventional agriculture. Factors such as market readiness, regulatory environments, and industry willingness to embrace change influence the pace of transformation. Vertical farming has the potential to revolutionize food production with its numerous benefits, but its economic viability compared to traditional farming using sunlight remains a challenge. Embracing smaller business models and diversifying revenue sources through direct-to-consumer sales, partnerships, and innovative approaches can help enhance financial stability and adaptability. By understanding the dynamics through the multi-level perspective theory and continuously innovating, vertical farming can pave the way for a more sustainable and efficient food production system for the future.