Tempted to start planning an indoor farming startup? Maybe you’re already working on such a project, or have recently launched the first phase of your operation. There are a few things you might want to know about the current climate in the indoor agriculture industry. These tips and insights from the world of ag finance, if not useful in your foreseeable future, are downright interesting.
Thinking of getting into indoor farming with a small facility and growing it into a mega farm? That’s a really difficult mountain to climb, according to AgFunder News. Unless you’re already a billionaire, you will need funding and a lot of it. Bankrolling indoor farms isn’t something banks see as a good risk, so a standard business loan is pretty much out of the question. Investment capital is also very difficult to get, because those people, just like banks, have a hard time seeing past the potential loss.
This funding environment isn’t just what indoor farmers in the US face. Survey numbers show that 25% of indoor farming businesses in 8 countries report access to growth capital as a huge hurdle. That comes from a survey of 150 indoor farms, the findings of which were just published in the annual State of Indoor Farming Report by Agrilyst. However, 81% of those farms are in the US and 12% are in Canada, while only 7% in other countries. Surprisingly, no cannabis farms were included in this survey, it’s all about food and flower crops.
Don’t think you need your indoor farm inside a city. Urban farming and indoor farming are not synonymous, though vertical farms in renovated buildings do put your harvest in a hyper-local market. Still, most indoor farms grow in greenhouses located in close proximity to large cities or shipping hubs. The only place the majority elects growing in a solid walled structure is in the US Midwest, and 50% of high-tech indoor farms operate in a shipping container. But the Midwest has long winters, lower temperatures, and less sunshine than the rest of the USA.
While only 31% of indoor farmers surveyed have mega-farms, they all rely on advanced technologies. High-tech indoor farming is far more profitable than traditional low-tech setups, with hydroponics being the most profitable of all. Aeroponic and aquaponic growers have lower profitability. Methods set aside, good profits only come from having total control of the crop and growing environment. And no matter where you set up an indoor farm, your biggest expense is labor. Vertical farming is the most labor-intensive of all – per square foot of growing space.
While many people see indoor farming as novel or newfangled, the industry is actually maturing. And as it does so, it becomes critical to profits and business success to gain total control of your crop(s). Flying by the seat of your pants is fine for pathfinders and adventurers, but today’s indoor farms need to incorporate automation technologies and specialize in growing, not system development.
In the past, indoor farming startups from small to large have developed their own ‘proprietary’ systems, materials, and inputs. Pick one, and put everything you’ve got into it, says Pieter De Smedt, US manager for Urban Crop Solutions. In a recent piece titled, Grower or Tech Company? Indoor Farmers Must Make Up Their Minds, he explains why that approach work is no longer wise.
Smedt makes a lot of sense because indoor agriculture isn’t an adventure anymore. Even the USDA recognizes it as serious business. Take a clue from soil-based farmers. You won’t find any of them wasting time building a proprietary tractor. They leave that to the specialists at John Deere and New Holland. They’re far too involved in coaxing profit out of their fields. Why? Because a farmer who ignores the business side of things will soon fail.
There’s more to indoor farming than sow, grow, reap, and repeat. While you can grow food without a college degree, being successful at it requires knowledge. Because knowledge is power, it can draw the line between being a profitable indoor farmer, and one who lost his shirt.
But what you need to know isn’t hard to access. Successful indoor farming business, says Chris Powers, involves a lot more than growing knowledge. You have to combine it with sales and marketing expertise and experience in operating indoor farms and harvest distribution. Some of this means spending some time working at an existing indoor farm, but also taking advantage of online educational platforms.
One example from Powers’ list is Upstart University, that began at Bright Agrotech, makers of the vertical farming ZipGrow towers. A wealth of knowledge, some of which is free or accessed for a small fee. Do I hear groans of disgust? If you plan on diving into indoor farming armed with only free information, don’t bother. How far would you get in a free car? The best knowledge is never free. Yet, if accessed from the right place, knowledge is both affordable and worth its weight in gold.