In our recent report, Growing Beyond the Hype: Controlled Environment Agriculture, we shared our prediction that the United States CEA market will grow 5x over the next 10 years, leading to ripple effects across the food system and more sustainable methods of production. We believe that the maturation of the CEA industry will lead to differentiated, quality products, cost-competitive pricing and a more resilient, traceable and trustworthy supply chain.
We see an exciting future for CEA but are also cognizant of the operational and adoption barriers that the sector must overcome in order to achieve profitability and expand market share. While CEA companies continue to make headlines for their impressive growth plans and public market debuts (see: AppHarvest and Aerofarms’ recent SPAC activity at billion-dollar valuations), skeptics have cited significant facility, product, and labor costs as deterrents to achieving meaningful scale of CEA production. However, there are a number of technological developments that are emerging or maturing to address these obstacles with the promise of driving market expansion, increased CEA facility profitability, and resource efficiency.
In this CEA technology primer we will explore a sample of these innovations and their potential to both de-risk CEA production and commercial adoption as well as transform food production.
Addressing Labor Shortages
The agriculture industry is reckoning with an increasing labor shortage for U.S. farms due in part to an aging workforce. The median farmer age has increased by nearly 10 years in the past seven decades, and according to the 2017 Census of Agriculture, as of 2017 over half of all U.S. farmers are 55 or older. This means that a sizeable portion of horticultural knowledge is expected to retire in the next 10 – 15 years. This trend is driving production out of the field and into greenhouse or indoor farms, which deploy less labor-intensive growing processes. However, this transition comes at a price. Labor cost constitutes roughly 49% of the total operating costs for a hydroponic farm and 56% of total operating costs for a vertical farm, according to an Agrilyst survey. The culmination of these labor challenges presents an opportunity for efficiency-driving disruption in CEA facilities.
Automation and Robotics
Automation, in the form of both hardware and software, can drive reductions in labor costs and increase consistency of CEA facility management. Hardware systems, such as robots, can automate labor-intensive tasks such as vine crop harvesting while simultaneously gathering insights that can be analyzed by a connected software system on the back-end. Automation can also improve labor efficiency by systematizing decision-making processes that were previously left to human discernment. For example, automated greenhouse or indoor farm equipment can perform rapid and consistent calculations based on visual and physical data to signal optimal environments, appropriate crop inputs, and harvest time. In effect, this sort of technology takes the costly guesswork out of farming.
Automation solutions for early stage and post-harvest operations are already well established and include automatic seeders and transplanters as well as sorting, grading, and packaging equipment. Crop maintenance and harvesting activities are ripe for more automated solutions, particularly for fruiting crops due to the delicate nature of those varieties and their susceptibility to bruising.
The goal of automation in indoor farming is not to entirely eradicate the need for human labor in the seed – to – shelf operation. Rather, it is a means to drive scalability, consistency, and transparency of operations while freeing up skilled labor for other roles in the growing process such as agronomy, product development, or systems engineering.
Beyond process automation, there are a number of emerging technologies on the market focused on data collection in CEA facilities. Computer vision devices and sensors can be paired with advanced AI/ML software to predict crop outcomes and drive agronomic decision-making. Sensors can collect millions of data points on nutrients, carbon dioxide, light levels, and plant stressors, feeding them into proprietary software programs to interpret growing data and recommend tasks. These systems often create a positive feedback loop, getting smarter with each growing cycle and thus gaining a deeper understanding of the conditions and inputs each type of crop needs to thrive. Given the relatively emerging nature of high-tech controlled environment farming, data collection tools empower newer growers with less extensive agronomic experience to make insights-driven decisions to improve crop performance.
Beyond growing advice, these data collection tools can generate meaningful savings for CEA operators. Due to outdated industry practices, such as manual data collection, greenhouse facilities suffer from yield inconsistencies and poor visibility. As a result, growers experience 10 - 20% crop loss and a significantly reduced profit margin. By incorporating data collection systems throughout the growing process, operators can minimize food waste and maximize the financial and environmental sustainability of their facilities.
Reducing Energy Use
Indoor agriculture is expected to be one of the main sources of electricity consumption in the next decade, alongside electric vehicles, data centers, and the electrification of heat, according to Schneider Electric. There are many crucial, yet energy intensive, technical systems operating simultaneously in a controlled environment facility which drive up electricity use and costs. While the lighting systems in indoor farms enable 24/7/365 production, they come with quite a price tag – lighting can account for about half of an operation’s energy use, according to an American Council for an Energy Efficient Economy report.
Fortunately, despite the sticker shock of CEA energy costs, there are emerging opportunities for energy savings. Light-emitting diode (LED) technology is making inroads, particularly in vertical farms as they offer attractive energy and operational savings as well as a considerable level of precision and personalization. The US Department of Energy estimates that lighting in CEA facilities consumed 5.9 terawatt-hours of electricity in 2017. A complete shift to LED would reduce this consumption to 3.6 TWh, accounting for energy savings of 40% according to the American Council for an Energy Efficient Economy. Right now LED technologies provide 28% efficiency but The Markets Institute at World Wildlife Fund notes that experimental developments have been able to increase that number to as much as 68% efficiency which would drastically cut energy costs.
There are also promising advances being made in methods of delivering shorter pulses of light that can still maintain the same output yet cut energy use. Emerging alternatives to LED, such as Ceramic Metal Halide (CMH) bulbs, also known as LEC (light emitting ceramic), are increasingly being used in CEA due to their high-efficiency, low-energy consumption, ability to imitate sunlight, and the limited heat they give off. These bulbs are an evolution of Metallic Halide and High-intensity Discharge models which generate electricity by passing an electric arc through a mix of gasses.
Emerging Energy Opportunities
Though still in earlier stages of development, a number of companies are developing energy systems for CEA that either rely entirely on solar energy or use solar energy to provide supplemental power. The use of renewable energy to fuel indoor farming is a topical consideration given recent power grid outages that swept the country during winter storms earlier in 2021 as well as ongoing declines in cost per kilowatt hour of renewable energy.
There are also a number of opportunities for improving HVAC efficiency including high-efficiency variable speed rooftops, chilled-water systems, integrated systems to provide advanced cooling and dehumidification, and high-efficiency free standing ductless dehumidification units. Some farms are even experimenting with co-locating CEA facilities next to stranded or underutilized buildings to take advantage of excess heat and energy.
Designing Customized Inputs
One of the current limitations of CEA is that the seeds being used in most CEA operations were developed for field production. Outdoor plants are bred for qualities that are necessary for outdoor environments such as drought, flood, and insect resistance - qualities that are mostly extraneous for CEA systems. Alternatively, breeding seeds for CEA requires a focus on an entirely different set of traits such as rapid growth, performance in low light environments, and manipulation of plant stature. This misalignment between seed supply and CEA growing and supply chain environments means that CEA plant growth may be sub-optimized now, but there is an opportunity for further product optimization in the near future.
Recognizing this market opportunity, germplasm technologists are hard at work to rapidly breed seed varietals that are better suited for CEA environments. Beyond the traits listed above, novel CEA seeds can be bred for traits such as flavor and nutrient density. In effect, CEA farmers can develop produce that is not only healthier for consumers but also tastes more appetizing. In effect, expansion of the CEA market and germplasm developments have the potential to expose consumers to more varied, more appealing, and higher quality products.
CEA market expansion can support customized grow recipes as IP, local production of specialty ingredients, and eventually inputs for food as medicine. Beyond all of these benefits, seeds designed for CEA could also help bring down costs of the operation by breeding for uniform and early fruiting, rapid biomass capability, photo-induced quality traits, and conduciveness to automated harvesting.
LED lighting can be used to create a specific light formula for each plant delivering the precise intensity, range and frequency to not only optimize for photosynthesis and plant growth but also achieve desired traits for each crop. For example, leafy greens prefer light towards the blue end of the spectrum, whereas fruiting and flowering crops do better along the red light spectrum.
In order to replicate an outdoor growing environment, CEA grow recipes must also encompass other natural weather dimensions such as air flow and precipitation. Successful deployment of several simultaneous processes to light the grow rooms, regulate temperature and airflow, and apply proper irrigation is a delicate balance in harmonizing biology and technology. The payoff, though, is that well-developed grow recipes can replicate outdoor conditions while also eliminating the crop damage caused by the natural disasters, extreme weather, and environmental stressors that are becoming increasingly prevalent and continue to threaten outdoor farming.
The 2019 farming season is a case in point. 2019 was considered by many as the worst agricultural planting season on record, given heavy rainfall, flooding, and other adverse weather events. According to the USDA, these disruptions resulted in the prevention of 19.4 million acres of crops being planted across the country which triggered rippling first and second order impacts for farmers and consumers. While creating a totally controlled environment for indoor farming comes with upfront costs, the long-term benefit in avoidance of unexpected natural disruptions seems clear.
Investing in a New Food Frontier
There is an incredible opportunity for collaboration between CEA operators, seed breeders, smart lighting manufacturers, and process automation technologists to develop a new generation of farming. Plants can be bred to maximize genetic plasticity then grown in a way that maximizes positive outputs like yield and product consistency while reducing energy and labor inefficiencies.
Investment in CEA start-ups has grown significantly over the past 5 years to finance these technological advancements. North American and European CEA companies raised over $1 billion in 2020 alone, reflecting a 10x increase in total annual investment dollars compared to 2015, as reported by Pitchbook data. Greenhouses and vertical farms have also benefited from the overall maturation of the food and ag sector, where total public market investment is catching up with that of venture capital and early stage investors. As a result, companies like AppHarvest have been able to raise meaningful amounts of capital to fund long-term facility expansion efforts that will move the needle on CEA market share.
In the next few years we expect to see increased investment in and emergence of innovative technologies that continue to scale production, drive resource efficiency and cost savings, and bring a wider array of cost-competitive CEA products to market.