That the planet is going through difficult times is nothing new. That is why we are going to need innovation in all sectors to survive. This is where vertical farming comes into the picture. This is a way of growing fresh food in vertically stacked trays without soil inside, which according to one research consultancy could grow 25% a year on average to reach $32.000 billion by 2030. And if we want to harvest some of those benefits in our investment in shares, this is what we need to know...
Why is vertical farming booming?
Population growth
According to World Resources Institute, food production will have to grow by 69% between now and 2035 to feed the growing population and expanding middle class. Vertical farms produce more food than traditional farms, because elements like light, water, climate, and nutrients are optimized for plants to grow year-round at a much faster rate.
Global population growth. Source: Michigan State University
Lack of water
The United Nations estimates that the world supply of water will be 40% lower than demand by the end of the decade. Much of this is due to agriculture, which is the thirstiest user of our precious water reserves: 70% of the world's fresh water goes to agriculture. Vertical farming uses up to 90% less water than traditional farms because the same water can be recycled over and over again. Global water availability. Source: un.org
Loss of arable land
Over the last 40 years, we have lost a third of our arable land, that is, land capable of growing crops. This is due to soil erosion and pollution. Vertical farms use less than one percent of the land of a field farm, as plants are stacked on top of each other in high-rise built environments. And because vertical farms are closed-loop systems, there is no runoff of agricultural chemicals into the environment, a major cause of cropland loss and water pollution, among others.
Global soil quality graph. Source: World Soil Resources
Social conscience易
Consumers are increasingly concerned about sustainability and chemicals in their food. According to one analysis, a whopping 70% of fresh produce sold in the US had pesticide residues even after being washed. Because indoor vertical farms are completely isolated from the outside environment, there are virtually no pests and no pesticides or herbicides are needed. In fact, plants can grow in such clean conditions that they do not need to be washed before eating.
Climate Change️
The frequency of extreme weather events, such as droughts and floods, has increased five-fold in the last 50 years. These phenomena can have major negative effects on crop and harvest performance. But food produced in vertical farms is grown year-round in an indoor environment immune to climatic and seasonal changes.
Supply chain risks
About 14% of the world's food is lost during transportation, and this is only getting worse as people move from rural to urban areas. These problems have been highlighted in the last two years, when pandemic supply disruptions, unreliable harvests and the outbreak of war caused global food prices to reach an all-time high in March. Furthermore, the Conflict between Russia and Ukraine and the impact on the supply of crops and vegetable oil increased the interest of governments in food security. Vertical farms are built directly in cities, drastically reducing transportation time and costs for the end consumer. In this way, the food security of a country is improved.
All year we have seen how supply chain shutdowns have affected stock investing. Source: Antelo.
Emissions of greenhouse gases
Food production accounts for about a quarter of the world's greenhouse gas emissions. Vertical farming reduces emissions caused by cultivating fields, harvesting and transporting the final product, since it is not necessary to plow or harvest the fields, or transport products over long distances.
Agricultural food production contributes to the climate crisis. Source: La Via Campesina.
It all sounds great, but is there anything wrong with all this?樂
The truth is that yes... Vertical farms require a large initial investment and large energy consumption bills associated with powering equipment such as grow lights, water pumps, heaters, sensors, humidifiers, etc. Vertical farming could certainly help solve several of the world's most pressing problems, but at what cost? Are consumers really willing to pay several times more for a package of vegetables grown on a vertical farm compared to one grown on a traditional farm? So for vertical farming to meet its lofty aspirations, it will have to become much cheaper, or it will have to capture some of the subsidies given to traditional farmers, on the basis that it has much lower environmental costs.
Any stock investment opportunities?
At the moment there are not many investment opportunities in stocks related to vertical farming, at least for now. This makes investing in stocks within this sector difficult. For example, the American company Aerofarms has one of the best-known vertical farms in the world, and counts companies like Whole Foods and Amazon Fresh as clients. This company only had a turnover of a couple of million dollars last year. Of course, according to the company's own projections, they expect to earn more than $500 million by 2026 and be profitable the year before. His projections have to be taken with a grain of salt, but it would be an impressive feat if he achieves them.
Aero Farms Growth Expectation. Source: Seeking Alpha
The company was in the process of going public by merging with a special purpose acquisition company (SPAC) in a $1.200 billion deal, but canceled the deal last October for unspecified reasons. Still, it's worth keeping the company on your radar in case it makes another attempt to go public. Other high-profile vertical farming companies worth keeping on your radar (in case they ever go public) are Bowery Farming, Plenty, Crop Top One, To the street, Infarm y Agricool.
Is there any alternative to invest in shares in this sector?類
There is another alternative way to make a stock investment in the vertical farming sector, such as investing in companies that manufacture and sell grow lights, climate control devices, water pumps, irrigation tools, etc. In this case we invest in companies that provide the necessary tools for an industry to produce a final product, rather than in companies that offer the final product itself. That could be a less risky way to invest in the industry until it is proven that it can be sustainably profitable. The two best companies to make a stock investment of this type are hydro farm (HYFM) and Scott's Miracle Gro (SMG). The former is a pure-play company, while Scotts Miracle-Gro also sells consumer lawn and garden products. Still, the part of its business focused on hydroponics (the name of the growing method used in vertical farms) has seen its sales grow more than tenfold from 2016 to 2021, and now represents 30% of the company's total sales. the company.