Innovations in technology are allowing food production to become far more efficient and the practice of cultivating produce within concrete confines is heading mainstream–from abandoned buildings to the rooftops of grocery stores, modern farms are changing form. This trend, rather than fading, is upping in scale and these farms are out to compete with their country cousins.
AeroFarms, based in New York state, is growing a wide array of salad greens, from chervil to arugula, with neither soil nor sun. According to their data, leafy greens is an $8 billion dollar market and there’s potential for higher value products like herbs and edible flowers. However, they consider themselves a tech company rather than farmers, due to their growing system which they call “aeroponics.” They plant leafy greens in a cloth bed and irrigate with a nutrient-infused mist. LED lamps provide light and can be set to emit wavelengths that work as pest control. Their grow time is half that of traditional farms, and the product is harvested in 16 days.
Using modules, produce can be can be grown year round in old or vacant urban buildings. These “warehouse” farms save money in transportation and the produce has a short trip to stores and restaurants, which means it has a longer shelf life. And the technology allows growers to use 90% less water and 50% less fertilizer, making it a far more efficient than traditional farming. (In the U.S., agriculture accounts for 87% of fresh water use.)
To disintermediate the distribution process, they are planning to embed a farm within a food distributor in New Jersey. They claim this model is scalable and capital efficient, and they plan to partner with more local distributors as well as launch farms for restaurants. Currently, they say they are receiving about 20 enquiries per week to build new farms.
In 2010, Aerofarms received seed funding from 21Ventures and The Quercus Trust. They’ve taken an angel investment and are pursuing strategic investment from companies in the lighting industry and large farmers in the United States. Currently the technology is being used in Seattle, Chicago, New York, New Jersey and Dubai. For their business model, they receive a service fee and a share of the profits.
They’ve earned a few high profile awards, winning Red Herring’s North America 100 award in 2010 and in 2012, they won the startup competition at the Wall Street Journal ECO-nomics Conference.
Another innovative urban agriculture business, BrightFarms, a hydroponic grower, has backing from Clean Feet Investors, NGEN Partners and Emil Capital Partners. They contract directly with supermarkets in building urban greenhouses that can supply fresh, local produce year round.
The BrightFarms greenhouses, built at or near their partnering supermarkets, eliminate time, distance and cost from the produce supply chain. In early research, they had learned that supermarkets want produce grown specifically for them, as the current supply chain is subpar, however, most grocery stores can’t finance large CAPEX projects and build farms.
They believe they found the solution by locating greenhouses on the roofs of grocery stores. This way, energy lost from the refrigeration or food preparation areas of the stores can be harnessed by the greenhouses and used to power the hydroponic operation that in turn stocks their produce aisles. Since the hydroponic system doesn’t need soil, the farms are lightweight and perfect for rooftops.
They offer veggies that are a week younger than those typically on shelves and sell them at a comparable price. So far, the company works with produce varieties that are currently subject to long and complex supply chains, and two of the biggest opportunities are lettuces and tomatoes, according to BrightFarms CEO Paul Lightfoot. Lettuces in supermarkets are nearly 100% from California or Arizona and tomatoes are largely from Mexico and Canada, he says.
“Supermarket tomatoes often taste bad and go bad quickly,” Lightfoot says. “It’s an easy sell for us – we harvest the produce when it’s ripe and deliver it to the supermarket that same day. When we demonstrate the produce that we are selling, it’s an ‘aha’ moment for them.”
For their business model, they sign a long-term fixed price contract guaranteeing volumes of revenue with large regional and national supermarket chains. This Produce Purchase Agreement (PPA) is then used to attract project financing to construct greenhouse farms on behalf of clients. Clean Feet Investors provided BrightFarms with a $3M project equity facility in April; which is believed to be the first institutional project finance capital for a company focused on commercial urban agriculture.
Their first project in Bucks County, Pennsylvania cost $2 million to build and now yields 500,000 pounds of produce per year.
In 2012, they announced a greenhouse project that would span 100,000 square feet of rooftop in Sunset Park, Brooklyn. It will be the largest rooftop farm in the United States, and possibly the world. It’s estimated that the farm will capture 1.8 million gallons of storm water, thereby reducing run-off into local rivers. They are also planning a 100,000 square feet hydroponic greenhouse in downtown Kansas City. Prior to this, BrightFarms has partnered with Best Yet Market chain in New York as well as McCaffrey’s Market in Bucks County, Pennsylvania.
Jim McCaffrey, CEO of McCaffrey Markets, is certainly pleased.
It’s a win-win situation for us and for our customers,” he says. “The most popular buzz word in the food industry today is ‘local’, and you certainly can’t get any more local than having a greenhouse right in your backyard. As one of my customers put it, this produce is so fresh it tastes like it is still growing.”
Partners and customers are pleased, and so are investors, Lightfoot says.
“We are achieving a lot of success in the marketplace,” he says. “For a startup to be able to validate a disruptive business model with a better product is probably one of the most exciting things that can happen to an investor.”
And as far as VC interest in agricultural startups as a whole, Lightfoot sees this as part of a broader national trend.
“The entire country is becoming more focused on eating in a way that involves healthier and more sustainable choices, and I can’t imagine that movement is going to run out of steam until my kids are adults. Very large trends create a lot of opportunity.”
CB Insights says that Ag Tech investment from venture capitalists and angel investors topped $100 million in the last year – a sum that’s competitive with the numbers brought in by more typical areas of investor interest, like transportation tech.
Shari Young, senior consultant in private equity for institutional investment consultant Hewitt EnnisKnupp, told CleanTechIQ of her client’s interest in Ag Tech this summer. “The area we find most interesting is agriculture,” she said. “We’ve seen a number of traditional venture funds that think outside the box and are doing food-related deals. Agriculture takes a lot of expertise in biology and technology and there is a lot of innovation going on there.”