Why vertical farming is such an innovative business model
An analysis of innovation in the ag-tech (sustainable agricultural technology) industry
What is innovation?
As per Schumpeter (Austrian political economist) et al. (2017), innovation is the practical implementation of ideas that result in introducing new goods or services or improvement in offering goods or services, where more effective products, processes, services, technologies, or business models often provide a meaningful impact in a market or society.
The role of vertical farming
As the planet continues to spiral into an environmental crisis and with a growing demographic, society must rely on innovation to provide safer, healthier, more sustainable and more affordable ways to produce and distribute food across the world.
Plenty is one of several ag-tech (sustainable agricultural technology) vertical in-door farming startups based in San Francisco. Its mission is to improve the lives of plants, people, and the planet by tackling these environmental and demographic issues. It aspires to build farms to feed parts of the world that currently have to import crops because of climate and suboptimal local growing conditions, significantly impacting more impoverished areas worldwide.
The vertical farming concept has been around for over two decades; however, it has gained momentum in recent years, with many companies worldwide adopting the business model. This relatively recent type of business model is a transformational innovation. Why? Because it has wholly revolutionised the way crops can be grown and can completely transform the farming industry. Compared to the traditional flat farming business, vertical farms take up less physical space and are more sustainable, as they consume less energy and fewer resources (water).
Crops are less costly to produce and therefore more affordable to the end consumer. The business model could be operated anywhere globally as the farms are indoors and do not rely on soil or weather conditions to produce goods. In other words, it is an entirely new offering from the conventional way of growing crops.
The benefits of innovation
Innovation can bring many benefits to a company. It enables companies to problem solve and provides them with creative insight. Continual improvement allows the company to stay ahead of the competition by finding new ways to be more efficient. In Plenty’s case, it produces less waste and provides customers with easy access to products they love at affordable prices.
The benefits to its operations
It has allowed Plenty to improve its productivity with its AI operated farms. They can reduce costs with fewer human workers as they use robots to care for their crops, and because the farms are located near the end consumer, they also have fewer distribution expenses. Innovation provides them with the upper hand in relation to the traditional flat farming method, as they do not need to rely on soil or weather conditions to grow their produce.
The benefits to partnerships
They have the opportunity to form new partnerships and relationships with their direct competitors to exchange data and help each other improve. They also have partnerships with other companies that provide them with the technologies they need to run their operations. For example, Moleaer provides an irrigation system of nanobubbles that provides oxygen to the plants’ roots through chemical-free water.
The benefits to the consumer
They gain more brand recognition and value as consumers appreciate and support their mission of fighting climate change and world hunger. Due to their proximity to the end-consumer, they have fewer production costs, which allow them more profit while still offering their consumers food at affordable prices.
The importance of innovation
Businesses that fail to innovate run the risk of losing market share to competitors, falling productivity and efficiency, losing key staff, reduced margins and profit and going out of business. For a modern business, not innovating is the most significant risk, therefore becoming a basic need.
Challenges for innovation in vertical farming
There are several considerations a company must take into account before attempting to be profitable and monetise its innovations. The company needs to know who the target customer is, what customer problems or challenges the business solves, and its value. They need to understand how they will reach, acquire, and keep customers, define and differentiate their offering, generate revenue, define the cost structure, and know their profit margin (Trott, 2017a, p.413).
Energy-saving and lack of natural light in cities
There are some innovation challenges that Plenty, and the vertical farming industry in general, must face. Even though this business model has many positive characteristics such as increased efficiency, energy-saving is still a challenge. The plants grow inside a building and must be provided with sufficient amounts of energy to grow, and artificial light is the primary source of energy within the building for density and exposure.
Artificial lighting is often provided by LEDs and comparable to greenhouse farming; nevertheless, it is an extra cost that needs to be considered. The lack of natural light in cities makes it impractical to use solar panels for providing energy due to the shade of other buildings.
Managing heat and water consumption
Another innovation challenge they face involves the heat produced from the lighting devices, which can disrupt or interfere with the air conditioning system. There are also high energy costs to control and monitor the humidity and air conditioning, which are crucial requirements for healthy plant growth indoors and require lifting the equipment that provides resources to the plants.
Even though vertical farming requires less water usage than traditional farming, there is still a challenge to save water consumption. There are exceptionally high loads to be transported to higher floors, and water supply needed to manage the building’s sewage system. Unfortunately, agricultural run-off is another reality with which they have to deal with, with the wastage of heat and greywater build-up.
Consumer misconception of lab-grown plants
Another challenge that the vertical farming industry might face is that, because the indoor vertical environment may resemble a laboratory setting, consumers may get the impression that genetic engineering is taking place or that the products are not natural. This is precisely the opposite, as the farms provide healthy crop growth and are void of any pollutants or pesticides that are not possible outdoors. Others may be perturbed by the soil-less production technique and prefer to buy natural soil-based crops.
Large initial investments
There is an economic challenge for innovation regarding the equipment needed to deliver nutrients to the plants, which significantly raises costs due to it being a complex robotic system. All this equipment plus the high real-estate prices within cities, especially the bigger ones, adds the need for massive investments, as opposed to traditional flat farming. It might also be challenging to find appropriate buildings within a city to grow a vertical farm.
Challenges of spreading into other markets across the world
Since vertical farms can be grown anywhere in the world because they are in-doors, Plenty has an innovation challenge regarding extending their business model into other markets. They have an opportunity to expand their business to more remote locations where the weather and soil conditions do not allow for growing crops. With this come many challenges, such as the lack of established markets, which is not necessarily a lack of demand in the case of food.
However, an un-established market often requires considerable financial resources. It may be very well possible that these new markets lack the infrastructure necessary to harbour a vertical farm. The company would have to build them from scratch or find other innovative ways to adapt to the new location. Finding adequate employees, highly qualified and skilled scientists, engineers and other workers to run the operations in such remote areas is another creative challenge.
Growing a wider variety of fruits and vegetables
Plenty, like many other vertical farming companies, grows primarily leafy greens, with the exception of strawberries. They can grow pretty much anything; however, the challenge is cost and getting the produce down from, for instance, $40 per pound to $1. This will most likely be Plenty’s most significant innovation challenge in years to come to be able to pursue their mission of feeding the world.
Environmental and social impacts of vertical farming
Innovation can have a significant impact on an industry’s macro-environment and is considered “one of the best practices to achieve economic growth as well as overcome socio-economic challenges”, along with also significantly contributing to the success and growth of a business. The innovation in vertical farming has and will have many social and environmental implications and a significant impact on how society produces food for years to come.
The advancements and innovations made in the agriculture industry in the past decade have been massive and have had and will have a substantial social impact. Since vertical farming is location agnostic, meaning they can grow in any climate since they are indoors, do not rely on soil and do not require nearly as much flat land, these farms can pretty much grow anywhere in the world. They will be able to meet the demands of a growing world population and provide the opportunity to feed people in areas where traditional flat farming is not viable.
Plenty’s vertical farms produce food close to the consumer with higher nutritional fresh content at lower costs. Vertical farming’s innovative business model will provide new job opportunities in multiple sectors and save local governments money through building maintenance, vandalism prevention, dumping, and labour-intensive upkeep, not to mention the positive impact on local diets.
The environmental implications of vertical farming innovations are probably the ones with the most impact. Plenty uses a significantly reduced amount of water with vertical farming, less than 5%, than traditional farming. The sensor system ensures each plant gets exactly the right amount of purified water it needs. Any excess water is recycled through a closed-loop irrigation system resulting in significantly reduced water consumption and zero waste.
Vertical farming consists of very dense, highly resource-efficient farms that use a fraction of the energy needed for field-grown crops. Sunlight is replaced with full-spectrum LED lights from all sides, which are synced with the crop’s growth. Unlike the industrial food system, which ships food from one part of the world to the other, Plenty produces locally, growing their farms close to where the crops are consumed, allowing them to cut shipping costs, fuel use and carbon exhaust. All the production is done inside or right next to where the food is needed.
Compared to outdoor farming
Vertical farming allows for a reduction in fossil fuel usage, contrary to outdoor agriculture, which is mainly linked to fossil fuels for operations such as soil ploughing, sowing, fertilisation and harvesting. Plenty has the ability to pick up their organic waste and turn it into compost to feed other farms in the city, making it a closed-loop arrangement. These farms provide protection from natural disease as they are in a closed environment with artificially intelligent systems monitoring the crops.
Vertical farms can lower sound reflection as their soil, vegetation and confined air act as sound insulators. The indoor sound can be reduced up to 60 decibels and absorb the noises produced by traffic, planes and machinery. Vertical farms take up less space, therefore, reducing the need to destroy biodiversity with the cutting down of forests to build farmland.
Innovation and competitive advantage
Innovation has become more critical than ever in our highly globalised world today. Not only has it become the main challenge for all types of organisations, but it is also the key driver of long-term business success. It is no longer necessarily about economies of scale or scope, about who
can produce cheaper, but about who can be more innovative, making innovation crucial for a company. It can bring benefits such as faster market penetration and a better connection to developing markets, leading to more significant opportunities, especially in rich countries. It can help develop original concepts, leading to ideas that produce efficiency and significantly affect society for the better.
Managing innovation within the organisation
Companies need to learn how to adopt innovative strategies and make innovation replicable without being too costly while also resolving a particular need. They must learn how to manage innovation and assign innovation management responsibilities to transformational leaders who will drive the company’s strategic vision (Midgley, 2009, pp.191–222). They need to include the end customer in their product development process to create products, services and business models based on real user needs (Trott, 2017b, pp.544–570).
Making the world a better place
Organisations need to make sure that their innovations positively impact society and the environment to be socially accountable to themselves, their stakeholders, and the general public. In Plenty’s case, with its vertical farming business model, the benefits outweigh the risks or negative implications. This transformational business model will completely change the way food is produced in the future. Before, food could only be produced if there was viable land to grow it; now, with vertical farming, food can be produced anywhere and for everyone in a completely sustainable way. This is a massive breakthrough.
Disclaimer: This analysis is an adaptation of my MBA academic report done in April 2021 for the module “Innovation and Product Development”.
Offline book references
Midgley, D. (2009). The innovation manual : integrated strategies and practice tools for bringing value innovation to the market. Chichester: John Wiley, p.87.
Schumpeter, J.A., Opie, R. and Elliott, J.E. (2017). The theory of economic development : an inquiry into profits, capital, credit, interest, and the business cycle. Abingdon, Oxfordshire ; New York, Ny: Routledge.
Trott, P. (2017a). Innovation management and new product development. 6th ed. Harlow, England: Pearson, p.413.
Trott, P. (2017b). Innovation management and new product development. 6th ed. Harlow, England: Pearson.