State of Indoor Farming

2016
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There are many unknowns and misconceptions about the indoor farming market. We wanted to provide detailed insight into what indoor growers are doing, what they’re challenged by, and how they see the indoor farming industry changing over the next few years. So, we teamed up with Cornell University, Urban Ag News, foodshed.io, the Association for Vertical Farming, and FarmersWeb to survey growers from around the world, receiving over 150 responses. Data from the survey is supplemented by research conducted by our team and others (as linked). The results are below.

The Landscape

Responses came from growers around the world, including the United States, Canada, the Caribbean, Slovakia, Taiwan, Bahrain, Dubai, Tunisia, Finland, Belgium, China, and Japan.

Indoor vertical farms and hydroponic greenhouses were the most prominent primary facility type of survey respondents. Small farms primarily consisted of indoor vertical farms while larger farms primarily consisted of hydroponic greenhouses.

Timeline of farm openings

Any crop can be grown indoors. The more common crops grown indoors are greens, microgreens and herbs, vine crops, cannabis, some fruits, and flowers or nursery crops. Survey respondents also reported growing tubers, mushrooms, insects, hops, algae, and commodity crops (corn and wheat).

A selection of crops grown indoors

Survey respondents are growing greens, microgreens, and cannabis in greenhouses, vertical farms, and container farms, while they are growing vine crops and flowers predominantly in greenhouses.

Crops grown by facility

For the most part, indoor farmers believe that the products they’ve chosen to grow are the most profitable and they plan to continue growing those crops in the future. Cannabis and microgreens top the list of crops growers believe are most profitable to grow.

Though many growers agree that cannabis is the most profitable crop, most do not plan to grow it in the next five years.

Grower expectation of crop profitability

When asked about annual production and revenue capacity, cannabis topped the list of highest revenue generating crops at about $112 per square foot or about $4,800,000 per acre. Greens were the next highest revenue generating crop at $64 per square foot or about $2,800,000 per acre. The lowest revenue generating crops reported were strawberries at about $22 per square foot or $1,000,000 per acre.

Average revenue by crop

Production & Operations

One of the reasons indoor farming is gaining significant traction in the United States is the ability to produce more while using less resources. According to the United States Department of Agriculture’s (UDSA) July projection for the 2016 - 2017 growing year, corn prices range from $3.10 - $3.70 per bushel and farms are producing an average of 168 bushels per acre; conventional lettuce and tomatoes are between 23 and 25x more productive at about $12,000 and $13,000 per acre respectively. In comparison, on a revenue basis alone, indoor horticulture is about 4,000x more productive than conventional outdoor commodity farming; indoor cannabis is about 9,000x more productive.

Farm productivity

The higher revenues realized by indoor farming are driven by three factors: (a) year round production capability, (b) higher yield, and (c) higher retail pricing.

Year Round Production

Percentage of indoor farmers who grow year round

In a given year, assuming there are no weather-related incidents, outdoor conventional lettuce farmers will be able to harvest their entire farm 4–5 times. In comparison, indoor farmers will be able to harvest their entire farm an average of 18 times in a given year.

Harvest cycles per year

Yield

According to the USDA, the average yield for outdoor conventional lettuce production in 2015 was about 30,000 pounds per acre. Indoor greens growers reported growing an average of 340,000 pounds per acre annually. The 11x increase in yield over conventionally grown lettuce is partially due to faster growth times and additional crop turns. After removing the benefit from cyclical advantages, the increase due to indoor productivity alone is 2.8x.

Annual production capacity of indoor crops vs outdoor crops

Higher Retail Prices

According to the USDA, the average price per pound of conventionally grown head lettuce was $0.29 in 2015. In the same year, the price of leaf lettuce was $0.58, the price of romaine lettuce was $0.39, and the price of tomatoes for the fresh market was $0.46 per pound.

In comparison, indoor greens growers reported revenues of $6.00 per pound and indoor vine crops growers reported revenues of $1.13 per pound. Even compared to the highest priced conventional lettuce crops, indoor greens farmers are seeing 10x increases in pricing and indoor tomato growers are seeing 2.5x increases in pricing.

Annual reported revenue by crop

Organic Certification And Local Production

Half of survey respondents reported growing organically though only 8% of growers answered that they were certified as USDA Organic. When asked if growers who weren’t certified wanted to achieve the certification, 47% of growers indicated interest in the certification.

Organic Production Snapshot

Operating Costs

When asked about their biggest challenges, growers reported managing operating costs as the most difficult - their highest priorities were both reducing and predicting/stabilizing operating costs.

Top ranked operational challenges

Labor is one of the most costly components of indoor farming operations. Large farms reported employing an average of 24 full time and 12 part time employees. Small farms reported an average of two full time and two part time employees.

Labor Snapshot

On average, data collection and analysis account for about 9% of a farm workforce’s weekly labor hours and 27% of respondents spend 20 or more hours per week on data collection and analysis.

Time spent by farmers collecting and analyzing data

Cannabis growers, whether small or large, spend the most time working with data (about 30 hours per week on average). Large cannabis growers also have the largest reported workforce, and growers of greens and microgreens/herbs have the smallest, comparatively.

Average weekly total labor hours and hours spent collecting and analyzing data by crop

Technology

A climate control system is one of the most critical pieces of technology for an indoor farm. This system comprises of sensors (typically recording light, temperature, humidity, CO2) and some level of control for HVAC and lighting equipment.

Selected manufacturers of climate control systems

Of those surveyed, 54% of farms have climate controls systems and 74% of those systems are connected to the internet. There are a handful of leaders in the climate controls market, including Priva, Argus, Link4, Hortimax, and Hoogendoorn; 45% of respondents have one of these systems. Of respondents, 29% have a custom system, ranging from HVAC systems on timers to proprietary sensor and controls systems developed in partnership with universities.

On average, growers have an annual budget of $12 per square foot to invest in technology for both increasing plant yields and managing operations more efficiently. Growers have an annual budget of $15 per square foot to invest in technology to improve crop quality.

Annual technology budget for production priorities

Topping a list of new technologies of interest to farmers, 39% of growers are interested in purchasing a farm management system in the next year; 28% of growers are interested in purchasing post-harvest automation systems, 28% are interested in purchasing LED lighting, and 27% are interested in purchasing climate control systems. The lowest priority item listed was organic nutrients. (Note that respondents could select more than one item.)

Technology and farm improvements intended to be implemented in the next year

Farm management systems help growers cut down on the time spent collecting and analyzing data as well as the cost of hiring a growing consultant. Of the 38% of respondents who reported hiring a growing consultant, about half spend between $5,000 to $20,000 in a given year on such consulting.

Percentage of farmers who hired a growing consultant and annual cost

With farm management systems, growers have access to data and insights into their operations, and they see the value in such analytics. Of those surveyed, 90% of growers believe they can increase crop yields with data analytics.

Percentage of farmers who believe they can increase crop yields with data analytics

When asked to rank the operational processes on which data would have the largest impact, growers ranked crop quality and energy/climate control first. Impact is defined here as cutting costs and/or increasing yields.

Top ranked processes where data would have the highest impact

Growers recognize the amount they could save with both hardware and software upgrades. Small vertical indoor farms report large savings expectations — on average, microgreen/herb farmers reported possible software savings of $71 per square foot. Larger farms show a range of $0.05 up to $7.00 in savings per square foot with software and hardware improvements. Cannabis growers estimate the largest benefit from technology improvements. As yield efficiency increases, so does the impact of technological improvements.

Annual potential savings due to better technology

Market & Future

The vast majority of growers, 86% of survey respondents, are planning to expand their facilities in the next five years and they’re planning on growing significantly. The minimum planned expansion is 4.7x larger than current farm size.

Do you think you will expand your facility and/or add a new facility in the next five years?

Small farms have big plans — farms less than 1,500 square feet have a planned minimum expansion of 179x the sum of their current square footage. For large farms, the minimum planned expansion is 2.7x the sum of current square footage.

Market Expansion: the next five years

Based on current reported revenue and the expected expansion area, these farms will add to the market between $336 million and $610 million in revenue in the next five years. From all existing indoor farms then, this means a market expansion of between $3.7 billion and $6.8 billion during the same period.

Based on current reported revenue and expected expansion area, reporting cannabis growers will add between $102 million and $153 million in expansion revenue to the market in the next five years.

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We would like to thank the following people for their input and contributions to this report: Chris Higgins, Urban Ag News, Henry Gordon-Smith, Kerstin Schreiber, Andrew Blume, the Association for Vertical Farming, Aaron Grosbard, David Ross, FarmersWeb, Dr. Neil Mattson, Wylie Goodman, Cornell University, Thomas Hallaran, Laura Seach, Foodshed.io, Paul Brentlinger, CropKing, Jason Green, Edenworks, Daniel Christensen, Strata Farms, Thanos Papanikolaou, Phos Gourmet, Nick Burton, Paris Victory Gardens, James Brady, Con10u2farm L3C, Rich Andrews, Nuetech, Jessica Vaughan, Jacobs Farm Del Cabo, Inc., Carlos Williams, StudioDBC, Meghan Keane Graham, Brick Wall Media, Shanrah Wakefield, Jordan Koschei, and Karen Krieb.