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...And Why The CEA Is Boiling Hot

"Disruption" is a much maligned and overused word these days. Building an app that sends self-deleting text messages is not disruption in my opinion. Neither is finding yet another way of redistributing mobile ad revenues. On the other hand, growing food indoors, stacked vertically with LED lighting as a substitute for sunlight; using 95% less water; without soil, fertilizers or pesticides; in a completely controlled environment where you can collect data on all the micro-environmental elements in play and then using big data to tweak those elements to obtain varying nutrient and flavour profiles... now that's disruption.

Which brings us to CEA or Controlled Environment Agriculture. It is a combination of engineering and horticultural techniques used to optimize crop yield, quality and efficiency, typically done in an enclosed space such as a greenhouse or building [1]. More recently, CEA has been used interchangably and somewhat loosely with terms like vertical farming, urban farming or urban agriculture.

Greenhouses, while never intended as a replacement for traditional farms, have been around for several hundred years with people wanting to have more control over what they grow and decrease the impact of seasonality on crop availability. It wasn't until the 1990s, however, that people started becoming aware of a major flaw in the trajectory conventional agriculture was taking. Dickson Despommier, a pioneer in the field of vertical farming, has been making the case very strongly for over ten years for why the world's current argicultural practices are no longer sustainable. Of the many excellent points he has been making, three stand out as the starkest warnings to where we are headed:

  1. Agricultural runoff - waste water from farms that is typically full of residue from pesticides and herbicides as well as other waste - is one of the largest pollutants of oceans. The runoff from the farms makes its way to the nearest water-body, which makes its way to rivers which eventually coalesce into the ocean. This has a devastating effect on marine life creating several "dead-zones".

  2. All the current farm land in the world occupies an aggregate area the size of South America. This is the farm land required to feed 7 billion people.

  3. By 2050, the world will have close to 10 billion people and additional farm land the size of Brazil will be required to feed the entire population. That amount of land is simply not available given increasing urbanization and industrialization.

So where does that leave us? According to Prof. Despommier, the only option is to appropriate urban spaces to cultivate food. While there have been many fantastical designs proposed for vertical farms including skyscrapers built on top of lakes solely dedicated to farming equipped with helical trenches to carry water, a much simpler alternative is to start with disused urban spaces such as old warehouses to grow food.

The warehouses are fully insulated and high end HVAC systems are installed to give accurate and reliable control over temperature and humidity. The warehouse is then fitted with vertical stacks to hold plants and each row has it's own array of LED lights to enable photorespiration and photosynthesis. Plants are grown in a mineral solution without soil. The composition and application of the nurient solution varies depending on the type of technology being used - hydroponic, aquaponic or aeroponic [2]. Since there is no active growing medium, fertilizers, herbicides or pesticides are never used.

All the environmental metrics described above such as temeprature, humidity, nutrient solution composition, light frequency and wavelength and several other can be captured with a very robust sampling frequency and stored in a (big) database. Those factors can then be massaged and tweaked to obtain the highest efficiency, yield and quality from the crops - something that is almost untinkable in conventional farming. With this amount of control, vertical farms have produced 100 times the yield per square foot of regular farms in some cases.

From a finance point-of-view, this is a relatively new asset class despite the years of research that have gone into it. LED prices, while still on the high side, are falling. Having a robust HVAC system comes with a steep price-tag as well. The good news is, investors have started waking up to how exciting a prospect CEA is and are already thinking of innovative ways of financing farms. LED and HVAC manufacturers are financing farms that use their products - mimicing the solar energy industry. Already there is talk of a CEA-as-a-service business model to help farm operators achieve scale and diversification.

There is great scope for growth and adoption of vertical farming worldwide, especially so in locations which face extreme weather conditions for many months in the year, usually making fresh produce either unavilable for that time or heavily increasing their reliance on food imports. Parts of Canada, Alaska, Northern Europe with unfavourable winters; as well as the middle-east and large parts of Africa with unfavourable summers are prime examples. CEA adoption can significantly decrease the countries' carbon footprint by cutting food-miles and perhaps even herald a decrease in animal farming due to the year-round availability of fresh produce. Make no mistake, as far as vertical farming is concerned, the only direction the industry can go is upwards.




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