Vertical farming is an emerging agricultural method that is gaining recognition worldwide, due to its numerous advantages in indoor food production. Grand View Research, Inc. stated that among all indoor farming models, the global vertical farming market is expected to exhibit the fastest CAGR (12,9%) from 2023 to 2030.

The shift towards vertical farming presents farmers with an opportunity to diminish their reliance on conventional agriculture and enhance the quality of their crops. However, implementing vertical farming technologies on a profitable scale is no easy feat. Vertical farming requires substantial initial investment, and significant ongoing costs, resulting in higher final price of products that may deter consumers.

In this article, you will learn about the key factors that contribute to establishing a profitable vertical farming venture.

This content was prepared with the help of iFarm's Finance team and R&D department.

What’s inside:

• What to pay attention to when doing a market research
• The keys of crop selection for a profitable vertical farm
• In-depth guide to the facility selection
• How automation helps business metrics
• Financial models with payback time calculated
• Free tool to create your own vertical farming business model

The foundation of the financial model for a profitable vertical farm relies on having accurate information about the local market.

It is crucial to analyze the presence of retail in the area, and assess their operations. This will aid in determining the appropriate product range and elaborating an effective sales strategy.

For example, in the UAE, retail is the main sales channel, with Carrefour, Lulu Hypermarket, and Union Co-Operative its major players (Dubai, 2020).

HoReCa is also a point to discover, as normally this distribution channel allows you to sell produce at a higher price than retail. Consumer preferences is another crucial aspect to explore. In the MENA region, consumers tend to buy processed greens, particularly in cut form rather than potted plants.

The produce cultivated in vertical farms differs significantly from greens grown in open fields or greenhouses. It is ultra-fresh, healthy, flavorful, and available year-round. This is why it is important to look at the consumption of fresh greens, and whether the domestic production satisfies the demand for them.

For example, the self-sufficiency ratio in greens in the UAE does not reach 20%, whereas the consumption of fresh salads and greens is growing significantly: In 2021, the country consumed 22.9 thousand tons of greens, which is estimated at $49.1 million.

Yield is the number one factor in the vertical farm's profitability. When choosing the crop assortment for an indoor vertical farm, you need to take into account the market demand, price of produce, if the growing system chosen is appropriate for the crops you would like to grow, and the duration of the crops growing cycle (from seed to harvest).

Despite differences between markets, spicy herbs and microgreens (such as basil, cilantro, mint, oregano, and rosemary), and leafy greens (such as chards, lettuces, kales, and spinaches) are the most popular choices to grow in hydroponic vertical farming system, and are considered as most profitable vertical farm plants.

Leafy greens and herbs have a short growing cycle. For example, for Romaine lettuce it is 12-14 days, and for spinach - 7-9 days; they are compact, and well combined. This means you will be able to take advantage of all growing space available, achieving a high crop density and combining a wide range of plants. It will enable a broader assortment, providing a market advantage in terms of product variety and availability.

Recently, iFarm has developed a crop compatibility map for a better planting layout. This is especially important for larger farms like the one to be built in Mexico, where 35 varieties of salads and greens will be grown on 38,000 square meters.

Facility type and size is a big financial factor, that is why it’s crucial to get it right. Outlined below are some recommendations for selecting an appropriate facility for a profitable vertical farm:

• The ceiling height should range between 4.5-6 meters to maximize the growing area.
• Choose sandwich panels, cellular concrete, inflatable, or any other type of building, appropriate for the climate zone.
• Ensure a reliable water supply and efficient sewer system. Note that septic systems are only allowed for small farms (under 100 square meters).
• The estimated available power needed for 1 m² of growing area is 0,1 to 0,4 kW depending on farm size and crop type.
• The land plot should be within 1 hour driving distance from the city and have convenient traffic exchange.

To gain a better understanding of the facility parameters based on the total floor area, water requirements, and energy consumption, take a look at this benchmark:

Establishing an independent infrastructure to support software and technologies like AI, ML, big data, can be extremely expensive. However, ready-to-use SaaS solutions for vertical farming are a good way to reduce costs. By opting for SaaS solutions like iFarm Growtune, you will reduce the amount of work that has to be done manually, thus lowering the end cost of each kg of produce by over 20%

The yield and payback time highly depend on the technological solution you choose for your farm. For example, a farm constructed with iFarm Leafy Greens technology yields 48 kg of fresh produce a year per square meter. At the same time, fully automated iFarm StackGrow technology provides a yield of 72 kg of produce.

As vertical farming technology continues to advance, there is an increasing demand for automation. However, it is not a one-size-fits-all solution for achieving profitability. For countries where labor costs are affordable, semi-automated rack systems like iFarm Leafy Greens are often a more practical option.

If you want your vertical farm to be profitable, the most important first step is to make sure you get the foundations right. That means finding and maintaining the right balance between three key elements – CAPEX, OPEX, and yield.

Evaluate your concepts with the iFarm vertical farming profit calculator!

You will get:

• Estimation of the cultivation area
• Power requirements
• Average daily electricity and water consumption
• Total initial investments
• Estimated monthly expenses

The vertical farming business model is always calculated individually. We take into account the consumer preferences on a particular market, crop assortment, the cost of energy, worker wages, facility size, and investments in the construction or repair of a site for a farm. Find out more about our services here.