What to Know Before Starting Vertical Farming Business
What to Know Before Starting Vertical Farming Business
iFarm vertical salad farms pay off initial investment in 4−6 years. At the same time, each farm is unique. What tools can be used to quickly understand vertical farming business plan and value vertical farming business ideas?
The vertical farming business model is always calculated individually. The following indicators are taken into account:
Information about the local sales market (consumer preferences, price and format of product — potted or cut plants)
The cost of energy
Worker wages in the region
Investments in the construction or repair of a site for a vertical farm.
The influence of the local market for greens and choice of crops on the economic efficiency of a vertical farm
At iFarm, we study local markets for salad greens to understand at what price salads and herbs are sold.
First of all, the population in the city where farm-grown products will be sold matters (the more people, the greater the demand and variety of greens). Are there any large retail chains in this city? Restaurant chains? This information will help to determine the assortment and format for the farm. You can order market research reports, and we can build you a financial model based on the information obtained.
For instance, in some places it is more profitable to grow dill and coriander in pots, while in others it is best to grow five or six of the most popular salad greens such as kale, basil, arugula, spinach, or lettuce. However, in certain regions there are local preferences. All this affects the payback period of your investment in the farm. If a pot of basil is sold in stores at a price of more than 2 euros, then the production of this crop will be profitable for the farm.
To understand the farming company profitability, a comprehensive financial simulation should be built. We can perform such calculations for our clients, taking into account all the peculiarities of working in their region. For example, if the market price of greens in the region is low, it is often more profitable to grow and sell products in pots, rather than cut greens.
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When we research local markets for our customers, we pay attention to the labels: who produces greens there?
Is it imported (from where?) or grown in a local greenhouse? If the city is surrounded by greenhouses, then part of the year their products will compete with your farm — and this must be taken into account. Of course, products from vertical farms using iFarm technologies are very different from greens grown in the open ground or greenhouse complexes. They are ultra-fresh and delicious. They grow all year round without any interruption. Since they are grown indoors, they are not treated with any pesticides. It is also advantageous to grow a diverse assortment of crops on vertical farms (unlike greenhouses, where only the most popular crops are grown horizontally).
For the convenience of our customers, we have developed an online calculator. It makes a simplified calculation of your farm’s financial model based on a preset assortment of seven crops. If you want to get a detailed and accurate calculation for an individualized assortment of crops that are in demand in your region, you should contact our specialists. We will also calculate the different ratios of sales channels in HoReCa and retail. In our financial model we take into account different prices and packaging formats.
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The impact of the cost of electricity on the economics of a vertical farm
The high-tech equipment used in vertical farms requires a lot of electricity. Energy cost is an important factor that affects the payback period of a facility. We recommend choosing a site with the cheapest possible electricity. Another option is to build a farm in a special economic zone with preferential conditions. Each country has its own programs to support farmers. We recommend studying them. Use our online calculator for calculating costs independently.
How to reduce payroll costs on a vertical farm
Employee compensation can significantly affect the economics of vertical farms when it is very high or very low. Where salaries are high, the burden on the farm’s finances will also be significant. This is true despite the fact that iFarm farms do not require highly qualified specialists, since all the necessary knowledge for growing plants is available in the iFarm Growtune software platform. In cases of high labor costs, the selling price of greens should be above average so that the payback period of the farm remains within 4−6 years.
To reduce the cost of the payroll, you can use iFarm StackGrow, iFarm’s fully automated salad farm technology. This is a new generation of vertical farms where sowing seeds, moving trays between units, and harvesting are done without the use of human labor. StackGrow-enabled farms are economically practical in countries with high wages.
How many people are needed to operate a vertical farm?
A facility with a growing area of 700 m2 takes about 7 people to run. The positions are farm manager, senior farm technician (who can also act as a manager), three farm technicians (sowing, growing and harvesting, cleaning the premises), an accountant and a packer. Using the calculator on our website, you can adjust the value of the average salary and see how this will affect the economics of the farm. You can use this tool to plan your expenses.
Building size and investments in the construction effect on startup cost for vertical farming
The building that houses a vertical farm should have a high ceiling (at least 4 meters). The high ceiling makes it possible to get the maximum profit per square meter of floor space due to the vertical arrangement of tiers on the shelves. The height of the room also affects the cost of investment in equipment (primarily in climate control). You should pay attention to the presence of internal structures (for example, columns, narrow spans) and other features that may complicate the design of the floorplan.
You can see how the growing area and production capacity change with the reduction in the number of columns in the room. In the same size building, if there are frequently placed columns, the growing area is 2,719 m2, while more spaced-out ones it’s 3,030 m2. This additional growing area will increase the yield by 14.5 tons per year!
To understand the suitability of the building or plot of land you have selected for building a vertical farm, and to know exactly the area of cultivation, you can order a pre-installation workup from iFarm, which will break down equipment needs and offer a planning solution. Based on this, you will be able to calculate benchmarks for investing in construction and installation, and create a business plan for a vertical farming startup.
Are you interested in setting up a vertical farm?
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Contact us to order a consultation, conduct market research, calculate a financial model, develop the concept of your farm, and make a well-considered decision about setting up a vertical farm!