The controlled-environment agriculture (CEA) industry continues to face headwinds — including the shuttering of major indoor grower AeroFarms this week — but the sector is hopeful that a more hybrid business model could spur growth in the new year, as a panel of experts shared during an Indoor Agtech digital broadcast series, hosted by AgTechNavigator earlier this month.
A hybrid model — where various growing methods are used — is being touted as a solution that provides more flexibility over using one type of farming, allowing growers to meet the demands of the season and consumer, the panel shared.
Mishkat Agritech Farms uses both greenhouses and vertical farms in Saudi Arabia to grow various foods, like lettuce and tomatoes, the company’s CEO, Sherif Hosny, shared.
“We like to have the flexibility to be able to grow crops out of season when it’s really impossible to grow them in the greenhouse, but we’re also happy to have alternatives. In the glass house, we can grow crops like cherry tomatoes, which can also be grown in the vertical farm, technically. ... [Hybrid] gives us flexibility on the types of products that we can grow and also on the seasonality,” Hosny elaborated.
While a hybrid model offers more flexibility, growers must pay close attention to the unit economics and ensure that a specific growing method can produce the right food at the right price, Henry Gordon-Smith, founder and CEO at consulting firm Agritecture, explained.
“When we think about controlled-environment agriculture, every piece of control costs more money and has a different result,” Gordon-Smith said.
He added, “Responsible design, from a hybrid perspective, is saying, ‘Okay, what can we grow with certain types of CEA systems that the market will pay for that make sense to those climate or labor conditions?’ So, if I have low labor costs, I may want to consider some field production as a part of it.”
For instance, the Homegrown Innovation Challenge in Canada is demonstrating the potential of how blended models of food production can lead to year-round berry production, he explained.
“Some of the [Homegrown Innovation Challenge] teams have really challenged that assumption and explored the idea of growing some parts of berry production outdoors and some indoors in more control systems, and some even in very high-tech vertical farming control systems,” Gordon-Smith elaborated.
He added, “They are very intelligently accepting the fact that sometimes the outdoor climate is the best climate in certain types of the year, and other parts of the year, it’s actually better to have that control and spend that money on it.”
Does a hybrid model muddy a company’s value prop?
Adopting a hybrid growing model comes with business risks and potential opportunities, depending on where a company is in its lifecycle, the panel shared.
First and foremost, a CEA company should be clear on its value proposition, and whether it is a technology or food brand company, Hosny explained. This helps the start-up find the right capital partners, since technology providers and food brands garner different valuations and require different metrics, Hosny went on to say.
“If you’re a technology provider, that’s fine. Then, of course, you should be focused on one type of technology. ... If you intend on becoming a brand, then you should really focus on what brands focus on, which is the end consumer. And end consumers, they do not really care about how you grow your product,” Hosny said.
However, CEA brands should think about a hybrid model — and modular farming — as a way to nimbly meet the needs of its customers, whether they are retailers or the end consumers, Marc Oshima, CEO of Babylon Micro-Farms and co-founder of AeroFarms, explained.
The hybrid model can provide great control over sourcing and “have more presence in more doors, and be able then to work more efficiently with the major national retailers as well,” Oshima added.
Additionally, an established CEA company can expand its market opportunities by leveraging a hybrid model, Gordon-Smith pointed out.
“I would not want to start a business where we have five different ways of growing, but long-term to ignore those other four ways of growing after the first one is a business mistake,” Gordon-Smith emphasized.
