Is Vertical Farming the Investment of the Future?

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As the global population inches closer and closer to the 8-billion-people mark, the amount of sustenance needed to keep everyone fed continues increasing — placing stress on every aspect of our food system in the process. Farming of fresh produce in particular faces difficulties in scaling up production to meet our growing demand, largely due to the need for more space in which to grow crops. The primary way farmers have responded has been to gradually adopt more efficient equipment for planting and harvesting crops, but the way we farm the land itself has largely remained unchanged. However, a new type of farming is currently knocking on the barn door: Vertical farming is catching the eyes of farmers and investors alike.

With its less expensive and more sustainable methods, vertical farming may soon see more widespread utilization thanks to some of its key benefits. Not only can vertical farming reduce costs associated with production (and pass those savings along to consumers), but drought-affected regions across the globe may also be better able to grow just as much produce with a fraction of the water traditional crops require.

Curious to find out how this concept could change commerce, our climate — and the investing world? Join us for a look into vertical farming and the ways it may be an investment worth seeding.

What Is Vertical Farming?

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Vertical farming is exactly what it sounds like — plus a whole lot more. Farmers plant crops on surfaces that are stacked vertically, rather than spreading farther and farther out via the horizontal horticulture we’ve been used to for centuries. Because farmers can extend vertical layers up into the air, they can utilize more of their farmland for more vertical layers — and grow more on a much smaller footprint of ground. Vertical farming allows growers to plant far more crops on the acreage they already own because they can expand upward and no longer need to expand outward.

It’s a similar principle to apartment complexes. By building up, a much larger population can live on the same plot of land that might otherwise fit just a few families in sprawling houses. And, buildings and apartment complexes in metropolitan areas can even use vertical farming to grow produce, allowing people to shop locally and decrease their carbon footprint.

Some vertical farms are built outdoors where crops are traditionally grown. Other farmers construct buildings, like warehouses and greenhouses, or use shipping containers to house the crops. Using these structures and appropriate lighting equipment, farmers have the ability to grow crops year-round while limiting pest intrusion and damage from poor environmental conditions or natural disasters. Vertical farming can also allow growers to operate in areas that traditionally don’t make ideal farmland.

Vertical Farming and the Climate

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As mentioned, vertical farming holds the potential to combat climate change. When formerly farmed land is allowed to return to its natural state — a process called rewilding — that land’s typical ecosystems, including native plantlife, can regrow and better regulate the environment. 

Additionally, traditional farming strains water resources and is responsible for emitting nearly a quarter of the world’s greenhouse gases. But vertical farming uses between 70% and 95% less water than traditional agriculture uses for cultivation. Vertical farmers employ hydroponic systems to water their crops, and these designs use much less water because they recirculate it. The hydroponic systems create their own unique ecosystem that recycles the water supply and opens farmers’ options to growing practically any crop any time of the year thanks to the constant water supply. According to Harvard Business School, vertical farming’s “technology can yield as much as 350 times more produce in a given area as conventional farms, with 1% of the water.”

Vertical farming can limit agricultural contributions to climate change in other ways, too. According to the Center for Biological Diversity, “The U.S. transportation sector is responsible for about a third of our country’s climate-damaging emissions.” Part of that transportation involves shipping fresh produce from farms to cities, often from one side of the country to the other. Additionally, the United Nations reports that, by 2050, 68% of the world’s population is expected to live in urban areas, meaning more people living farther away from traditional farms — and more greenhouse gas-emitting freight trucks on the road to get fresh produce to grocery stores.

Vertical farms could present yet another solution by limiting the need for cross-country transportation in the food supply chain. Growers can construct these farms in urban areas or convert existing buildings into farming facilities, which provides residents easy access to food and helps them limit their own carbon footprints.

Should You Invest in Vertical Farming?

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All investments come with varying levels of risk, and emerging technologies like vertical farming tend to be riskier because their impacts and longevity aren’t yet clear. However, vertical farming technology has already garnered the attention of private capital investors like Google Ventures, which invested $90 million in the vertical farm-tech company Bowery Farming; IKEA, which has committed to investing $115 million in the indoor agriculture startup AeroFarms; and Softbank, which invested $200 million in Plenty, a vertical farming company that also utilizes artificial intelligence to manage crop growth.

This confidence is reassuring — and the potential for vertical farming indeed seems bright thanks to the positive way it stands to boost our access to food while combating climate change at the same time. According to Forbes, “The indoor farming technology market was valued at $23.75 billion in 2016, and is projected to reach $40.25 billion by 2022,” meaning it could nearly double, and soon.

However, while venture capitalists’ decisions can serve as good endorsements, the average investor should take them with a grain of salt. This industry hasn’t had much time to stabilize yet, and it’s vital to consider your level of financial risk tolerance before making the leap into investing. Additionally, many vertical farming companies haven’t gone public yet, meaning you can’t invest in them for now — but you can start researching to make a well-informed decision when the time comes.

Vertical Farming Stocks to Opt For

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If you’ve decided to make the investing leap and make vertical farming companies a part of your portfolio, you might be thinking of opting for exchange-traded funds (ETFs) instead of individual stocks for the time being. Because ETFs can contain multiple types of assets and more evenly distribute risk among the assets they contain, they can be ideal for newer investors who want to get a piece of this emerging industry. Instead of betting on a single company’s stock to perform well, an ETF allows you to hold multiple stocks from the same industry — and if one performs poorly, you won’t take as much of a hit thanks to the built-in diversification. 

Unfortunately, the vertical farming industry isn’t quite there yet — there aren’t any dedicated ETFs to provide you an easy and diversified way in. Investing in vertical farming currently means investing in individual companies or in other agribusiness sectors that stand to benefit if vertical farming really takes off. That said, there are a few individual stocks you might consider adding to your portfolio. These include:

  • AppHarvest (APPH), an indoor farming tech company that owns several of the largest indoor farms in the United States
  • Spring Valley Acquisition (SV), a firm that’s undergoing a merger with AeroFarms (one of the first vertical farming companies) and will soon be available for public trading under the ticker ARFM
  • Hydrofarm Holdings Group (HYFM), which manufactures the controlled indoor agriculture equipment used in vertical farming
  • Village Farms International (VFF), a company that creates and operates “mega-scale greenhouses” and also owns a cannabis-growing company, Pure Sunfarms

Vertical farming may indeed be the investment of the future — and you might also want to wait for the future before buying in. This emerging industry holds ample potential for growth, but it’s understandable if you decide to wait for ETFs to sprout up to mitigate your personal financial risk.