Vertical farming: from boom to bust ─ lessons for the future

In 2020, vertical farming startups in Europe attracted a record half a billion pounds of venture capital investment. Yet, just a few years later, many companies have struggled and gone out of business. (Peters 2023.) Nasdaq (2024) tells the same story: Stocks of some vertical farming companies and holdings traded at $50–$80 are now worth mere cents. Investors were initially drawn to the idea of tech-driven farming revolutionizing agriculture, but the industry has hit a major recession.

Challenges and failures in vertical farming

AeroFarms, one of the most well-known companies operating for 20 years in indoor agriculture, applied for bankruptcy in June 2023. AppHarvest, another giant in the industry, followed shortly after, selling on auction its high-tech greenhouses equipped with robotics and AI. Together, these companies raised nearly $400 million in funding and operated nine large-scale farms. (Coffey 2023.)

The industry was negatively affected by poor financial management, rising energy costs, interest rates, and overly optimistic business plans (Bucak 2023). Investments by venture capital companies in vertical farming have dropped by 91% in early 2023 compared to the previous year. Many companies were run like tech startups, spending heavily on R&D, fancy facilities, and large executive teams. But farming, unlike tech, has notoriously thin profit margins and takes time to grow. (Coffey 2023.)

Experts believe that fairytale expectations from venture capitalists pushed these companies to expand too quickly. The five-year return on investment (ROI) demanded by VCs was far too short for an industry that typically requires longer-term planning. Successful greenhouse models in the Netherlands, for example, are built on 10-year ROI and lean operations. (Coffey 2023.)

Companies like AeroFarms and AppHarvest struggled to balance rapid growth with sustainability. AeroFarms invested great amounts in R&D, even opening a research facility in Abu Dhabi, while AppHarvest built four high-tech greenhouses in just three years. Not surprisingly, they could not generate revenue fast enough to cover costs. (Coffey 2023.)

Sustainable growth and future prospects

Still, there are signs of hope. AeroFarms has restructured and resumed operations at its Virginia facility, while AppHarvest’s greenhouses were bought by other operators and may eventually turn a profit (Coffey 2023). Some companies in the industry are shifting focus, prioritizing profitability over tech hype. These companies focus on being food producers rather than tech innovators, keeping costs lower and aiming for steady growth. (Bucak 2023.)

Despite the recession, the vertical farming industry can and will recover shortly. The key lies in shifting the focus from being tech startups to becoming efficient food producers (Bucak 2023). Collaboration with traditional agriculture can also play a vital role. By combining the practically proven business models of basic indoor farms with the innovative aspects of vertical farming, like water consumption and year-round production, the industry can create more sustainable and cost-effective models. This means reducing spending on R&D that does not directly contribute to profitability and instead prioritizing practical applications that meet market demands.

Sapozhnikov’s (2024) thesis highlights how vertical farms can address challenges such as high operating costs and limited market acceptance by working closely with local food producers. The thesis emphasizes that integrating vertical farming into traditional supply chains rather than disrupting them can open new growth opportunities. For example, specializing in high-value crops like microgreens or saffron results in complementing traditional agriculture rather than competing with it.

The industry also needs to focus on realistic business models with long-term scaling and longer-term planning. Instead of building massive facilities from the start, companies could develop smaller farms tailored to specific markets. By starting lean and adopting the lessons of traditional farming, such as prioritising efficiency over rapid expansion, vertical farms can restore investor confidence and achieve profitability. Recovery will take time, but with practical changes and a collaborative approach, vertical farming can fulfil its promise of sustainable food production for the future.

References

Bucak, S. 2023. The vertical farming boom is over (for now). What went wrong? Sifted. Cited 12 Dec 2024. Available at https://sifted.eu/articles/vertical-farming-boom-over-for-now-what-went-wrong

Buraphon, J. 2017. Pexels. Cited 25 Jan 2025. Available at https://www.pexels.com/fi-fi/kuva/348689/

Coffey, D. 2023. Indoor Agriculture Faces a Reckoning. Ambrook Research. Cited 12 Dec 2024. Available at https://ambrook.com/research/supply-chain/vertical-farms-venture-capital-chapter-11

Nasdaq. 2024. GrowGeneration Corp. Common Stock (GRWG). Cited 21 Dec 2024. Available at https://www.nasdaq.com/market-activity/stocks/grwg

Peters, A. 2023. The vertical farming bubble is finally popping. Fast Company. Cited 25 Jan 2025. Available at https://www.fastcompany.com/90824702/vertical-farming-failing-profitable-appharvest-aerofarms-bowery

Sapozhnikov, D. 2024. Potential and challenges of launching a vertical farm aimed at supplying herbs for Finnish restaurants. Bachelor’s thesis. Lahti University of Applied Sciences, Faculty of Business and Hospitality Management. Lahti. Cited 12 Dec 2024. Available at https://urn.fi/URN:NBN:fi:amk-2024120432789