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Scalable Vertical Farms to Reduce Food Deserts

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Abstract
Given the increase in population, there may be a situation in the near future where food shortages occur because of a shrinking supply of productive arable land and the increase in food demand. This case discusses a solution to the problem through the use of vertical scalable farming that significantly increases the supply of food by introducing efficiencies that are better for the environment than current agricultural methods. TrueFarm is introducing a vertical farming method that makes anyone an indoor farmer. The farm can be as big as the farmer wants it to be. The method and the economic benefits are discussed. In addition, the impact on quality of life and the environmental benefits of indoor vertical farming are discussed in the context of spatial economic theory.
Student Learning Outcomes (SLO's)
In completing this assignment, students should be able to:

    • Understand the impact of spatial economic theory.
    • Link a business model to resilience in a dynamic environment.
    • Relate CAPEX to OPEX in a business plan.
    • Understand the impact of yield on economic performance.
Application
The case is most appropriate for courses in marketing and operations. The ability to monetize a technology-based system that is linked to the quality of life (QOL) in a community is critical for economic advantage; however, this can’t happen until the workflow is optimized such that the advantages are clear and measurable. Company growth through a purpose that is oriented around improving the quality of life of people and communities is a win-win scenario for all stakeholders. Cost efficiencies are critical to profitability. An enterprise’s ability to create a solution for an unmet need while succeeding in its markets is a tribute to the capabilities of the leadership involved in the endeavor. The ability to monetize a portfolio of products is directly related to decisions about processes and technology used to create the workflow exploited to achieve a paradigm shift in farming. The performance of deployed technology is also directly related to the capabilities of the process and the performance of each relevant variable. Using technologies that assure success can be the difference between a viable business and a failure. Converting biotechnology opportunities into revenue in an efficient way is a challenge; however, revenue expansion can be accomplished while managing the risk of marketing failure. While the ideas, in this case, are not completely generalizable, they are partially relevant in almost any marketing or operations context.
Case Topic Categories
Finance
Marketing
Operations Management
Key Words
  • Food Desert
  • Biomass Yield
  • Engineered Climate
  • Functional Continuity Risk
  • Economic Drain
  • Spatial Economics
  • Economic/Ecological Resilience
  • Agglomeration Economies
  • Spatial Concentration
  • Economic Density
Contact Information

Scalable Vertical Farms to Reduce Food Deserts

Joel Bigley, Ed.D. and Marc Weniger, Ph.D.
California Baptist University
TrueFarm was interested in setting up farmers in urban locations to serve local markets. While food is brought into the urban area from the farmlands outside the city, TrueFarm thought it better to have farming in urban areas where the demand was. This required a paradigm shift in farming and food production. “Food should be local,” stated President and CEO, Robyn Trueblood, “And where there are people there should be a food source that is fresh nearby.” Food that is grown where it is consumed is fresh, tastes better, uses less fuel to get to market, and doesn’t use pesticides (as it is indoors in a controlled environment). Food supply chains can shed most of their logistics expenses by connecting farm and retail outlets achieving a very close supply chain proximity. When trucks, ships, or planes are used to transport food to distribution centers where the food is then stored to be subsequently delivered to retail outlets, a significant amount of time and storage conditions must be met. These logistics requirements (food miles, about 1500 miles on average from the farm field to the dinner table) increase congestion and consume a significant amount of fuel (approximately 20% of all gasoline and diesel fuel consumption in the U.S.) and infrastructure (roads, etc.). Long delivery cycle times also result in freshness or taste being compromised due to the time from harvest to purchase. While there are commercial applications of indoor farming, Robyn also believed that “Everyone can be a farmer, regardless of where they live.”

With this in mind, she wanted to give everyone the chance to have a ‘farm’ that they could build themselves or have someone assemble for them. A ‘portable farm’ of any size was the idea. Her indoor farm solutions were so efficient that they could be scalable into a farm as large as the farmer wanted. Regardless of the size, each portable farm would have an upfront cost for materials, etc., and a general operating cost associated with it, depending on its size. The big difference to traditional farming is that indoor farms have much higher yields than outdoor farms when the same space is consumed. If a ‘portable farmer’ was able to grow a percentage of their food, it would save on logistics costs and the cost to purchase the food at a store. It would be possible to pick the food from the farm and then eat it bypassing the need for cold storage. In the event that the farm was sized to produce more than what the farmer needed it could be sold to others. In some cases, the portable farms are dedicated to a business, a restaurant, or a grocery store. The farm could be located within space that is not used for retail, the roof or the basement of residential structures, under restaurants, or on top of grocery stores. Space may be in or on old and new buildings, commercial, and residential buildings as well as repurposed vacant urban warehouses and derelict buildings. A symbiotic relationship between plants and humans is created as O2 is created by the plant for the humans and CO2 is created by the humans for the plants. Additional benefits come from the impact that the plants have on the environment aesthetically and regarding thermal insulation and soundproofing. Robyn thought that at some point when the technologies are mature and depending on the economics, she might be a supplier to a skyscraper farm (In downtown Linköping, south of the Swedish capital of Stockholm, there is a structure called the ‘Plantscraper’. It is a 12-story building that houses an indoor farm along the southern façade.).

Urban environments are vulnerable to food shortages due to their dependency on transportation and distribution systems. If there is an interruption to the food supply a food-scarce urban environment will emerge quickly due to strong demand from a densely populated city. This vulnerability can be exchanged with a source of local economic prosperity, safety, environmental benefits, and supply continuity in the form of a portable scalable urban farm that is vertical instead of horizontal. The concept is integral to the long-term sustainability of urban environments.

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Case Background

Robyn wanted to provide urban farmers with ‘vertical farms’ that are both scalable and portable that they could put wherever they wanted in or on a building. The systems for the portable farms would be the most critical part of the purchase by the farmers. From there they would have to come up with a strategy to get the yield they wanted from the infrastructure that they put in place. Their yield would be measured in biomass per linear square foot, and because the infrastructure is very scalable, a portable farm of any size is possible. A portable farmer could have one or 10,000+ vertical tubes that contain plants.

Hydroponics

The typical business model for a mid-size farm would include the cost of equipment, the facility upgrades that would be required by the physical space, the post-harvest processing equipment, transportation to markets, an office, the starting cash flow for the first nine months, the cost of financing, and the cost for space. If the farmer can fit their farm, which grows food in a fraction of the footprint that would be used otherwise, in the space that they already have, then many of the costs mentioned above will go away. The cost of equipment will be minimal as these items can be obtained cheaply. The modifications to the physical environment will be small because the farm is portable and can fit almost anywhere. The kitchen will be where the post-harvesting process happens (in the sink, as usual).

Transportation is not an issue because the farmer eats what they produce (pick it and eat it). The farmer's existing office will do. The starting cash flow and the cost of financing will not be a factor as the farmer can scale as they go using the money that they save or that they choose to allocate. And the rent is already being consumed, and so is not a factor. This applies to a farm in an existing house being occupied by the farmer. If the farmer wants to allocate more space, then the farm can be scaled to fill whatever space might be available.

Financial Performance
The layout of an indoor portable farm is important to the startup cost (CAPEX/sq. ft.) and yield (biomass/year). Many indoor farms have been using horizontal beds as their configuration of choice. Robyn preferred the vertical model because she felt that the yields would be better if the farm scaled up instead of out. This concept took the two-dimensional farm and made it three-dimensional by using multiple layers for growth rather than just one. The business plan for a mid-sized indoor farm would include the following: Using 1800 square feet of space, 780 vertical tubes could be planted yielding about 4 pounds per tower per seed cycle. This is 3120 pounds of ‘biomass’ (food) per year. Using ‘heads of lettuce’, a popular metric, is not a suitable measure because the heads vary in size. A mid-sized farm could spend $44,850 on the framework to hold the vertical tubes, $58,500 on the tubes, $140,000 on the artificial lighting, $11,000 on the plumbing, $3770 on a CO2 generator, $2340 on ventilation, and $900 on a seed station. The total is $261,360 for this size farm. Some additional expenses could include workbenches for $1500, sinks and plumbing for $5000, 3 phase electrical high voltage for $8000, and cold storage for $6000. The total would be $20,500 for these extras. Post harvesting processing equipment would include dollies and carts for $800, racks and storage for $800, scales for $300, and bins for $200 adding up to $2100. The harvest would need to be delivered to markets. A panel truck can be purchased used for about $15,000. Administrative costs would include a website for $2000, a computer for $500 each, and a printer, an ink cartridge, and paper for $300, for a total of $2800. To assure stability during ramp up an amount of startup cash flow would need to be on hand for about 9 months of operation. The cash on hand helps to make sure that the farm will be in place through the difficulties during start-up. The cash is set aside to take care of utility bills for $67,500, labor (besides the owner) using 1.5 FTE’s at $3000 per month or $40,500, loan payments of $38,488, packaging $3000, seed plugs for $3000, fuel for $600, insurance for $1413, seeds for the next 5 to 8 harvests for $300, and consulting help for $6000 for a total of $160,142. The total CAPEX for this farm would be $461,902. Robyn thinks that it is not a good idea to finance more than 50% of startup costs. She would recommend that the farmer finance $225,000 at 5.25% for a term of 60 months as this would be 49% of the total startup costs and result in payments of $4272 per month. The farmer should get the rest of the money from their savings. For comparative purposes, if we were going to look at a typical land-based farm we could look at an acre as a single economic unit. An acre is 44,000 square feet. Incidentally, about 96% of U.S. lettuce comes from land farms in California.

As mentioned, lettuce is frequently used as biomass for comparison. There are 2 harvests per year in California and typically 12 tons of biomass is obtained per harvest per acre. Using two harvests, the total yield per acre is about 24 tons of leaf lettuce per year. An indoor farm that uses a shipping container (being used here as an indoor farm equivalent unit and example) that is typically 19ft. 4in. (5.89m) x 8ft. 6in. (2.59m) x 7ft. 10in. (2.34m) can use 256 vertical tubes that can grow 13 heads per tube and have more than 10 turns per year. Using 4 ounces of weight per head of lettuce this is about 18% of what an acre will produce, which is 20 times as much as an acre per square foot consumed in two dimensions. A significant reason for the yield increase is that indoor farms are also vertical (farming in three dimensions 24 hours per day). Shipping containers are getting more popular as indoor farm space, however, there are additional costs that may need to be considered with this method including, structural integrity, heat absorption, cooling requirements, space configuration limitations/requirements, etc.

A benefit of the indoor farm, regardless of the facility, is that it can be climate controlled. The temperature, light intensity, and humidity can be controlled to produce biomass that is directly linked to the plant and the desired taste. For example, a plant grown in Italy would experience a different climate than a plant grown in Denmark. The climates of any location could be engineered in a controlled environment resulting in a better experience for the consumer assuming they like the lettuce in Italy. The sharing of environmental data from various places where the produce is considered to be excellent could help optimize the taste of food products. Would there be a market in New York for lettuce that tastes as it comes from Italy, even though it was grown in New York? The time that produce spends traveling from farm to market could be very small as an item of organic produce might only have to travel less than 100 feet to be in the store if it is grown in the basement of the same building that the store is in. Distributed ‘grow lights’ can be powered by the sun during the day and then powered at night through stored energy in batteries charged by the solar panels and/or wind turbines on the roof. The plant growing environments can not only be climate-controlled, but they are also less vulnerable to safety and security concerns. Contaminated foods are a significant health hazard and have resulted in sickness.

The CDC estimates 48 million people get sick, 128,000 are hospitalized, and 3,000 die from foodborne diseases each year in the U.S. alone. Furthermore, no pest control is needed to ensure the integrity of the organic aspect of the biomass. The washing of the produce is also minimized with the ‘dirtless’ and chemical-free environment. The farmer would be challenged to optimize biomass output while experiencing favorable economics. Considering that there are billions of city dwellers today, with more coming in the future, local demand for food will be critical. The UN projects that 80% of the world’s population will reside in cities by 2050 at which time we will need 70% more food to meet the demands of 3 billion more people worldwide. In the meantime, since 1961, according to the UN Food and Agriculture Organization, there is about half as much arable land per person in 2002 as there was in 1961. Of the land that remains about a quarter of it is allocated as ‘highly degraded’. Further, since 1960, one million farmers in the U.S. have abandoned farming for other jobs. Food deserts (towns without ready access to fresh, healthy, and affordable food) will emerge; however, many cities have buildings that are not occupied or fully utilized that could be converted to indoor farms providing access to healthy food. The agricultural footprint per person in the world will need to be reduced as the population increases and arable land is consumed for other purposes (ex. housing). Shortages of farmland (food insecurity) are becoming an issue. Consequently, more food needs to be grown on each square foot of space allocated to biomass farming. Indoor farming presents the opportunity of a controlled environment where crops are less subject to changes in climate, infestation, the nutrient cycle, crop rotation, polluted water runoff, pesticides, and dust. Indoor farming can offer a healthier environment to grow food while providing higher yields and continuous income due to year-round operation that is not vulnerable to weather conditions.

Disruptive natural events like hurricanes, droughts, and floods can disrupt supply chains. For example, Gotham Greens (a vertical farm in New York City) was the only fresh food supplier in New York during the Sandy Hurricane. Seasonal weather changes can also impact crop yields. Indoor farms can produce year-round resulting in significant biomass production.

A lower dependency on the industrial food system will result in better results for consumers from a quality and safety perspective. Over half of the world’s farms still use raw animal waste as fertilizer. This attracts flies that may contain diseases that can be transferred to plants. In an indoor agricultural environment, pests, pathogens, and weeds have a much harder time infiltrating and destroying crops. The reduction in pesticides also contributes to healthier biomass.

When plants grow indoors, one of the biggest challenges is light. The strategic application of light can improve yields, especially as light, in this controlled environment, is available 24 hours a day and can be located in optimal proximity and intensity to each plant regardless of where they are in the plant life cycle. Light conditions for seedlings are different than what is required for preharvest plants. The intensity of the light source, the orientation of the plant, and the distance the plant is away from the light source can be adjusted during the plant’s lifecycle based on age and size. The graph below shows the relationship between biomass produced per square foot and light consumed. The configurations of the vertical tubes allow for better use of light sources. Where the use of light is improved, an increase in biomass for the same amount of light is achieved. The strategies employed for biomass yield can be adjusted to optimize yields. With the deployment of each strategy measurable gains should be achieved. Consequently, the measurement of yield per configuration should be monitored so that the strategy can be improved. Changes in strategy could include but not be limited to the amount of light used, the distance between the lights, the distance of the light from the plant at any given time during the growth cycle, the number of plants per tube, the orientation of the plants relative to the lights, etc. With each strategy, the increase in biomass should be achieved in relation to the consumption of light.

Production

On the business plan side, it is important that portable vertical farmers understand the relationship between CAPEX (capital expense) and OPEX (operational expense). The amount of money that they will need to be raised to start the farm is CAPEX. This amount will be needed to start the operation regardless of its size but will vary depending on the initial farm size. OPEX is the amount of money that will be consumed per month (or other time period depending on what is chosen) to keep the farm in production. For the farm to be profitable the revenue would need to be higher than OPEX plus the cost of capital. The graph below shows the relationship between these two variables. In the case of scenario ‘A’, this farm has low CAPEX but high OPEX.

The ongoing cost to keep the farm producing is high because the equipment that was purchased was very low in cost and low in its effectiveness to mitigate OPEX. For example, the labor in this operation may be carrying water to the plants because a bucket is cheaper than a system of pipes. In the case of scenario ‘B’, the cost of the equipment was high resulting in a low cost to continue producing on the farm. The system of pipes and a time-controlled water flow allow for precision irrigation and the efficient scheduling of water to the plants. The person who carried the water is no longer needed in this case due to the infrastructure that has been purchased. In the case of scenario ‘C’, the upfront cost of the farm is low, and it is relatively inexpensive to run because the systems that were chosen are inexpensive, but they are very smart and cleverly deployed. While this is an oversimplification, it is where the portable farmer wants to be. These three cases need to be considered during the design phase of the farm deployment. If possible, cheaper systems are desirable that allow for control but mitigate labor costs. Profitability optimization is better achieved in this configuration if the facility supports the deployment of the infrastructure. Consideration should also be given to support needs (ex. electricity) and continuity (ex. no brownouts). Continuity is critical because a lack of it can kill the farm in which case the revenue disappears while the cost of capital remains.

CAPEX / OPEX

Some key metrics to consider are OPEX per pound of biomass per month. This metric shows the conversion of OPEX dollars into pounds of biomass. With the application of new and improved strategies, this value should increase. The cost of CAPEX per pound of biomass for each month during the depreciation cycle of the infrastructure is another metric of interest. When the output is high, and the cost of capital is low this is a favorable situation. If the CAPEX is distributed over a 6-year depreciation schedule, for example, then the total cost for each year over the output in economic value would be informative. Year seven would have a very favorable ratio because the infrastructure is fully depreciated. The overall financial analysis would need to include not only the cost of capital but also the depreciation.

Some key metrics to consider are OPEX per pound of biomass per month. This metric shows the conversion of OPEX dollars into pounds of biomass. With the application of new and improved strategies, this value should increase. The cost of CAPEX per pound of biomass for each month during the depreciation cycle of the infrastructure is another metric of interest. When the output is high, and the cost of capital is low this is a favorable situation. If the CAPEX is distributed over a 6-year depreciation schedule, for example, then the total cost for each year over the output in economic value would be informative. Year seven would have a very favorable ratio because the infrastructure is fully depreciated. The overall financial analysis would need to include not only the cost of capital but also the depreciation.

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Case Theory Explanation

Spatial Economic Theory is common with agriculture as it is critical to the economic success of a farm. When farming is brought inside a facility this theory becomes more critical. Spatial economic effects can be driven significantly by the distance between dependent functions in a supply chain. The further each function is apart the more economic drain (costly waste) there is on the economics of the supply chain. Not only are the economics hurt by cost but also by time due to transactions between functions and transportation delays. The number of transactions from exchanges would need to be minimized. Self-sufficiency by aggregating supply chain functions in the supply chain can result in more significant gross biomass output per unit of area and unit of time consumed. The cost associated with accommodating time delays in the supply chain is removed (ex. refrigerated storage). Decentralization is a negative force in spatial economics because self-sufficiency is not involved. Self-sufficiency that is not as dependent on transactions is also more resilient because of the lack of a dependency on a function that is not in the control of the farm (ex. the transportation company has a truck that breaks down). The issues in the supply chain are less when there is proximity (functional density) and fewer steps (transactions) in the process. Rather than depend on the equilibrium states (functional continuity) of each step in a supply chain, these eco-systems can experience economic resilience if they are less susceptible to functional interruptions. A sudden reorganization or precipitous event is not impactful as it is not as present as it would otherwise be (ex. cold storage breakdown).

The rate at which a process step returns to equilibrium (ex. gas is not available at the truck stop for two hours) has an impact on the flow within the entire supply chain. This is referred to as return to operation (RTO) time. A system is resilient to this ‘perturbation’ if it is not dependent logistically on using the truck stop to fill up its trucks. There is no shock to absorb if the impact does not exist in the supply chain. The structure of the eco-system is better maintained when a dependency within the supply chain does not exist. The diagram below shows that resilience to perturbations is dependent on the number of states that a supply chain exists in. As the configurations of product change from raw material to finished consumer product, the more steps that are involved the higher the need to survive the potential for perturbations. The resilience requirement is shown as being high for farm C where there are many states and the perturbations are frequent. The effort needed to achieve resilience is high. Farm A has many perturbations even though the number of states in the supply chain is low. This farm is unstable and has continuity risks that could result in failure. Farm B has many states in its supply chain but is lucky to have few perturbations. The controls to minimize the impact of the perturbations are strong. Should the number of perturbations increase this farm is not resilient and it will likely fail. Farm D has a simplified supply chain where steps have been removed. Not only is this workflow efficient, but it is less subject to perturbations.

Resilience

Systems that have multiple equilibrium points are stabilized through the use of controls. The robustness of these controls is important for the creation of resilience. The network of functions in the eco-system achieves control when the network is stable, however, a few perturbations can disturb the network with significant impact if resilience is not present in sufficient quantity. In other words, a single node in the network when disturbed can affect most of the other nodes if the network is sensitive to failure. Controls mitigate the sensitivity to perturbations and so increase resilience. For example, plants that barely have enough water are more sensitive to a water outage; however, if the reliability of water availability is very high due to controls (ex. minimum level in the rain-water cistern on the roof) plants can be given an optimal amount of water (flow control) to produce the desired yield. With this level of control, plants would not be over-watered but would be more sensitive to a water outage if there was no buffer supply. The connection between resilience and economics is clear. Perturbations, or the lack of equilibrium at any part of the supply chain, will incur cost and may impact forecasted revenue. For example, a truck driver will have to wait to get gas. This could incur cost in the eco-system (more water consumed). The network returns to equilibrium as soon as the supply tanker comes to the truck stop with fuel. At some point, if the supply truck doesn’t come, the delivery truck will go to another truck stop to get fuel as long as it is in range, however, this may result in a delay. This change may become permanent. This is called ecological resilience because the system changes its structure by changing the variables and processes that control the behavior of the participants in the ecosystem. Now a different, more reliable, truck stop has been selected. Dynamic systems have a significant number of variables that change over time, fuel availability being one of them.

Resistance in Spatial Economic Systems
Spatial systems do not have to be challenged or adapt to address new challenges or sudden shifts if they are not dependent on them. If it is not necessary to deliver the produce by truck to the market (ex. use the elevator), then this parameter and its associated risks are not in play in the eco-system. The problems associated with the parameter do not exist and cannot create a perturbation that requires resilience. The network does not need to be adaptive to change as the change is not required due to the absence of the parameter. Qualitative shifts in structure are not needed and happen less often where spatial economics are emphasized. The system does not need to be capable to measure the stresses and shocks that it does not experience. The requirements for system integrity are less because there is a smaller number of parameters that the system needs to be resilient against the loss of equilibrium (company D above). Transient states of certain aspects of the ecosystem are not vulnerabilities where those states do not exist. The shock is not absorbed where it does not exist. Change does not become irreversible or damaging if it is not needed. Renewal following a shock is not needed. How much resilience is needed? Much less than would be needed in a more complex system. A low level of resilience where a significant amount is needed will lead to a system that is unstable (chaos). However, instability is reduced if there is less probability that there will be a transition to an undesirable state (strong controls). Managing entropy (drift towards instability) in a supply chain is reduced if the supply chain is shorter (has fewer functions in it). Entropy occurs when the controls of a system that helped to maintain equilibrium start to lose their effectiveness. Scheduling entropy may occur when the truck drivers tend to gather at the bar at the truck stop instead of achieving their scheduled appointments (fewer on-time deliveries or a lack of schedule compliance). Negentropy occurs when a system becomes more organized than it was. A system can experience adaptability, absorption, be persistent through a challenge, experience the emergence of innovation, and encounter economic evolution as forms of negentropy.

Agglomeration and Economic Performance
Agglomeration diseconomies occur if the scope of a supply chain increases. New functions introduced may also introduce waste as they do not bring value into the supply chain. Value from an added step suggests that the function improves economic performance that would have otherwise not occurred. It follows then that, agglomeration economies introduce efficiencies as groups of functions are brought together in a network. Typically, steps that do not have much value are eliminated or consolidated (aggregated). Agglomeration effects that produce economic performance are based on localized economies (closer together). The clustering of functions in a given sector (ex. farming) can boost efficiency. The consolidation and optimization (closer together) of activities influence economic performance. Economic performance is compromised when transactions between functions are small in scale (they accomplish little), variable in content (cost variation for the same thing), and require frequent adjustments (subject to exceptions). Spatial concentration suggests mutual functional proximity. This configuration encourages rapid information acquisition, processing, and action with regard to opportunities. Such a configuration makes an organization resilient to needed change as there are fewer moving parts, with each part being close and connected to each other part. Information flows quickly throughout an organization that is spatially dense and functionally minimized. Knowledge spillovers are collected by those who need to know because they are close by. Learning and innovation are easier to deploy given that there are fewer nodes and interdependencies in the network that is the organization. The cumulative effects of the learning and the resultant innovation produce an economic performance that exceeds that of local competitors. The clustering (agglomeration) of an efficient supply chain allows for a single culture aligned to the same values. A common understanding across the farm supply chain, in this case, allows for a significant economic performance as compared to a decentralized supply chain that has a knowledge base and infrastructure that has not been agglomerated to produce efficiencies. Instead, knowledge and infrastructures are diluted with the associated economic overhead burden.

Economies of Density
Functional clusters can be conduits of productivity. The effects of increased productivity are more easily measured in a decentralized supply chain. Each function in a network is designed with optimal value-creating agglomeration economies. An ‘economy of density’ driver is the reduction in transportation and the associated cycle-time reduction. The spatial proximity of suppliers and providers reduces the cost of these drivers within the ecosystem. Additionally, the spatial proximity within the functional workflow of the supply chain influences these costs as well. Where there is the potential for large economies of density, organizations can concentrate and agglomerate to achieve economies of density. Synergies within the supply chain suggest that steps may be consolidated because they have a degree of similarity. The similarity threshold should be exceeded to produce the best economic result when consolidation is required. This idea is common regarding the cost to deliver the mail or electricity. A lack of density requires more fuel and time consumption as well as more poles and wires. Spatial density reduces delivery costs in spite of a high level of synergy (same wire and mail delivery vehicle).

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Case Theory Application

The agglomeration of the supply chain, along with spatial density in the workflow, results in optimal economic performance. Other variables are involved such as the types of plants, the quality of the seeds, etc. Absent these and other variables, the workflow from farm to table can be optimized. The traditional workflow includes the preparation of the soil and the selection of seeds. The ‘farm’ uses methods to plant seeds in fertilized and aerated soil while warding off bugs and birds. This activity is not trivial as heavy irrigation, intensive tillage, and the significant use of fertilizers, pesticides, and herbicides are involved. Once the plants have grown under the provision of water, they are harvested, sorted for quality, washed, packaged, and stored pending transportation to a processing center. There is some yield loss during sorting prior to delivery. In the processing center, they are handled under strict guidelines for cleanliness to avoid contamination. The processing here includes further sorting, labeling, and packaging into smaller quantities. Some further yield loss is experienced. Some of the remaining items are stored in cold storage awaiting transportation to a retail location or food service providers. The containers in which the biomass is transported must be clean and, in some cases, refrigerated to preserve the integrity of the product. The product arrives at the retail location or the restaurant and is stored, typically in cold storage, until it is unpacked and used to stock shelves or be cooked for customers. In a grocery store context, some yield loss occurs as the produce on the shelves may or may not be chosen by shoppers. Product may be removed and thrown out or put on sale. In either case, economic loss occurs. Consumers purchase the product and perform some final processing (ex. cooking) that may result in some yield loss. The cycle time for this process includes steps where vulnerabilities exist for delays and damage to the product. A workflow that leverages economies of density and functional agglomeration (merging food production and consumption to one place) has a reduction in steps and has higher yields. For example, an urban vertical farm can reduce transportation costs significantly which accounts for 60% of costs in the workflow from farm to table. Furthermore, yields are optimized with strategies that relate to calibrating, tuning, and adjusting a wide range of variables including light intensity, light color, space temperature, CO2 contents, soil types, water amount, and air humidity. Each plant can experience precisely measured nutrients. The workflow is also conducive to remote monitoring. The idea of ‘farming from afar’ significantly reduces operational costs by reducing labor. The technology interface provides data anywhere providing convenience, flexibility, and efficiency in managing the farm. Information technology allows the farmer to work the farm from anywhere through online applications.

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Objectives

TrueFarm wanted to grow edible plants in urban areas at a yield that made them economically viable in light of the alternative, shipping produce into the city from a farm outside of the city. To achieve an economically viable solution, TrueFarm will need to:

  • Locate their farms close to where consumers can purchase produce.
  • Create an economical model that leverages existing infrastructure which is already being paid for.
  • Capture data from various locations where plants are grown which are considered to taste unique and excellent such that they can be used for growing environments.
  • Reduce economic drain by positioning the supply chain as close to each other as possible minimizing the total travel distance of each ton of biomass.
  • Eliminate transactions in the supply chain that do not add value.
  • Pursue automated growing systems that only require planting, harvesting, and packing if sold off-site.
  • Have a proven system that maximizes growth rates while minimizing the use of water and chemicals.

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Assumptions and Constraints

1. Any configuration will need to accommodate existing infrastructure.
2. Water is available on site.
3. High-density lighting is available continuously.
4. A selection of seeds of a suitable quality are available for seeding.
5. Nutrients that encourage growth are used as part of the feed for the crops.
6. Power is available for lights during the dark times of the day.
7. Labor and knowledge is available to make the farm successful.

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Case Conclusion

Robyn was able to offer three growing methods, including hydroponics, aeroponics, and aquaponics, all of which were conducive to vertical farming infrastructure. The farmer’s preference would need to match what they would grow. The infrastructure elements to support these methods were advantageous to the portable but scalable farm as they required minimal maintenance but provided maximum yield. While the services provided by TrueFarm were suitable for urban agriculture, they apply to any farmer in any building anywhere. Local food is fresh food that is efficiently produced. The advantages of the vertical urban, portable, and scalable farms were clear. The systems that TrueFarm provided has a number of advantages, including:

  • A more reliable growing cycle to meet both delivery schedules and supply contracts.
  • A reduction in production overheads by about 30% due to:
  • The use of high efficiency LED lighting technology that ensured minimum power use for maximum plant growth (included the management of photosynthetic wavelengths, in harmony with the phase of crop growth, further minimizing energy use while ensuring optimized crop yields).
  • Fully automated growing systems with automatic SMS text messaging that would require manual labor only for on-site planting, harvesting, and packaging.
  • Water usage of around 10% of the water required for traditional open-field farming.
  • Strict bio-security procedures to eliminate pests and diseases.
  • The positioning of vertical farming facilities close to the point of sale (POS) dramatically decreasing travel times, reducing refrigeration, storage, and transport costs.
  • A nearly ten times increase in growing area as compared to traditional farms.
  • Faster crop cycles (10+ times per year) over a wide range of crops due to a controlled environment and 24-hours of light in a day.
  • A fully monitored, controlled, and automated portable and scalable vertical farm including:
  • Temperature, CO2, and humidity levels, light color, and air velocity that was optimized at all times.
  • The use of specially formulated, biologically active nutrients in all crop cycles, providing organic minerals and enzymes to ensure healthy and optimized plant growth.
  • All freshwater contaminants are removed before entering the vertical farm through the use of a filtration system.
  • High-intensity low-energy LED lighting specifically developed and used for maximum growth rates, high reliability, and cost-effective operations.
  • On-demand farming that is flexible and responsive to market demands including:
  • If demand suddenly changed for particular types of mixed greens the allocation of plant spaces can be changed within 14 to 28 days. The environmental benefits (part of the sale of the system) are significant.

As Robyn developed her marketing material, she made sure to mention many of the benefits of this kind of farm to her customers. Not only were they going to experience a benefit but the environment, in general, would also experience a number of benefits including:

  • Energy conservation as indoor farms helps the building where they are located conserve energy (insulation factor).
  • Fossil fuel reduction as hyper-local foods reduces food miles substantially.
  • Indoor farms sequester carbon from the atmosphere lowering the levels of carbon dioxide in the air and eliminating the build-up of greenhouse gases.
  • Indoor farms support increased biodiversity in urban environments.
  • Environmental stewardship is enhanced by growing biomass without the use of toxic pesticides, herbicides, fungicides, and other dangerous chemicals typically used in conventional farming.
  • Community benefits are achieved through the tangible connection between farmers and consumers.
  • Local food farms generate revenue for local farmers and businesses.
  • Supplanting lifeless walls with greenery beautify the interior of a building.

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Faith Integration

Vertical farming is an ideal solution to food deserts. Poor countries often have food shortages which then help prevent a country from climbing out of poverty. Developing unique solutions like vertical farms in containers could be an answer to the food shortages countries experience on a regular basis. Vertical container farms stacked in old shipping containers could be made to produce all the vegetables a country would need, solving a major issue for impoverished countries. The Bible commands us to help the poor. In Leviticus 25:35 (ESV) “If your brother becomes poor and cannot maintain himself with you, you shall support him as though he were a stranger and a sojourner, and he shall live with you.” Another verse in Luke 12:32-34 (ESV) Fear not, little flock, for it is your Father's good pleasure to give you the kingdom. Sell your possessions, and give to the needy. Provide yourselves with moneybags that do not grow old, with a treasure in the heavens that does not fail, where no thief approaches and no moth destroys. For where your treasure is, there will your heart be also. The Bible is clear that we are to help the poor. New technologies could be applied to help be part of our efforts to assist those who are in need of nutrition.

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Discussion Questions

1. Often a new technology like vertical farming can be a disruptor in traditional industries. How might vertical farming disrupt the many industries involved in farming? How might these industries pivot to cope with the change?

2. For any business to make sense the CAPEX and OPEX must make sense. What are the differences between CAPEX and OPEX? Create a spreadsheet and show how each of the budget numbers that were presented in this case fit into each category.

3. Using the spreadsheet from question 2, how will you use the CAPEX and OPEX differently in your planning? Create an income statement with three different scenarios – worst, average, best to show how this business is (or is not) practical. If you are not familiar with income statements do a quick online search for directions on how to prepare one.

4. Vertical farming is very dependent on yield. As you look at the financials you created, what is the minimum yield that the vertical farm needs to make a profit based on the case data and your other assumptions? What would be the ROI (return on investment) (both in time and amount) under the worst, average, and best-case scenarios?

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Copyright Disclaimer

This case is intended for use only by the purchaser. It is not to be printed or distributed. Copyright Biggerpress.org 2024.

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Notice for Case Usage/Liability Statement

Notice to learner: This case will not provide you with all the information that you need to understand the situation described. In fact, it would be impossible for all the information to be provided. You will have to do some research on the industry or the concepts to fill in any gaps you see or deal with perceived ambiguity. This is expected by the author. If there is anything that you do not understand, like terms of abbreviations, information is readily available on the internet to get definitions or look at similar situations in the industry. Cases are based on real life scenarios. This might include the facts around the situation, the data, or both. Part of the assignment is to understand the scenario, following some research, and then answer the questions that relate to the case. The ambiguity or gaps in information are intended to give you the opportunity to be creative and to discover aspects about the scenario that might be of interest for you.