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Scalable Vertical Farms to Reduce Food Deserts
Sections
Case Content
Abstract
Student Learning Outcomes (SLO's)
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- 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.
Case Topic Categories
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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
Author Contact Info.
Professor
8432 Magnolia Avenue
Riverside, CA
92504
US
jbigley@calbaptist.edu
+19513434426
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.
Research Methods
The names of the decision makers and the organizations involved have been disguised; however, the details are based on a real case.
General Discussion
The impact of spatial density can easily be seen with mail and electricity delivery. The learner may have been in a location where there was no cell phone coverage. The number of consumers per tower was below a threshold such that the tower was not economically feasible for the carrier to install. Spatial density can be taken further to include other benefits. Spatial Economic Theory is in play more frequently than is realized. Just as decisions are made based on the density of consumers in an area these considerations should be reversed such that a high-density location presents unique opportunities that are typically not considered. By reframing the opportunity, a paradigm shift in how something is produced creates an economic solution that is good for all stakeholders. Can you supply a community with what they need in a way that is different than how they are currently being supplied? If the economics are good, then the possibilities become opportunities. Proximity creates opportunities because the economics become realistic for entrepreneurs like TrueFarm to achieve profits while serving all stakeholders.
Discussion Questions and Answers
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?
Students should consider all industries involved in traditional farming such as the farming equipment industry, fertilizer industry, farm labor, trucking industry, food distribution industry, etc. They should then go on to discuss how each of these industries could be disrupted and how they might pivot to handle the changing business environment.
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.
Students should create a spreadsheet with CAPEX and OPEX as headings. They should go back in the case and find all relevant numbers that have to do with CAPEX and OPEX and enter them into the spreadsheet. Students should be challenged to think of some additional items that were not mentioned.
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.
Students need to create an income statement from the information in this case. Students may need to make some assumptions. Have students make worst, average, best-case scenarios and have them present their ideas. Compare and contrast student plans. The students should define what is ‘practical’.
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?
Students should go back and calculate ROI for the spreadsheets they created. Have students present their ideas and compare and contrast plans.
CLO 1: Understand the impact of special economic theory.
CLO 2: Link a business model to resilience in a dynamic environment.
CLO 3: Relate CAPEX to OPEX in a business plan.
CLO 4: Understand the impact of yield on economic performance.
Epilogue
Robyn was able to create an economic advantage with her portfolio of scalable indoor farming options. The early adopters created their portable vertical farms and word started to spread as vertical farms started to pop up in different cities around the world. Through her support contracts with various vertical indoor farmers, she was able to optimize the yield per square foot of floor space consumed. The interests of the farmers regarding crop selections and desired biomass were very helpful in determining the interests per geographic location. Furthermore, TrueFarm was able to see how selected crops responded to nutritional changes as well as environmental variables. This led to some experimentation to optimize taste including the introduction of pumice, for example, to the eco-system as a lava-based soil that is created when lava flows into the water. TrueFarm agronomists were able to determine that pumice was able to absorb nutrients and transfer them to plant roots efficiently improving taste. The company was now able to add this to its portfolio of products for sale worldwide. Other fine adjustments helped the farmers improve their economic profitability. The collective information from TrueFarm customers was valuable for the sale of products to customers that were unaware of the value. New methods would help adopters move forward with their configurations increasing the ROI on their investment.
Other Pedagogical Materials
Several additional materials can be used for the case. As mentioned, some other similar case studies can be used where a business development roadmap and marketing strategies were used. This will help students know that this is not an isolated situation and that technology and business development are complicated and sensitive to the variables involved. New stories can be found that relate to marketing and growth strategies that offer products that have agency that exploits both economies of scale and novel solutions. Information is available regarding such cases that can be used to learn other aspects that relate to this scenario. This case studies the idea of a paradigm shift in farming. Without the ability to exploit the cost benefits of vertical farming and variable optimization companies may struggle with the idea of urban vertical farming. A product must be meaningful and valued in its marketplace. It must meet an unmet need. And it must help the company that makes it profit from its sale so that it can scale and reinvest in itself. Bringing valuable products to the place where they can be sold, improving taste, yield, and the cost is a recipe that can produce profits. However, vertical indoor farming would not have been possible without a technology advantage that was exploited across the portfolio.
Quiz questions with Answers
1. Vertical farms are both:
A. Scalable & Portable
B. Portable & Efficient
C. Scalable & Efficient
D. Expensive and Scalable
Answer: A
2. Vertical farms produce 20 times the quantity of produce per acre.
A. True
B. False
Answer: A
3. Indoor farming solves many problems. Some of them are (select all that apply):
A. Pest Control
B. Proper Plant Nutrient
C. Starvation
D. Pesticide Use
Answer: A, C, D
4. The rate at which a process step returns to equilibrium is called:
A. ROT
B. ORT
C. RTO
D. TOR
Answer: C
5. Yield loss is caused by
A. Sorting
B. Packaging
C. Shipping
D. All of the Above
E. None of the Above
Answer: D