Expanding CEA beyond 'The Big 4'

06-04-2021    15:44   |    The Packer

Greenhouses, vertical farms and hybrid systems (collectively known as controlled environment agriculture or CEA) continue to attract investment at a much greater scale than in previous decades. In each of the past five years there have been multiple nine-figure capital raises. Capital has been deployed across farm types:

Sources of funding have expanded from almost exclusively highly-specialized private equity investors to include public equity, mezzanine debt and even commercial banks. Within these funding sources the breadth of investors has expanded beyond agriculture-focused investors to more mainstream investors, especially those with an interest in Environmental, Social and Corporate Governance (ESG) investing. 

Despite all of the investment, the vast majority of produce grown in CEA’s across North America consists of tomatoes, cucumbers, peppers, and lettuce and leafy greens (“The Big 4”). Most of the lettuce and leafy greens are coming from CEA’s in the U.S. In Canada, The Ontario Greenhouse Vegetable Growers include 220 members producing tomatoes, cucumbers and peppers on over 3,000 acres of greenhouse.

In my opinion, the next leap for the industry will be expanding the breadth of products. Specifically, focusing on products the taste of which is highly important to the consumer. A strawberry, for example, is a more important purchasing decision to the average consumer compared to lettuce. Lettuce is much more likely to be eaten as part of a salad along with a variety of other ingredients. Today, you can buy at mainstream retail locations a greenhouse-grown strawberry likely grown by Mucci Farms in Ontario or Mastronardi’s Green Empire Farms in New York. 

Consumer demand will continue to drive product expansion. Meeting that demand will be possible through further investment in the CEA space. Although investment has been growing, it has not met the levels of other industries where many billions of dollars have been invested on an annual basis. Investment levels in CEA are likely to become far greater over the near future as some of the largest investors in the world are focused on investments that meet and exceed ESG standards.

Efficient vertical farms and greenhouses meet and exceed ESG standards. The farms are closed-loop systems where everything that goes into the farm is contained and recycled. Additionally, as the environment is fully controlled, only the precise amounts of inputs are added so as to limit excess waste. Lastly, a controlled environment allows for plants to grow without chemicals and pesticides. 

Combining consumers’ desire for more locally grown produce throughout all seasons of the year with increased investor appetite should drive great growth across the industry for years to come. I believe the biggest leap will be new and exciting products coming from indoor farms. This will all be enhanced with incremental improvements in product taste, farm efficiency, and additional variets within The Big 4 and other products to come. 

Peter Tasgal is a Boston-area food agriculture consultant focused on controlled environment agriculture.

 

Photo courtesy Peter Tasgal

Source: The Packer


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