Supply chain optimization could boost vertical farming. Here’s how…

Vertical Farming Supply Chain | World Economic Forum |

IMAGE: Vertical farming can still become a sustainable and scalable solution for modern food production. Image, Unsplash.

• Vertical farming was once hailed as the future of food production, but many startups have failed to scale, turn a profit, or even survive.
• Fundamental inefficiencies in supply chain design and the burden of high operating costs are to blame.
• New research focuses on the economic viability of vertical farming and how strategic supply chain design can drive efficiency and profitability.

Not too long ago, vertical farming was hailed as the future of food production. It was considered a revolutionary approach that could bring farming into urban centres, making it resistant to climate change, droughts, and shrinking farmland. It is a non-traditional growing method which is used for growing crops indoors, so it’s also called indoor farming. Using rows of plants placed under LED lights in towering buildings, providing fresh food year-round while using less water, and eliminating pesticides, vertical farming could transform how crops are produced.

Whether through hydroponics, aeroponics, aquaponics, or other methods of production, vertical farming can reduce many of the disadvantages of conventional agriculture, including the pressure it places on shrinking arable land, carbon emissions, and the loss of natural habitats that can affect biodiversity. There is evidence that vertical farming can also reduce the rate of pollution from agriculture, since indoor farming relies a lot less on fertilizer, thus most of the foods grown through this method will have a higher safety level due to less harmful chemical exposure. Furthermore, vertical farming requires no land clearance and can be implemented in urban areas near consumer demand, while conventional agriculture accounts for 80% of worldwide deforestation.

Recognizing these advantages, governments and investors saw massive potential in this method of agriculture, and billions of dollars were directed towards its expansion. Huge sums of money were pumped into startups adopting different vertical farming technologies such as hydroponics. In 2022, the indoor vertical farming sector attracted substantial funding of $2.4 billion.

Yet, despite all the investment and excitement around this emerging farming method promising to redefine agriculture, many ventures failed to scale or stay profitable. Farms shut down, investors pulled out, and a pressing question emerged: why didn’t vertical farming live up to expectations?

The real challenge: economics, not technology 

A key challenge in vertical farming that requires further investigation is the ability to simultaneously evaluate market access and production resources when selecting suitable sites. In most US cities, regions vary in their capacity to support vertical farms based on multiple market and production factors. While siting analyses often assess these factors individually, there is a need for a more integrated approach that helps vertical farm operators balance supply and demand-side considerations to ensure long-term viability.

The research team at UMSL’s Laboratory of Advanced Supply Chain Analytics, led by Dr. Haitao Li, has been investigating how to develop scalable, cost-effective solutions that increase vertical farming’s sustainability and profitability. Our recently published study focuses on the economic feasibility and optimal supply chain design for indoor agriculture in Missouri, US. We draw insights from the research findings and global best practices for making indoor agriculture more scalable and commercially viable. 

Many assume that vertical farming is struggling because of technical limitations. But there are plenty of technologies to grow plants efficiently in controlled environments, optimize yields, and reduce reliance on chemical inputs. However, as our previous studies indicate, the main challenge for a vertical farm to grow and scale is economics.

The harsh reality is that producing fresh vegetables or other crops on a vertical farm often costs much more than traditional farming methods. Typically, companies need lots of investment in terms of either the space facility or equipment, and it is very energy-consuming. The cost of maintaining artificial lighting (which replaces sunlight), climate control and automation systems is substantial. This financial burden has been the downfall of many promising startups, such as AeroFarms, which filed for bankruptcy in 2023 due to unsustainable operational costs.

Another major challenge is market demand and supply issues. Factors such as price competitiveness, seasonality and transportation logistics play a crucial role. A vertical farm must grow food efficiently and ensure enough market demand and a cost-effective supply chain to distribute its produce. So, beyond cost, these inefficiencies further complicate the equation. 

The US market dynamics make this particularly difficult, as many vertical farms struggle to compete with traditional farms that produce at a lower cost due to economies of scale. Yet, consumers used to affordable produce are often unwilling to pay a premium for vertically cultivated food. This financial gap has led to the downfall of many promising startups, reinforcing the need for a more sustainable economic model for vertical farming.

European vertical farms are expanding beyond traditional leafy greens to include a variety of fruits, specialty vegetables, and even staple crops, enhancing their business resilience. For instance, companies like iFarm in Finland are developing technologies to grow pesticide-free salads, strawberries and microgreens, demonstrating a commitment to diversifying crop production. In contrast, US vertical farms focus heavily on leafy greens and herbs, which are crops with high value but a limited market.

Optimizing the vertical farming supply chain

One area critical to enhancing the success of vertical farming is the implementation of data-driven decision support for locating and configuring indoor farms and selecting suitable crops. Focusing on the St. Louis area in the US, our study develops a supply chain optimization model that integrates market dynamics, production feasibility and supply chain strategies to improve the economic sustainability of vertical farming. Based on our findings, we offer three key recommendations for optimizing the vertical farming supply chain:

• Implementing strategic production and resource planning to lower fixed and variable operating costs, including labour and energy, is crucial for boosting profitability.
• Increasing price tags can boost profitability, but with diminishing rewards. This emphasizes the necessity of establishing a strong brand recognition and competitiveness, even when the benefits of marketing activities diminish at higher price points.
• Expanding market share or demand does not always lead to higher profitability. Without simultaneously optimizing costs, prices or yields, scaling up can significantly reduce profit margins or even lead to losses due to increased facility and operating expenses. However, if crop yields improve in tandem with demand, profitability can rise alongside market growth.

Making vertical farming sustainable and scalable

The potential of vertical farming is still vast. It’s not a failed concept; it’s an idea that has been approached inefficiently. If industry stakeholders, policymakers and researchers can address economic and supply chain barriers, the US could emerge as a global leader in sustainable indoor farming. Missouri is well-positioned to take advantage of this shift. With St. Louis at the heart of US agricultural distribution, the region can become a Center of Excellence for Controlled Environment Agriculture. At UMSL, we work with stakeholders to make this vision a reality. Our ongoing research focuses on moving vertical farming from a struggling experiment to a sustainable and scalable solution for modern food production in the US.

Original Article Here: https://www.weforum.org/stories/2025/02/supply-chain-optimization-could-boost-vertical-farming/

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