Cost Parity in Indoor Farming – Green Automation

Indoor AgTech spoke to Patrik Borenius, CEO at Green Automation Americas about achieving the right production costs in the industry, learnings of indoor farming in Finland and how this can be replicated on a global scale.

You’re delivering a session on: ‘Mapping the Pathway of Cost Competitive Hydroponic Lettuce Production: Lessons Learnt from Finland and Opportunities for North America’ at Indoor AgTech. What key learnings will you focus on?

Greenhouse farming of leafy greens has been done in Finland on a large scale for decades. Lettuce greenhouse growers  are competing with each other, continuously striving to optimize their cost position and  have successfully taken over the grocery stores shelves making indoor grown lettuce mainstream. Some field lettuce is still imported to Finland from southern Europe, but in a much smaller degree. Per capita, Finland has more than 50 times the lettuce greenhouse acreage of the United States. Also, the average lettuce greenhouse in Finland is dramatically more productive per acre.

With regards to leafy greens, Finland has to a large extent achieved what probably many of the delegates at the Indoor AgTech Innovation Summit are hoping to see in North America in the future. Not everything, but a significant part of the Finnish experience can be applied to other parts of the world.

Understanding the success factors in Finland can serve almost as a checklist for any investor who wants to become involved in the indoor growing leafy green space:

• Is the growing system competitive in terms of plant density
• Is the growing system competitive in terms of labor input
• Is the energy cost profile competitive
• Is the Cap-Ex per Annual Yield ratio of my facility competitive
• Is the facility overall large enough to keep management overhead costs competitive?

We believe studying the Finnish model is very worthwhile for anybody who is serious about indoor production of lettuce and leafy greens.

What’s your driving focus at Green Automation?

Our vision is “Making fresh, sustainable and locally grown leafy greens the new normal.” And we do this from the perspective of a technology provider. We want to lead the way in efficient and sustainable greenhouse production of leafy greens, providing automated growing systems that drive success for owners, growers and investors alike.

In other words, we believe in a future with quite defined roles for growers and technology providers.  Obviously, we recognize that this is viewed differently by many others in the CEA field, as the large investments into integrated technology vertical farm operations show.

But based on where we are today in this industry, we are convinced that, designing the most advanced and most high yielding growing systems can most efficiently be accomplished by a dedicated technology company. Equally we believe that operating a (large) CEA operation successfully, including building a successful produce brand and executing daily in the wholesale and retail environments, is very challenging. And I would argue that anybody who does that really well has limited resources left over to develop benchmark growing systems.

Think of it this way: If a new entry into conventional field farming segment were to proclaim that the available tractors or combine harvesters are not good enough and they hence suggest that they will develop their own farming equipment in-house, most people probably would find that misguided.

Cost parity remains the ‘holy grail’ for most indoor farmers. What are the key measures and ingredients to achieve this, through cost management and yield potential?

I would argue that maximizing plant density (Yield per area) is probably the single most important factor. If your total production cost is a sum of numerous expenses, the plant density must be considered as a factor, a multiplier. This factor has a very large impact on all components of the production cost, from the Cap-Ex for the entire infrastructure to most Op-Ex items such as; heating, cooling, CO2 and lights. In my view, the only way to really achieve competitive plant density numbers for leafy greens is to have a system that adjusts the spacing between the plants during the growing process, such as a moving gutter system. Then annual yields of 15 lbs/sq-ft and more are achieved in Finland.

The competitiveness of indoor vs field growing depends greatly on the variety of crops grown. The large head of field iceberg lettuce is probably safe from being displaced by a comparable greenhouse product anytime soon. But for many other relevant lettuce and herbs types ‘cost parity’ has already been achieved in Finland.  Of course, the moment that happened, the ‘long-distance field lettuce from southern Europe’ disappeared from the shelves and now the race was on between the various Finnish indoor growers competing with each other for the best cost position. It’s not enough to beat the costs of the field grown produce. Anyone, who wants to be part of a reality, where the indoor grown leafy greens become the new standard, needs to be willing to compete with the other indoor producers. This is not unlike other crops such as tomatoes.

In Finland, locally-grown produce from your indoor farming facility has become the norm in food retail, to a large extent replacing field grown produce. How have you achieved this, and could your strategy be replicated in the US?

Making greenhouse grown leafy greens the norm in Finland was not due to one specific factor, but a function of striving for highest efficiency in all areas. I mentioned earlier how crucial the plant density is as well as the importance in keeping labor costs down. These are factors driven by the efficiency of the growing system inside the greenhouse. The one common denominator and used almost exclusively in greenhouses in Finland is the “automated NFT moving gutters system”. The floating raft systems account for less than 1% of the growing area and there are no relevant commercial vertical farm operators.

In addition, greenhouse operations in Finland are typically not ultra-local in urban areas, but generally located a few hours outside the cities. These strategic site decisions have been made to keep land, labor and energy cost-effective. Operations are often deliberately located right next to a large direct use energy/heat source and land needs to be plentiful for large operations, typically 10 acres or more.

In conclusion, the formula is utilizing a highly efficient growing systems combined with a strategic placement of the facility where land, energy and labor is available at low cost. Finally exploring economies of scale by growing these facilities into very large operations is necessary. All of these aspects can largely be applied to the US as well.

Finnish growers have also been successful in moving the consumer’s demand to a lettuce product that is very favorable for greenhouse cultivation in terms of the variety, the size it is grown to and the type of packaging it is sold in. Varieties that are more difficult or less efficient to cultivate in a greenhouse such as spinach play a small role in the market. This will be more difficult to apply to the US. I would expect that US consumers will continue to demand the level of variety they enjoy today.

With new technologies on the horizon for indoor farming, what is your vision for the sector?

Our vision is probably having a vibrant community of growers/operators that are more open to sharing and bench marking each other. This would help to develop a common understanding regarding some of the necessary fundamentals such as plant density, labor efficiency, energy usage, economies of scale that are necessary to get into the correct ball park regarding cost competitive lettuce production.

Once these fundamentals are sufficiently deployed in enough farms, there is the opportunity for further optimization and growth with all the advances in lighting as well as AI and big data. While we are big believers in greenhouse operations utilizing the sun as much as possible, our baby leaf growing system is typically equipped with a partial lower level for germination and growing of the very young plants exclusively under LED lights. So obviously we are excited about progress in this field as well.

What developments are a priority for Green Automation over the next 12 months? What partnerships and collaboration are of interest?

We view North America as the most interesting market for our growing systems due to market size, a particularly well fit between our baby leaf system and the consumer tastes as well as certain megatrends regarding field production challenges and the growing demand for fresh, locally grown produce.

While our growing systems traditionally have been implemented primarily in the North East, we have recently delivered systems to Texas and Ohio and are currently working on additional projects for New England, the Mid West as well as for the first time the Mountain West. We are delighted to show that this business model can be profitable not just in the North East (thousands of miles from the traditional field growing locations) but also much closer to places such as Salinas, CA or Yuma, AZ.

We’d love to talk to anybody who is serious about “Making fresh, sustainable and locally grown leafy greens the new normal” and is “Ready to Grow. A Lot.”

Patrik will be giving a presentation on ‘Mapping the Pathway of Cost Competitive Hydroponic Lettuce Production: Lessons Learnt from Finland and Opportunities for North America.’ on June 20.

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