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There are many different types of model for the successful operation of a business. A business model is a strategy for how a company will make a profit. It identifies the products or services the business will sell, the target market, and the anticipated expenses. A new business in development needs to have a business model in order to attract investment, help it recruit talent, and motivate management and staff. Established businesses have to revisit and update their business plans regularly in order to anticipate trends and challenges ahead. Jan Wilhelm van der Schans, of Wageningen University, identifies five types of urban agriculture business model (van der Schans 2015; van der Schans et al. 2014):
A differentiation strategy is based on creating distinctions with conventional supply chains. An urban farming business can distinguish itself by keeping production, processing and distribution in its own hands (vertical integration). By including several steps of the supply chain, it may be able to capture more of the profit margin, or at least keep better control over the distinctive character of the product. An urban farming business can also distinguish itself in terms of its products by growing unusual crops such as heirloom vegetables and ethnic vegetables, as well as perishable varieties that are more difficult to transport over long distances, or products with high transportation costs, and by stressing the seasonal nature of the produce as opposed to the year round availability in supermarkets.
A diversification strategy is aimed at providing other goods and services, aside from food production. An urban farming business can offer a number of business-to-consumer market-oriented activities, such as education and social care, as well as business-to-business activities, such as energy production from urban green waste and composting. Urban agriculture initiatives can make a difference by decentralizing waste management.
The low cost strategy in conventional agriculture is usually about expanding the business in order to realize economies of scale. However, this is a business development strategy for which there is little or no space in the urban context. Urban agriculture can realize a low cost strategy by using urban resources that are currently underutilized, such as vacant plots of land, empty buildings, urban organic waste, excess rainwater, and urban heat waste. Using volunteer work or the deployment of disadvantaged people is also a form of cost reduction. Vertical integration, which cuts out the middleman, can also be considered a low cost strategy.
Urban agriculture provides citizens with the opportunity to regain control over their food supply and become aware of where their food is coming from. It reintroduces the feeling of ownership, sometimes literally when citizens become co-owners of a business through crowdfunding. Community Supported Agriculture (CSA) schemes, whereby a farmer offers members a share of production in return for a fixed subscription, and members have the opportunity to connect with the growers, the land where their food is grown, and with each other at regular social events, are becoming increasingly popular. The share may vary with the vagaries of production, so the risks and rewards are shared, while the subscription is generally payable in advance and for a relatively long term, thereby providing secure income to the producer.
This strategy is based on the insight that more value is added by providing memorable experiences than by providing basic goods and services (the experience economy). Urban farmers are capable of staging unique experiences precisely because of the short distance between the farm and the target audience. Urban agriculture is an experience of rural and urban dynamics in a unique symbiosis, and an enrichment of the metropolitan landscape.
From a business management perspective, urban farming is atypical: in business management it is a golden rule that a company’s strategy should be based on one clear-cut revenue model. For urban farming, however, a mixture of business models may be a good foundation for survival: for example, using volunteers (low cost) and social care clients (diversification) to grow, process and distribute a distinctive product (differentiation) using a CSA vegetable box scheme (reclaiming the commons), and opening the farm to paying visitors (experience) (van der Schans 2015; van der Schans et al. 2014).
Some of the pioneers of urban farming (Lufa Farms, Gotham Greens) have refined their business model to boost profitability, by enlarging their rooftop greenhouses to achieve economies of scale, although Sky Vegetables which, like Lufa Farms and Gotham Greens started production in 2011, still operates from a comparatively small (743 m2) rooftop greenhouse. Economies of scale are also important for indoor vertical farms, with the small size of the commercial production unit at GrowUp Urban Farm in London (762 m2) being cited as the reason for its closure. However, at the other end of the scale, FarmedHere, which with 8361 m2 of grow beds was hyped as the largest indoor farm in the United States when it opened in Chicago in 2013, closed down four years later because the very high energy and labour costs made it unprofitable (Beytes 2017).
The three urban farm pioneers have very different business models. Sky Vegetables grows only eight varieties of herbs and greens, which it sells online to retailers. Gotham Greens grows 13 different types of salad leaves, basil and tomatoes, which are sold to consumers via online grocery stores and in more than 500 supermarkets, grocery stores and farmers markets across 15 eastern states. It also sells its produce to 115 restaurants in New York City and Chicago, and to Delta Airlines. Lufa Farms grows 89 different varieties of leafy greens and fruiting crops. This is made possible by operating three large rooftop greenhouses with nutrient solutions optimised for different plants: one greenhouse is used to grow only tomatoes and aubergines; the second is used to grow lettuces, greens and herbs; and the third is used to grow cucumbers, chili peppers, microgreens, herbs and edible flowers. Lufa Farms’ business model uses a combination of direct selling – which eliminates retail margins and other costs, subscription – which allows the company to tailor its production in relation to demand, and cross-selling – which involves offering complementary products and services beyond a company’s own range in order to sell more goods. Lufa Farms has partnered with other mostly local and organic farmers to sell a wide range of foods alongside its own produce, including cheese, meat, seafood and bakery products, as well as a few growers in Florida who grow tropical produce (bananas, avocadoes and oranges). Customers subscribe to a weekly basket of produce with a minimum value of Can$15 using the farm’s online marketplace, and this is either home-delivered for a fee, or can be collected from hundreds of neighbourhood pick-up points across Montreal, including pharmacies, barber shops, supermarkets, convenience stores, coffee shops and university campuses. This kind of hybrid business model is clearly attractive to customers: the farm is able to pass on the savings resulting from direct selling, while subscription and cross-selling both save the customers’ time. Lufa Farms delivers 10,000 orders each week.
Fresh Impact Farms takes advantage of the controlled environment in its farm in a suburban shopping mall in Arlington, Virginia, to grow edible flowers and herbs catered to the taste preferences of top-tier chefs. Flavours are made more intense, or more subtle, by altering the nutrient mix, water temperature, or light spectrum. Since launching in 2016, the farm has experimented with 250 plant varieties and currently grows between 50 and 60 at a time. Many of the most successful varieties were originally suggested by chefs. The farm worked with a company to develop its own software that tracks the feedback received from chefs for each crop so that the flavour can be adjusted in the next batch.
Some urban farms have adopted a blend of for-profit and non-profit for their business model. Vertical Harvest in Jackson, Wyoming, is an impact-driven business that combines private investment, public resources and philanthropy in order to create a positive economic and social impact for the local community. The farm employs people with physical and intellectual disabilities, and the lettuce, greens, microgreens and tomatoes are sold to local grocery stores and restaurants. BetterLife Growers is an aeroponic lettuce and herb growing operation set up to provide new living- wage jobs in Houston, Texas, for people who might otherwise be difficult to hire, including those with criminal records. Employees receive workforce training in job skills and fiscal literacy, and the produce is sold to local anchor institutions such as universities, hospitals and government facilities, as well as wholesale distributors and retail grocery stores.
The rise of urban agriculture has led to a plethora of start-ups, not just of urban farms, but also of suppliers of equipment and consultancy. Some of these have grown into very successful companies. For example, Infarm was founded by three young entrepreneurs in Berlin in 2013 with an ambitious vision to feed the cities of tomorrow by bringing farms closer to the consumer. The company developed an easily scalable and rapidly deployable hydroponic modular farm system for growing lettuce, herbs and microgreens in any urban retail space or restaurant. Each farm is its own ecosystem, with growing recipes that tailor light spectra, temperature, and nutrients to ensure the maximum yield for each crop. A matrix of sensors collects and records growth data from each farm, and any necessary adjustments are remotely controlled. The company has since grown to 250 employees and is on track to book over $100m in contract value in 2019. Infarm has partnered with 25 major food retailers in Germany, Switzerland, and France and deployed more than 200 in-store farms and 150 farms in distribution centres of online grocery retailers. $100 million of new funding secured in 2019 from venture capital investors will be used to expand the company’s growth in Europe and to spread to the US and beyond, and to grow the R&D, operational, and commercial teams (HortiDaily 2019).
Other start-ups which supply urban farming equipment include US companies Freight Farms and Vertical Crop Consultants, both of which sell turnkey container farms. In addition, to using different growing systems in their container farms – Freight Farm uses growing towers whereas Vertical Crop Consultants use a horizontal stacked bed system – the two companies differentiate themselves in their business models. Alongside their GreeneryTM container farm, Freight Farms sells farm management software and an app which allows farmers to remotely monitor sensor data – from nutrient levels and pH to temperature and CO2 – and to analyse the relationship between the farm’s settings and yield. If necessary a client services team can access the metrics to help troubleshoot and find easy fixes. For a one-off fee, Freight Farm provides an online course on how to use the container farm, and a current subscription to the farm management software gives lifetime access to the online materials. Freight Farm has therefore adopted the solution provider business model, which offers total coverage of products and services in a particular domain. By paying an annual subscription for the cloud-based farm management software, rather than a one-off license fee, the farmer is guaranteed access to the latest version. Freight Farm’s ability to access the farmer’s metrics enables them to leverage customer data, which they can then use to optimise their container farm system. Vertical Crop Consultants, on the other hand, sell a much more diversified portfolio of products. Alongside their CropBox container farm and associated smartphone app, they sell bespoke vertical and horizontal hydroponic systems, and have an online store selling more than 5000 different hydroponic growing supplies – lighting, nutrient solutions, pumps, irrigation systems, aeration devices, etc. – manufactured by other companies.
In Europe, French start-up Refarmers, founded in 2015, is the official European distributors of the US manufactured ZipGrow vertical planting system. In the UK LettUs Grow, founded in 2015, sells aeroponic systems and modular farms, as well as farm management software for remote automated control, data collection and crop growth analysis. V-Farm, which started out in 2006 as a project for fodder and wheatgrass production, developed its first tiered rack system for growing herbs in 2011, and now produces a range of modular NFT and flood and drain systems suitable for commercial- scale cultivation. In Belgium Urban Crop Solutions, founded in 2014, offers a one-stop-shop in terms of turnkey indoor plant growing equipment and after sales service. Their R&D department has developed growing recipes for more than 200 crop varieties.
Established in 2018, Swedish start-up Bonbio defines itself as a ‘turnkey provider operating in the field of circular farming and crop production’. They have developed a proprietary circular farming concept where they convert waste food into organic plant nutrients which have been optimized for hydroponic farming. In the long term, Bonbio Nutrients will be available from retailers or garden centres, but in the meantime the company is working with IKEA to convert waste from their in-store restaurants into a nutrient solution which is then used to grow lettuces in containers outside the stores, and the salad leaves are then used in the restaurants.
iFarm is a Russian start-up founded in 2017 which is seeking to revolutionise farming through the provision of automated vertical farm systems, greenhouses and growing modules which use soil rather than hydroponics. Aimed at small and medium-sized businesses, iFarm's modular automated greenhouses are able to accommodate all manner of crops, and are designed to fit in a variety of urban spaces such as vacant lots and rooftops, while the modular vertical farm system can be placed anywhere indoors. The growing modules are intended for cultivating greens and strawberries in restaurants and grocery stores. All three systems are operated by cloud-connected software which automatically controls all aspects of the environment – including the temperature, water supply, lighting, and the nutrients mixed into the soil – allowing the company to effectively programme the qualities of the plants. Using a centralised database, urban farmers are able to download growing recipes designed to maximise the quality of specific crops, based on the data collected which is analysed by a team of iFarm scientists. More than 50 different data parameters are collected from every square meter of soil: these verify the stages of growth, and signal when to harvest and what to do with every crop. Because the recipes can be easily downloaded, this type of system is designed to appeal to a new type of urban farmer – one who might be tech-savvy but doesn't know much about horticulture. It will also appeal to growers who want to be able to certify their produce as organic, which is currently not possible in Europe for produce grown using hydroponics. The company has also developed a planting robot.
In 2019 iFarm landed $1m in backing from Gagarin Capital, a Russia-based, venture-capital investor in high-tech start-ups, which it will use to grow its business in Russia and expand into Europe. As regards urban farms, there has been a series of high-profile investments in the industry in recent years. San Francisco-based Plenty raised a record-breaking $200 million from the Japanese conglomerate SoftBank Group Corp (Cosgrove 2017). One of France’s urban farming start-ups that has succeeded in attracting millions in funds is Agricool, which grows strawberries in containers in Paris. Founded in 2015, the company has raised 12 million euros from private investors, a first in French urban farming history. The strawberries are sold to local wholesalers, supermarkets and gourmet food shops. The company has four operational containers producing an average of 200 boxes of strawberries a day, which is not yet enough to turn a profit. By scaling up its operations it hopes to become profitable by 2021 (Luquet 2018).
But while some urban agriculture start-ups are thriving, a large number have also failed. In Vancouver Alterrus declared bankruptcy after less than two years of operation. When the business launched in November 2012, it had promised to produce about 68,000 kg of leafy greens and herbs a year in the hydroponic rooftop greenhouse. The business model for the farm involved selling pesticide-free greens and herbs to high-end restaurants (Howell 2014). Stockholm-based Plantagon intended to move food production into high-density cities on a large scale by developing and operating farms that are integrated into existing city infrastructure – in office towers, underground parking garages, and on the facades of existing buildings. The farms could either be retrofits or extensions of existing real estate, or new builds, and would be implemented as symbiotic systems using existing infrastructure such as cooling/heating, biogas production, waste/water management and energy production to produce food. Plantagon’s first farm, the Plantagon CityFarm, opened in the basement of an office building in Stockholm in 2018 and the company intended to roll out 10 more CityFarms in the city by 2020. The underground farm, which was expected to grow 100 kg of vegetables per day, stored the heat emitted by the LED growlights and then reused that energy to heat the offices above, which enabled it to pay nothing in rent. However, the farm had difficulty in selling the products it grew for the price it needed, and Plantagon was declared bankrupt in 2019, citing cash flow problems and the difficulty of attracting enough capital to remain financially sustainable. Plantagon may have been ahead of its time in terms of the size of its projects, and the speed at which it wanted to realise its ambitions. The gap between promising innovation and actually delivering on it is something that trips the agritech industry up again and again (Marston 2019).
Many of the start-ups that have failed were urban aquaponic farms. One of the main factors that determines the possible success of aquaponics is its competitiveness against alternative production methods. Investment costs in aquaponic farms are almost double those of hydroponic farms, and in order to be profitable, the farm needs to maximize both plant and fish production and revenues. The demise of FarmedHere and GrowUp Urban Farm has already been mentioned. Green & Gills, located in the basement of The Plant, Chicago, was operational for only three years, from 2012 to 2015. Urban Organics, an 8083 m2 aquaponic farm in St. Paul, Minnesota, grew leafy greens and herbs in a former brewery, and sold the vegetables to wholesalers and the tilapia, Arctic char and rainbow trout to restaurants; it closed down in 2019 after six years of operation. UF002 De Schilde, an aquaponic farm run by UrbanFarmers in The Hague, Netherlands, was operational from 2015 to 2018. Tomatoes, cucumbers, bell peppers and leafy greens were grown in the rooftop greenhouse, while the aquaculture component housed on the top floor of the six storey former Philips building was used to rear tilapia. From here came the idea to fill the entire building with start-ups to act as an innovation and knowledge centre for urban agriculture. Ironically, New Urban Farm opened in the same month that UrbanFarmers went bankrupt. Current tenants on the fourth floor are HaagseZwam which grows mushrooms on coffee grounds, and sells mushroom growing kits. The other start-ups present when the hub opened in 2018 – Rebel Urban Farms and Uptown Greens – no longer appear to be active in the building.
UF002 De Schilde was losing money from the start, as costs were high and revenue was too low, and investors were no longer willing to finance the farm. Arguably the business model was flawed; a higher value, more specialist crop such as microgreens, which can be sold to high-end restaurants and other consumers, might have been a better choice than tomatoes and other fruiting crops which are produced on a vast scale in the Dutch countryside and are available in supermarkets at very competitive prices. The most fundamental question for all start-up farmers to ask, regardless of their growing technique, is what are they going to grow, and for whom? If they can’t sell it, they shouldn’t grow it. Being able to answer this question therefore involves market research to find out what the markets can’t get or needs more of, who the customers will be, and the potential prices that could be charged. The social acceptance and preferences of potential consumers are decisive factors for the success or failure of an entrepreneurial business. A large-scale survey carried out in Berlin to identify consumer attitudes towards different forms of urban agriculture revealed a low level of acceptance of both vertical and aquaponic farms compared with rooftop greenhouses (Specht et al. 2016b). These results are consistent with those of previous studies investigating stakeholder perceptions of rooftop greenhouses in Barcelona (Sanyé-Mengual et al. 2015b) and Berlin (Specht et al. 2016a). A survey of consumer attitudes in Adelaide, Australia, towards urban aquaponic farms also revealed a low level of acceptance, which was positively correlated with the respondents’ level of ignorance concerning aquaponics (Pollard et al. 2017). This corroborates the findings of a pan- European survey of consumer acceptance of aquaponics (Milicic et al. 2017).
These surveys all reveal a perception of soil-less farming as an ‘unnatural’ growing technique, with only a few stakeholders having a neutral opinion on it. Generally, they either accepted or radically rejected it. This may explain the lack of demand which means that many urban farming operations are not yet at full production year-round, despite touting the 12-month growing season as a main benefit of the industry. Indoor farms that have achieved the sales to produce continually, such as Gotham Greens with its New York City and Chicago rooftop greenhouses, have a customer base that is responding to strong ‘local’ branding rather than the technology behind the food.
Urban mushroom farms such as HaagseZwam owe the secret of their success to employing circular economy principles. In Paris La Boîte à Champignons use coffee grounds to cultivate oyster mushrooms in the basement of a supermarket, and sell their products to that and other nearby supermarkets and restaurants. They further diversify their operation by selling home growing kits that can be ordered online, as well as educational kits for school students. RotterZwam, which is located in a former swimming pool in Rotterdam, also grows oyster mushrooms. Besides coffee grounds, they also use coffee husk – another waste product – as a substrate. They have made supply agreements with the majority of the micro roasters in Rotterdam as well as with roasters in the surrounding region in order to secure the amount they need for their production, which they collect for free on a weekly basis. Since most coffee is consumed at home (about 70%), they have developed a growing kit so that people can use their own coffee waste to grow mushrooms. They also sell tickets for tours of the farm. GroCycle in Exeter, UK, cultivate their oyster mushrooms in coffee grounds in an unused office building (Figure 9). In addition to selling their produce to restaurants and food outlets, they also sell mushroom kits for home growing, turn the waste from their growing cycle into compost, and offer an online course in low-tech mushroom farming. Hut und Stiel in Vienna, who again use coffee grounds to cultivate oyster mushrooms, sell the best looking produce to grocers, while the poorer quality mushrooms are used for pastes and sauces in collaboration with a Viennese delicatessen. They also sell starter cultures for home cultivation.
Figure 9: Oyster mushroom mycelium growing on coffee grounds in 12 kg hanging column bags https://grocycle.com/
These examples of urban mushroom farms illustrate the range of different products and services that can be generated, in addition to the mushrooms themselves. Gourmet mushroom varieties such as oyster and shiitake are a premium product. For example, in the UK the retail price is around €13/kg, compared with €3/kg for cherry tomatoes. Mushrooms can grow in just 3 to 4 weeks from start to finish, and a 10 m2 growing area can produce 10 kg of mushrooms a week. In addition to being able to reduce their costs by using free substrate to grow their produce, urban mushroom farms have much lower operating costs compared with urban farms growing leafy greens and fruiting crops: unlike plants, mushrooms can grow without light, so there is no need for expensive LED growlights, although coloured oyster varieties do require light in order to colour up. Basements are perfect for mushroom growing because it is relatively easy to stabilise both the temperature and the humidity, as long as you can maintain good airflow, and they are also a very common space in cities.
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