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Economics of vertical farming in the competitive market

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Abstract

The sustainability issues surrounding conventional agriculture motivate the need for exploring new sustainable methods of farming, critical for global sustainable development. Vertical farming is a potentially underexplored component of sustainable food production portfolio. This paper offers the first quantitative model in the environmental economics and policy literature that evaluates the economic prospect of vertical farming systems in a competitive market setting. Our framework identifies the principal factors to assess the economic and risk aversion potential of vertical farming and utilize a decision model quantify the trade-off between the two alternative farming practices. The model is utilized to evaluate the competitive economic prospect of vertical farming in seven locations with heterogeneous climate and economic conditions within the USA. The results quantify the value proposition of vertical farming in various conditions. Consequently, we leverage these results to evaluate the current and future prospect of the vertical farming industry.

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Data availability

The data generated and used for this study will be made available upon request.

Notes

  1. Since 1990s, approximately a million square kilometers have been lost.

  2. We will use this comprehensive book as reference for some our estimations.

  3. https://aerofarms.com/.

  4. https://technofarm.com/en/.

  5. Naturally, one could feed different inputs regarding the scale to the same quantitative framework.

  6. Due to the considerably larger market and the more common practice of producing lettuce among the vertical farming businesses compared to other herbs and leafy greens, the model would assume that the examined farming businesses will only produce romaine lettuce. Our final reason for choosing lettuce as the benchmark for our model is simply the availability of more reliable data. The data concerning vertical farming are considerably limited overall, and of that limited data, the majority do indeed belong to lettuce and other leafy green productions.

  7. In other words, including the machinery costs would not add notable information in the comparison setting as it is approximately similar in different regions. So, adding them might introduce an unrewarded level of complexity to the model.

  8. The insurance rates provided by the US Department of Agriculture is the most accurate representation of farming production risks in the USA, which are also available numerically in large chunks of data.

  9. Each investor or stakeholder may have a varying utility function and consequently different levels of risk tolerance. Our model takes the stakeholder risk tolerance as an input. We should clarify that we are not suggesting the 0.8/0.2 is the “right” level of risk tolerance for the model.

  10. In other words, our vertical farming operation will have the same output with 25% less energy, land, water, and labor.

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Acknowledgements

This work was completed with funding from the US Department of Agriculture (Grant # 2016-38422-25540). The authors would like to thank the USDA and Texas State University for providing funding and access to both infrastructure and laboratories. The sponsors are not responsible for the content and accuracy of this article. The authors declare that there is no conflict of interest regarding the publication of this paper.

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Authors and Affiliations

  1. University of Massachusetts Boston, Boston, USA

    Faraz Moghimi

  2. Texas State University, San Marcos, USA

    Bahram Asiabanpour

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  1. Faraz Moghimi
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  2. Bahram Asiabanpour
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Correspondence to Faraz Moghimi.

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Moghimi, F., Asiabanpour, B. Economics of vertical farming in the competitive market. Clean Techn Environ Policy 25, 1837–1855 (2023). https://doi.org/10.1007/s10098-023-02473-8

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