The energy crisis in Europe is forcing changes and strategies, and vertical farming is one of the industries suffering from it. In recent years, many European locations have seen the vertical farm initiative grow in their countryside. Infarm is one of the last companies in the industry with $600 million in venture capital funding. The company has promised a future where vegetables will be grown in high-tech warehouses. They would have LED lights instead of open fields or greenhouses.
Towards the end of November, Infarm reported, via e-mail, the dismissal of some 500 employees. The mailing detailed the intention to reduce operations in the United Kingdom, the Netherlands and France. The firm explained that it was seeking to concentrate on countries where it had a higher probability of profitability. Already, in September, Infarm had laid off some 50 employees citing reduced operating costs and a focus on profitability.
Six months ago, the mood at Europe’s largest vertical farming company was largely upbeat. However, a critical point was reached in 2022. The first point lies in the vulnerability to increases in electricity prices. The use of LEDs to “power” the cultivation of plants requires a lot of electricity consumption. Since December 2022, there has been a price increase in the European Union for electricity, close to 60 percent.
Vertical farming and its problems
Eighteen months ago, vertical farms were spending 25% of their operating costs on electricity. Some say that this expense could reach up to 40 percent, due to the increases. Investors have begun to tighten their belts in search of quick returns. Vertical farms are expensive to build compared to conventional open-air farms.
The poor global financial outlook is also putting pressure on consumers. Vertical farming usually targets sprouts, herbs and leafy greens, especially salad greens. The latter are an industry favorite because of the rapid growth under LED lights. In addition, they have a short service life and a higher price. High inflation has led to the abandonment of high-cost herbal production.
Production, costs and profits
Vertical farming is an excellent opportunity for countries where energy is cheap and there is not much outdoor space. Everyone is looking to the Middle East as the ideal place to pursue this technique. The Gulf Cooperation Council, comprising Saudi Arabia, Bahrain, United Arab Emirates, Qatar, Kuwait and Oman, import on a large scale. The latest figures speak of 85 percent of all foods, with vegetables accounting for 56 percent.
This year, one of the world’s largest vertical farms opened in Dubai. It supplies vegetables to Emirates Airlines and local stores. Outside the Middle East, vertical farming has found it more difficult to gain traction. The European energy crisis has exposed the flaws that this industry has been hiding from the beginning.