Why the vertical farming industry wilted in late 2022

The rapidly expanding indoor farming industry endured some growing pains in the back half of 2022.

A pullback in venture funding and elevated energy costs have led to a rash of layoffs, delayed or canceled farm construction, and, in rare cases, shuttered businesses.

The industry recorded $434 million in funding in Q3 2022, per Pitchbook data, down 17% year over year and a 44% decline from Q2. And a combination of inflation and Russia’s invasion of Ukraine caused electricity prices in both the US and Europe to skyrocket to record levels. These rising costs put significant pressure on indoor farms, which often have lights going 24/7 as a way to substitute the sun’s energy.

“In response to a more challenging funding environment, many companies have made a clear reprioritization of business strategy away from growth at all costs and to profitability,” Alex Frederick, senior analyst of emerging technology at Pitchbook, wrote in the company’s Q3 2022 Agtech Report.

Growing deeper

November was a particularly difficult time for the industry.

Berlin-based Infarm, for example, announced in late November that it would lay off around 500 employees—more than half its workforce—citing high energy prices and general economic conditions. Infarm declined a request for an interview.

That same month, Florida-based Kalera received a delisting notice from Nasdaq after trading under $1 a share for more than 30 consecutive trading days and trading below 10 cents a share for 10 consecutive days. Its shareholders voted in December to consolidate their shares in a reverse stock split, where every 100 shares were converted into one.

Kalera CEO Jim Leighton had previously told investors in August that the company would suspend the opening of four new facilities in favor of focusing on profitability at its existing farms.

Other companies, like IronOx, also laid off staff in November, while the growers GlowFarms and Fifth Season shuttered operations entirely.

Kentucky-based AppHarvest, which opened a 15-acre farm in October that the company claimed to be the largest indoor farm in the world, said in its Q3 2022 earnings report it had “substantial doubt about our ability to continue,” noting that at the end of September, it had around $36 million in cash on hand and an accumulated deficit of about $270 million.

In June 2022, AppHarvest founder and CEO Jonathan Webb told us the company aimed for its hybrid approach of using both LEDs and sunlight to help cut its energy costs—a key expense that is contributing to the losses it projected “for the foreseeable future” in its Q1 2022 earnings report.

Webb said on a Q3 2022 earnings call that the company’s prior roadmap—12 farms built by 2025—has been put on hold as AppHarvest refocuses efforts on making a profit from a core network of four farms located in Appalachian Kentucky, three of which are operational today.

“I think folks are also seeing opportunities to streamline and become more efficient, which is critical. And I think that’s starting to separate the path now,” Travis Parman, chief communications officer at AppHarvest, told Tech Brew. “Investors now want to see proof points around economic viability. So I think we expect to see folks demonstrating a clear path to profitability, whether that’s independently through partnerships or by adjusting their business model.”

Irving Fain, CEO and founder of Bowery Farming, told us that despite the turbulence in the indoor farming space, he has “never been more optimistic around the future of Bowery and the future of the vertical farming industry than I am right now.”

Graham James, VP of communications at Bowery, declined to share financials for the company.

“I say that acknowledging and understanding the uncertainty in the world around us,” Fain said of his optimism. “There is clear imperative for what we’re building. You look at the desires of consumers, the desire of retailers. It’s the surety of supply, but it’s the surety of sustainable supply.”