Why we’re very skeptical about urban farming.

At City Observatory, we don’t tend to have a lot of content about agriculture. Farming is not an urban activity. But every so often, we read techno-optimistic stories about how a new era of hyper-local food grown in your neighborhood or very nearby,  is just around the corner or coming soon to a city near you. The latest of these appeared at Fast Company last week, in an article asking: “Has this Silicon Valley Startup finally nailed the indoor farming model?”

Adele Peters writes about a company called Plenty, which is working on a vertical farming system. They’ve raised $26 million in venture capital to develop technologies they’re using to growing kale and a range of herbs in a mixture of ground-up plastic bottles in clear vertical tubes, aided by hyper-efficient LED lights that speed-up the growth process. Plenty’s business model calls for growing products closer to customers, so that produce is fresher, better tasting and healthier. And, at least in theory, shipping product shorter distances allows them to grow more fragile or more perishable varieties than crops that have to travel for days or thousands of miles.

There are a lot of cool aspects to this product: Peters extols the tastiness of the product–regaling readers us with stories about how celebrity chef Rick Bayless pronounced the product surprisingly good–and shares Plenty’s claim that vertical farming is 350 times more space efficient than conventional dirt-based agriculture, While the story is replete with VC-pitch based talking points about the efficiency of some aspects of the indoor farming model–purportedly 1 percent as much water use as field crops, 30 miles to the consumer, not 3,000, plus the company uses LED lights are 64 times more cost-effective than those available a few years ago–one fact is conspicuously missing from the narrative:  How much will consumers be asked to pay for indoor-grown kale and basil?  As a comparative price point, its worth noting that its already possible to buy live butter lettuce (root ball attached) for $3.89 and live basil plants (Trader Joes sell’s them nationally for $3-$4.)

There are good reasons to be dubious of the economics of urban agriculture. Plenty’s technology requires that they pay urban or retail prices for things like water, energy, growing substrate and space. With conventional farming, water is cheap or even free (rainfall, or water that landowners get by right), the energy content of food comes directly from the sun (again at zero price, bundled with the land). And rural land is orders of magnitude cheaper than urban land. The average value of an acre of cropland in the US is about $4,000 an acre, or roughly 10 cents a square foot.  Meanwhile, typical prices for bare land in urban areas are frequently on the order of $10 to $20 per square foot (and higher in big cities).  So just for starters, vertical farming has to be 100 times more efficient than conventional farming to offset land costs (and that’s without considering capital construction costs to go indoors). To economists, the high price of urban land isn’t so much an obstacle to urban or indoor farming as much as it is an indicator telling us that we have much better uses for our limited supply of urban land than growing food. Every acre of city land not available for housing, for example, pushes residents further out (often on to farm land), and entails more driving for all trips.

Its also worth noting that the technology for quickly moving fragile and perishable plant-based products across the globe is fully mature, and surprisingly inexpensive. For example, we get tulips from the Netherlands and raspberries from Chile for prices that are competitive with US grown product.

Little surprise then, as Peter’s mentions in the article’s tenth paragraph, that several startups–including Farmed Here, Local Food, and Podponics–that have tried indoor farming have gone belly up, taking millions of dollars of investors funds with them. Whether Plenty will succeed where others have failed most likely hinges on the un-asked question of what price it will charge for its produce.

The headline of this Fast Company article is a classic instance of what we call “Hertz’s law*”, named for our City Observatory colleague Daniel Kay Hertz who observed that when story or blog post titles are framed as a yes/no question, the best answer to that question is almost always “no.”  “Has this Silicon Valley Startup finally nailed the indoor farming model?” In this case, we believe Hertz’s law applies. But we’ll stay tuned to see whether Plenty can make the math work. We just hope the next business reporter that writes a story about this company asks a hard question or two about the retail price of the end product.

By the way, our pessimism isn’t because we’re somehow not highly enamored of fresh greens. Here at City Observatory’s headquarters in Portland, a small patch of arugula grows year-round. It is picked minutes before its served, and travels about 75 feet to where its consumed.

While we agree there’s undoubtedly a market for premium grade produce, its probably not a very large one, and competition in the high end of the food business is increasingly fierce (as Whole Foods has learned). Indoor farming is likely to be niche technology for some specialized products, but as long as dirt is cheap, and sunlight is free, it’s unlikely to be much of a challenge to open-air, soil-based farming. While we believe cities do most things better than anywhere else, efficiently growing enough food to feed several billion people is the thing they’ll probably continue to do less well.

* Several commenters have alerted us to the much longer lineage of this observation, which goes under the name “Betteridge’s Law.”