Is Plenty (& vertical farming) the Juicero of agriculture?
SFTW thoughts on Plenty's recent down round
Welcome to a Wednesday edition of SFTW!
Today’s edition looks into the recent news about Plenty, the vertical farming company. Before we get into the details of Plenty, let me tell you two quick anecdotes.
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Juicero
Juicero was an American company (2013-2017), which designed, manufactured, and sold the Juicero press, a fruit and vegetable juicer. The juicer was priced at $ 699, and then the price was dropped quickly to $ 399. You can view the ad to see the product. The Juicero would use a bag filled with fruit and vegetable juice, which was pressed by the Juicero to get the juice out of the bag!
The company raised $ 120 million from very well known VCs, and went down in flames in 2017, as they tried to solve a problem which didn’t exist. As the Guardian reported at the time,
Juicero was an example of "the absurd Silicon Valley startup industry that raises huge sums of money for solutions to non-problems."
Silo and the Mars series
Apple TV+ is running a mind-blowing show called Silo. It is based on the series of books by Hugh Howey. The premise of the books and the show is as follows: there are a few thousand people who live in a silo which is almost 150 levels deep as the outside atmosphere is too toxic. The lives of the people living in the Silo are tightly controlled by the powers to be. I won’t give you any spoilers, though the TV version’s storyline is quite different from the books.
How do you feed a few thousand people when you are living in a closed silo which is almost 150 levels deep, with no access to sunlight, a lot of fresh water, nutrients, and other chemicals ? In the Silo world, the people do vertical farming to grow grain, fruits, and vegetables, including animal farming for dairy and meat.
In the fantastic Mars trilogy by Kim Stanley Robinson, when humans first colonize Mars, they construct greenhouses with transparent, radiation-resistant materials and pressurize them to create an Earth-like environment.
Artificial lighting is used to supplement Mars’ weak sunlight, during the first few decades of humans colonizing Mars. As the terraforming progresses, conditions on Mars become more suitable for outdoor farming through the introduction of earth life like cyanobacteria, lichens, and mosses to initiate soil formation.
These organisms are genetically engineered to survive in Mars' harsh environment and begin the process of creating a fertile layer of soil. After a few decades, the greenhouses transition to fields as temperatures rise on Mars, and the colonists begin to experiment with open-air farming in protected valleys and inner domes.
Plenty takes a massive buzz cut
Vertical farming company Plenty was in the news again a few days ago. Mixing Bowl VC Rob Trice posted on LinkedIn and the thread has created a big discussion which you should go and read. But based on a news report,
Plenty, which has brought in almost $1 billion from investors like Eric Schmidt and SoftBank Group Corp., is in talks to raise another $125 million as part of the recapitalization, according to people familiar with the matter. The new deal would value the company’s existing shares at less than $15 million, one person said. Previously, investors had valued Plenty at $1.9 billion, according to PitchBook.
The news of a vertical farming company having significant struggles is not new.
The question has been of “when” rather than of “if”.
Previous vertical farming companies which have gone through similar troubles include Aerofarm, Bowering, InFarm and others.
For example, Aerofarm, one of the most prominent players in the vertical farming industry filed for Chapter 11 bankruptcy and later emerged from it in 2023, by focusing on just one facility for microgreens.
Bowery, another prominent player in the space, shut down completely. New York-based Bowery, which at its peak was valued at $2.3 billion, raised venture capital totaling over $700 million from a cohort of leading firms and A-list celebrities including Justin Timberlake, Natalie Portman and Lewis Hamilton.
Bowery advertised itself as the future of farming powered on 100% renewable energy and requiring 90% less water than traditional agriculture. It also developed proprietary variations on produce like “crispy-leaf” lettuce.
What problem are you trying to solve and for whom?
One of the biggest challenges with vertical farming has been the lack of clarity in stating the problem being solved and for whom?
For example, a startup called Cloud Produce, states this on its website.
In the future, farms will be indoors, allowing nature to regenerate.
It is definitely not clear which problem Cloud Produce is trying to solve and for who, by making a definite statement about the future. If anything, barring a nuclear disaster, or we completely f-up climate change, or decide to go to Mars, there is absolutely zero chance of farms being indoors to “allow nature to regenerate.”
When Plenty opened their Compton facility in May 2023 the company news release said the following,
By 2050, demand for food will increase by more than 50%, but, at the current rate of erosion, 90% of all soil will be degraded. At a time when agriculture faces evolving environmental pressures, Plenty has developed a unique method of farming that is insulated from those challenges and uses just a fraction of the land and water of conventional farming. The Plenty Compton Farm has the potential to save millions of gallons of water annually compared to field farming.
Companies like Bowery, AppHarvest and others had a similar problem. They often talked about feeding the planet through higher production (higher yields are needed in traditional agriculture in Asian and African countries as their yields are very low), using less water, no pesticides etc.
The attitude was a bit holier than thou for problems which cannot be solved by vertical farming. They used a mythology of doing good for the planet, without having a business model which worked or was sustainable. How can you make the planet sustainable, if your business model is not sustainable?
If I put on my consumer hat, I want good quality nutritious produce at reasonable prices year-round. If you are going to do it in an environmentally sustainable fashion, you might be able to attract a slight premium from a certain section of the affluent market - think about the millionaire mom in Marin county, or some rich tech person working on the east coast.
So which of these problems can a vertical farm solve?
Affordability
Vertical farms often struggle to compete with traditional growers because the latter’s produce is often cheaper — in part because open-field agriculture or greenhouses have “sunlight for free” and “use little energy”.
Pricing is a big issue for vertical farms. To make money off their crops given the high production costs, vertical farms need to be able to charge a premium, but it is very difficult to convince consumers to pay a high price for lettuce, just because it is grown indoors. It needs to have some other characteristics like better taste, longer shelf life, etc. for a consumer to even consider paying a premium. Vertical farms have not delivered on the promise.
Energy costs associated with artificial lighting, temperature control, and ventilation can be substantial for vertical farm companies, limiting profitability. Additionally, the maintenance and replacement of complex vertical farming systems, including hydroponic or aeroponic setups, add to the financial burden.
Construction costs for vertical farms also tend to exceed budgets due to the novel nature of the technology and the limited number of construction experts and contractors experienced in this field.
Energy prices are also very volatile in many markets, which pose additional risks to vertical farming operatio
ns.
According to some research and comparison done in 2021 to compare costs between vertical farming (VF) and traditional farming (TF) for lettuce,
The savings are very slim in land and water costs, where vertical farming holds an advantage. Vertical farming does quite poorly, when it comes to energy and labor costs, where vertical farming has a disadvantage. The gaps are much bigger for crops like tomatoes or rice.
Farming of any kind is only really profitable at scale. Small farmers who only work it themselves can make some money, but once you start adding labor costs it eats into your profits quickly. Open agriculture can and has scaled over hundreds of years, while it is extremely expensive to scale vertical farming. traditional agriculture can scale with more land and labor, while the energy costs coming from the sun can continue to stay very low.
One might argue that with automation, and energy efficiency, the cost difference between vertical farming and traditional farming could be reduced. This argument might hold true, if we assume automation will not address some of the labor cost challenges in traditional farming, which is obviously not a valid assumption.
Product differentiation and quality
Vertical farms could compete on premium products like strawberries, differentiation through a different taste profile, nutrition or shelf life for products like leafy greens etc. Differentiation will be a fairly hard story to tell for vertical farming, unless the products are available year round, have a very different nutrition profile and are much more shelf stable than traditional agriculture products.
This is very challenging, as they would still be competing with traditional agriculture products, which have similar vectors of differentiation, other than shelf life. Year round availability has been solved through different growing regions, and supply chain solutions.
Some of the vertical farm products are considered better quality as they have some different characteristics like crispness for leafy greens like lettuce. Vertical farms also don’t have to use pesticides etc. due to a controlled environment.
The lack of use of pesticides could be taken as a signal of higher quality by consumers, and they might be willing to pay a premium for certain products, though this is a very small segment of the population.
Consumers have a similar perception about traditional organic products, as they are willing to pay a premium for organic products. Here again, it is not clear whether vertically farmed products have a clear and value accretive quality advantage over traditional products or not.
Access
Do vertical farms solve the problem of access? Are they able to provide produce to communities which don’t have easy access to fruits and vegetables? (We are talking only fruits and vegetables, because vertical farms for commodity row crops like corn, rice, wheat, soy have been a non-starter so far). None of the vertical farming facilities are either located near so-called “food deserts” or supply to “food deserts.”
The facility in Compton was shut-down in less than 18 months. Walmart and Whole Foods were advertised as buyers of produce from the Compton facility. Walmart and Whole Foods could not be more different in terms of what they would need from a supplier, because their customer base and their expectations are very different.
The location of the facility in Compton is a head scratcher as you are near some of the biggest salad bowls in the world in California and Arizona, which can produce crops quite efficiently.
If the vertical farm can produce a crop all-year round, then it can create some additional value for the consumer. With crops coming from traditional agriculture, we have a notion of “season” for a crop. The industry has tried to solve this problem through supply chain solutions like storage, and moving the supply region for the crop based on season.
Can a vertical farm be set up at a retailers distribution center, or better yet, at a grocery store itself? This would provide vertical integration for a grocery retailer for certain crops, and help them eke out a few additional points on margin, given most of them operate on single digit margins.
These have not been viable options due to the minimum scale requirements to set up a vertical farm to have any hope of profitability (which actually does not exist). There is a reason why you could not make any money by growing some tomatoes in your backyard, and selling them at grocery store prices.
None of the major grocery retailers have been strategic investors in any of the major vertical farming companies. This should be a big tell.
We have very efficient supply chains, which can ship products to the right region from the relevant growing region based on the season. A rise in transportation costs due to fuel prices, driver shortages does play in vertical farming’s favor if the majority of the customers are located within a short distance from the vertical farming facility, though vertical farms have not been able to exploit this to their advantage.
Resource utilization
Vertical farms in controlled indoor environments are promoted as a sustainable way to grow fruits and vegetables closer to the point of consumption while using less water and less land.
Vertical farms do use less land on a yield basis due to stacking. But using land as a denominator is not the right metric to measure yields for vertical farming, as at the end of the day, it is the landed cost to the consumer on a per unit basis which matters.
Also, when you think about fruits and vegetables, traditional agriculture acreage is a very small percentage of total farming acres. According to the 2017 Ag Census, only 10 million acres of farmland was used for fruits and vegetables in the US, compared to hundreds of millions of acres of farm land for commodity row crops like corn, soy, wheat, rice, cotton, etc. So the argument about land, at least in the US, is BS.
As mentioned earlier, vertical farms do use much less water compared to traditional agriculture.
Do vertical farms make more sense in areas where it is difficult to grow produce due to climactic conditions? For example, due to desert like conditions, lack of fresh water, it is very difficult to grow produce in the Middle East. For example, countries like Saudi Arabia, UAE, and Qatar import 80% of food needs, especially for meat, dairy, and produce.
Plenty signed a deal in the middle of 2024 with the UAE to open 5 vertical farming facilities just for strawberries with a $ 680 million joint venture.
The oil-rich countries have the money to grow very expensive produce, but they might be better off just solving the problem through better trade deals and terms.
Some people have made the argument of national security, which I would label as “salad security.” Grains like rice, and wheat, and products like meat and dairy have a much bigger impact on national security and self reliance than salad products or strawberries grown in vertical farms.
First principles thinking and implications
Based on the analysis of affordability & quality, access, and resource utilization vertical farming appears to be a solution for problems which do not exist (also known as the Juicero syndrome). We have seen a lack of first principles thinking within this space over the last few years.
We need to explore better business models to make produce more easily available to a large set of customers at affordable prices, while it being profitable for the grower / supplier and the grocery retailer.
We should be thinking about investing in the infrastructure to improve supply chains (for example, better tracking and tracing, better cold storage facilities) and make them more responsive. For example, can we improve the crumbling port infrastructure in the US to be more competitive with ports worldwide?
We should be thinking about energy, which is a much bigger issue compared to solving the issues of water, when it comes to vertical farming.
We need to move past the storyline of growing more food at a macro level, when we are talking about a company, as it is disingenuous. There are many opportunities in traditional agriculture in Asia and Africa to grow yields by 4x to 5x through better seeds, nutrition management, advisory services, as opposed to trying to do it through vertical farming.
We need to move past resource utilization stories in vertical farming, as there are many opportunities with bigger impact in traditional farming to reduce inputs through precision agriculture, better genetics, and better supply-region selection.
We need to think about growing food as a growing food business, where technology is an enabler. Many of the vertical farming companies have labeled themselves as technology companies who do farming, rather than the other way around. This has created mismatched expectations on value creation, timeline to profitability, multiples, and the type of investor they have attracted.
Vertical farms must strike a balance between leveraging technology and adhering to agricultural best practices to ensure successful operations. Rather than obsessing over becoming the next cutting-edge farming technology stack, vertical farms should prioritize their products, customers, branding, marketing, distribution, and operations. Resolving this identity crisis requires effective messaging from leadership to investors and team members.
At best, vertical indoor farming seems like a debt-financed infrastructure play, rather than a VC play.
As it relates to first principles thinking, I will point you to a LinkedIn post done by Cassidy Johnson, with the title “What AgTech companies will succeed in the US in the 2025 (and beyond?)”
Her first point is rightly,
They'll be solving an actual, existing problem, not building a product no one wants or needs.
I wish all of us, including the vertical farming industry, take a lesson from Cassidy.
AgTech Alchemist and rabble rouser Walt Duflock, made a similar point in his LinkedIn post.
Startups should be able to tell you the exact problem they solve and the rough economics of the solution (bonus points if they have a customer that's paying them that you can talk to).
With the downturn in VC funding over the last 18-24 months, these stories impact the space in terms of inflows. It puts a damper on the whole food and ag space, for VCs who have over invested in vertical farming.
So where do we go from here?
Adam Bergman reacted to the Plenty news, with his own LinkedIn post, which made some very interesting and valid observations. (highlights by me)
Recapitalizations, like Plenty’s, will hurt key stakeholders, particularly employees who will lose jobs and investors who will lose money. My hope, however, is that this will provide an opportunity for Plenty to right-size the business and put its full focus on its Richmond, VA strawberry farm. This could allow Plenty to follow a similar playbook as AeroFarms which, following its recapitalization, closed most of its operations and now has one farm in Danville, VA focused on microgreens. AeroFarms is showing a path for other vertical farming companies: focusing on product differentiation, optimizing production and achieving profitability prior to expanding operations.
As I have stated many times before, although I believe there is a short-term opportunity in the U.S. for vertical farming companies to produce traditional leafy greens, in the not-so-distant future, those companies will struggle to compete with greenhouse-grown leafy greens, forcing them to pivot to other crops, including berries, coffee, forestry, microgreens, specialty ingredients, and pharmaceutical products. With all the challenges (climate change, high input costs, increasing labor costs & worker availability, growing regulations) facing the traditional outdoor grown produce sector, I still believe that indoor farming, including vertical farming, has enormous potential in the coming decades.
Adam is quite right that if vertical indoor farms have to survive to fight another day, they need to focus on product differentiation, optimizing production, and achieving profitability. As we have discussed earlier, vertical farming has struggled and will struggle when it comes to any of these vectors when compared to traditional farming.
The traditional outdoor grown produce sector does face challenges like climate change, high input costs, increasing labor costs, worker availability, and growing regulations. Traditional agriculture has been working on solving these difficult challenges through tools like precision agriculture, non-chemical operations like mechanical & laser weeding, automation, changing supply regions from California to Peru & Mexico, and farming systems like greenhouse & horticulture.
Based on the science fiction stories like the Mars trilogy by Kim Stanley Robinson, I want to leave you with a simple decision tree to decide whether you should try vertical farming and invest in it or not.
