How High Is High Enough? Assessing Financial Risk for Vertical Farms Using Imprecise Probability

Abstract

Vertical farming (VF) is a method of indoor agricultural production, involving stacked layers of crops, utilising technologies to increase yields per unit area. However, this emerging sector has struggled with profitability and a high failure rate. Practitioners and academics call for a comprehensive economic analysis of vertical farming, but efforts have been stifled by a lack of valid and available data as existing studies are unable to address risks and uncertainty that may support risk-empowered business planning. An adaptable economic analysis is necessary that considers imprecise variables and risks. The financial risk analysis presented uses with a first-hitting-time model with probability bounds to evaluate quasi-insolvency for two unique vertical farms. The UK farm results show that capital injection, robust data collection, frequent cleaning, efficient distribution and cheaper packaging are pathways to profitability and have a safer risk profile. For the Japanese farm, diversification of revenue streams like tours or education reduce financial risk associated with yield and sales. This is the first instance of applying risk and uncertainty quantification for VF business models and it can support wider agricultural projects. Enabling this complex sector to compute with uncertainty to estimate financials could improve access to funding and help other nascent industries.

Economies of scale in constructing plant factories with artificial lighting and the economic viability of crop production

“…Similarly, another case of PFAL construction for growing lettuce, the rate of return to the investment varies among nine scenarios examined from -0.5 to 38% ( de Souza et al, 2022 ). A recent paper by Baumont de Oliveira et al (2022) , assessing financial risk for PFALs, reports that a PFAL actually constructed in the United Kingdom goes bankrupt with p = 100% (the case of a negative surplus in the current lettuce production account), if without any intervention, and that the other designed PFAL in Japan (the same PFAL assessed by de Souza et al, 2022 = our PFAL #11) would face, in its 15-year life span, a negative financial balance at about p = 30% and below-threshold rates of returns to the investment at about p = 50%.…”

Evaluating the Economic Feasibility of Plant Factory Scenarios That Produce Biomass for Biorefining Processes

“…The economic modelling literature all had different plant factory scenarios and objectives defined for their analyses. This included detailed designs of modular vertical farms [7], uncertainty analysis of case study plant factories [18], the development of decision support systems to help with decision-making when designing new plant factories, and the assessment of plant factories on the supply chain level [9]. Despite the varying scenarios and economic modelling methods, the crop selection remained limited primarily to leafy greens and herbs.…”

“…Design of an economically feasible modular vertical farm Lettuce and tomatoes [7] Assessing financial risk of vertical farms using imprecise probability Lettuce [18] Development of a decision support framework to help design and operate urban farming systems Leafy greens [8] Development of a vegetable supply chain in the urban environment using plant factories Leafy greens [9] Resource/ technology reviews Quantify and compare resource requirements of greenhouses and plant factories Lettuce [14] Review of technology options available to greenhouses and plant factories Lettuce and tomatoes [11] Review of Internet of Things (IoT) solutions to monitor edible crop growth in vertical farms Edible biomass, mostly leafy greens [13] Review of differences in energy efficiencies between plant factory technology solutions Edible biomass [5] Review of controlled environment agriculture case studies in terms of challenges and opportunities Leafy greens [19] Review of the resource use efficiencies within plant factories Leafy greens, highlights lack of larger crop growth data [20]…”

“…The study of biomass cultivation within plant factories already consists of a significant body of knowledge in the literature where various aspects of plant factories are evaluated. This includes research into location selection [6,9,10], technological interventions to improve productivity and resource use efficiencies [11][12][13], energy demands of plant factories [5,14,15], environmental impacts and industrial symbiosis potential [16,17], and economic analyses to evaluate the financial viability of plant factory projects [7,8,18]. As mentioned earlier, various aspects of plant factories can be researched, but it is typically assumed that edible biomass is cultivated within these systems.…”

“…Although variations of urban agriculture structures and scenarios were evaluated using the decision support system, all the scenarios were based on producing edible biomass for the surrounding urban environment. Baumont de Oliveira et al [18] stated that any crop could theoretically be cultivated within a plant factory and that the limiting factor was economic viability, rather than technical feasibility. This sentiment was also reinforced by the fact that the overwhelming majority of indoor cultivation studies have focused on edible leafy green biomass [13].…”