When starting a farming operation, the first choice you face is what type of farm to start. The options are many: indoor vs. outdoor; arable vs pastoral; intensive vs. extensive. For farmers going the indoor route, one of the biggest decisions is between vertical farms and greenhouses. Both vertical farms and greenhouses operate indoors, which means they enjoy benefits like climate control and year-round growing.

While there are differences and similarities between the two, they are best compared in terms of efficiency. For a long time, it was thought that greenhouses were more efficient and profitable than vertical farms, as they do not require artificial lighting. However, a 2018 study out of Quebec (Eaves & Eaves, 2018) showed that vertical farms enjoy a number of benefits over greenhouses, especially if the farm is operating for commercial purposes.

To understand what those benefits are, we first need to understand the reasons for farming indoors.

Why grow indoors?

For most of human history, farming has been an outdoor activity. Plants need sunlight to live, and soil to get water and nutrients from, so it is no surprise that the traditional farming is done outdoors.

But as agriculture developed, farmers gradually realized that there were benefits to indoor farming. For one, it keeps pests and diseases at bay, as well as allowing certain crops to be grown all year long. Furthermore, indoor farming in ‘hot’ greenhouses can allow plants to grow faster than they would outdoors. By the late Roman Empire, greenhouse-like methods were already being used for these and other reasons. In the 1800s, Greenhouses hit their stride, as European farmers started using them to grow tropical plants that otherwise would not grow naturally on their continent. 

The differences between vertical farms and greenhouses

While vertical farms and greenhouses both practice indoor farming, the similarities end there. Greenhouses rely on sunlight and have their plants arranged on one horizontal plane. This means that they require a large amount of space and are therefore best suited for rural or suburban areas. In comparison, vertical farms can operate in urban areas as they need far less space than greenhouses to operate. This is because vertical farms have plants stacked in layers and rely on artificial light.

Many people have argued that because vertical farms require artificial light, they are less efficient than greenhouses. While artificial lighting is a major cost at vertical farms, it is not necessarily a barrier to profitability. The 2018 study “Comparing the Profitability of a Greenhouse to a Vertical Farm in Quebec” showed that growing lettuce in a vertical farm can actually be more profitable than growing it in a greenhouse. They attributed this to two factors: increased yield per square meter, and centralized distribution.

Yield

The main advantage that vertical farms have over greenhouses is greater yield per square meter. Although vertical farms have higher light and heat costs, they have the benefit of more produce grown per unit of soil. This means that even though vertical farms cost more to operate, they produce more crops, with the end result being higher revenue.

The 2018 study supports this through the results of a simulation, which showed that lettuce grown in a vertical farm has a slightly higher yield than that grown in a greenhouse.

Distribution

Another major advantage of vertical farms is centralized distribution. Because these farms can be run in in almost any kind of building (ex. warehouses), they can be located in urban areas. This puts them right at the heart of major distribution hubs, in the middle of a big local customer base. Therefore, compared to a rural greenhouse, a vertical farm has less distance to travel to get to customers, and when it does have to ship over a distance, it has better transportation options.

As a result, vertical farm crops can be sold more quickly and at higher margins than greenhouse crops. According to the Quebec paper, this creates a perception of freshness that helps the vertical farm produce sell quicker than the greenhouse equivalent.

Gross profits

Due to centralized distribution, vertical farms may enjoy higher gross profits than greenhouses. The Quebec paper showed this to be the case specifically for lettuce grown in the Quebec area. Although the wholesale price of lettuce produced at greenhouses and vertical farms is usually the same, the vertical farm’s lettuce may enjoy a premium when sold in its local market due to the perception of freshness. Additionally, because the vertical farm is located in an urban area, it can ship more fresh produce to more customers, without high transportation costs.

A second reason for the higher gross profits at vertical farms is winter heating costs. It is widely assumed that vertical farms use more electricity than greenhouses. But that’s not necessarily the case. It really depends on the specific farm(s) in question. As the Quebec paper showed, in areas that get extremely cold in the winter, Greenhouses can be very expensive to heat. Depending on how rural their location is, they may need to be heated by a generator; and depending on their size, they may consume quite a bit of electricity. So while the vertical farm needs to be heated year round, the greenhouse can actually be more expensive to heat in the crucial winter season.

Growth potential

One area where vertical farms really shine is the potential for growth. While sales from greenhouses are growing at 8% year-over-year, sales from vertical farms are growing at a full 30% annually. That means that vertical farms are growing more than three times as quickly as greenhouses. While part of this can be explained by the fact that vertical farms are newer than greenhouses, it also has to do with centralized distribution. Since vertical farms have access to urban distribution centers, they can get more product out, more quickly, than greenhouses can. The greater yield per square meter of vertical farm space also contributes to this fast growth.

Putting it all together

Vertical farming is the cutting edge of agriculture. Offering the ability to grow more crops, in a controlled environment, inside major distributions hubs (i.e. cities), it takes advantage of economies of scale in a way no other farming operation can. In the past, many critics have cited lighting costs as a stumbling block to profitability for vertical farms. But as the Quebec paper showed, vertical farming can actually be more profitable than a conventional greenhouse operation. Especially when situated in major urban centers, and taking full advantage of the distribution benefits that come with that, vertical farms can be highly profitable. And when you add the benefits of automated labor into the equation, the benefits can be greater still.

  • We see vertical farming as the evolution of the greenhouse.
  • Latest developments in LED (less consumption) and solar energy (higher efficiency) will reduce the biggest remaining cost factor (energy) during the next years.
  • Automation will increase the benefits of a vertical farming even further

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