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Posts Tagged "efficiency"

Controlled Environment Agriculture

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“Like extracting bread from air.”  In 1908, Fritz Haber’s invention of synthesized fertilizer revolutionized the agriculture industry. Through a process of extracting ammonia for fertilizer use from the air, annual global crop yields doubled overnight.  His invention is credited with our ability today to feed billions of people. But new problems are catching up to us.

Here in the United States, we are extremely reliant on international imports to meet our produce needs. Coupled with the challenges of affordability and accessibility of labor, much of the country is also incapable of producing outside for the colder half of the year.  As of 2020, 53% of all the fresh fruit and 32% of all the fresh vegetables consumed in this country are imported.[i]  Increasingly unpredictable weather patterns are only making the challenges of conventional domestic farming more difficult.  Globally, we are still struggling to meet demand for produce.  A 2015 World Health Organization study found that only 36% of the global population has adequate availability of fruits and vegetables to meet minimum nutrition targets.[ii]

Fortunately, a new wave of technology categorized as controlled environment agriculture (CEA) has the potential to revolutionize America’s food production system once again and help alleviate the greater global deficit of high quality, affordable produce.  CEA is proven to increase yields per acre by a magnitude of over 10 times that of conventional agriculture through curation of year-round, ideal conditions and symbiotic micro-ecosystems.[iii]  Conventionally, these facilities use hydroponic, aeroponic and aquaponic systems to grow vegetables without soil.  This technology allows growers to use exponentially less water and fertilizer than conventional field agriculture.  With new innovations in digital monitoring, robotic harvesting, and automated sorting and packaging, the challenges of finding labor are also alleviated.  Equally important, CEA avoids the externalities of environmental degradation, systemic in conventional agriculture.

Through CEA we are able to produce higher quality crops without damaging the ecosystem.  The controlled environment facilitates the elimination of toxic chemicals in exchange for biological pesticides (predators for parasites).  Additionally, as facilities move closer to market in response to demand for local produce and rising shipping prices, breeding programs are able to pivot away from a focus on shelf life (for long-haul shipping) towards flavor, texture, and nutritional value.  Changes in consumer demand for healthier local food is creating growing demand for CEA and ultimately opportunities for investment in the asset class.

Overview

Over the last century, conventional industrial farming has had catastrophic effects on the environment.  Chemical pesticide use has decimated insect pollinator populations.  Monoculture farming, erosion from tilling, herbicides, and fungicides have polluted, depleted, and sterilized our soils.  Excessive fertilizing has polluted our water.  It is not an exaggeration to say that the choices we make today will have cascading effects for centuries.  The United Nations Food and Agriculture Organization estimates that 33% of the world’s soil is moderately to highly degraded through erosion, salinization, compaction, acidification, chemical pollution and nutrient depletion.  These degradations hamper the soils’ ecological functionality affecting its food production capabilities.[iv]  Insect populations have also declined by 75% over the past three decades, largely due to agricultural practices, hampering natural breeding and fruiting processes.[v]   The cataclysmic loss of biodiversity is reaching a breaking point that will not be easy to reverse.  Therefore, it is critical that we reinvent the way in which we produce our food.  Controlled environmental agriculture addresses all of these environmental concerns by creating a closed loop system.

CEA can be classified into three main structures: high tunnels, greenhouses and plant factories. Each has their own benefits and limitations.

  • High Tunnels are the least expensive and most common solution in the market today. At as low as $3 per square foot in construction cost, they require very little capital to get started.  While they are a great improvement over conventional agriculture, they have a short life span, are very susceptible to environmental damages, are less light and heat efficient, and are uninsurable.
  • Greenhouses average $35 per square foot at commercial scale and are the most energy efficient form of CEA.
  • Indoor Plant Factories — typically what people think of when they think of vertical farming — are highly variable in price (generally between $100 and $200 per square foot for new construction), but can essentially be established in any reclaimed building or container.  They are very high in climate control efficiency and yields per acre possible (by growing vertically) but are more limited in what crops they can grow efficiently.  (Some crops demand more light than the LEDs can provide.) Plant factories also require extreme electricity consumption. For example, lettuce crops grown by CEA consume upwards of 350kWh per square foot per year compared to a typical greenhouse’s 25kWh per square foot.

The costliest aspect of running any CEA facility is electricity consumption.  Not accounting for transportation or increased quality’s value proposition, electricity consumption is the biggest barrier today to achieving production cost parity with conventional agriculture.  The key to understanding which structure type is optimal for a given location is through understanding the supplemental lighting efficiency, the cost of electricity, and local conditions.  Consider this: In New York state, at current electricity prices, even if LED technology was perfected to translate 100% of input energy to light, a greenhouse’s use of the sun and supplemental light, instead of 100% artificial lighting, is still more efficient than the benefits of a plant factory’s more insulative qualities.

For this reason, choosing the right asset type to invest in for a given location is critical.  Are you near the Arctic Circle where natural sunlight is very limited for half the year and temperature lows are extreme?  Then a plant factory is likely the correct option.  Are you in a generally mild climate state with high electricity costs?  Then a greenhouse may be right for you.

ESG considerations

CEA is a better impact solution than many other popular alternatives.  It is often carbon negative.  It requires limited use of rare earth metal materials whose mining undermines the true environmental values of many energy-oriented ESGs.  It very poignantly addresses the problems of biodiversity and habitat loss. It decreases agricultural water usage by over 95% and fertilizer usage by 60%.  It dramatically reduces the waste of shipping.  And socially, it has the potential to solve global food crises.

Opportunity

As of today, investment in CEA has reached just over $2 billion across North America and Europe.  The compound annual growth rate for the North American vegetable greenhouse market since 2007 is greater than 20%.  In a $20 billion market, crops from CEA facilities only account for 1.3% of the annual produce consumed in the US.  With total food demand expected to increase between 59% to 98% by 2050, CEA’s growth potential is exponential.[vi]   This does not even account for the opportunity of increased produce demand facilitated by improved accessibility; research shows an increase of up to 32% in produce consumption for each additional supermarket in a census tract.[vii]

The barrier for some, and therefore the opportunity, is that these facilities require high upfront costs.  In addition to the structures themselves, the intricate hydroponic irrigation systems, robotic equipment and sensory equipment can carry a large price tag.  As a plethora of start-up companies race to compete and establish market dominance, they are hungry for capital.  As such, many forego ownership of their facilities, instead focusing on their core expertise and leveraging capital towards opening more facilities.

Several developers and investors are capitalizing on this opportunity in a number of ways.  The most common is a sale-leaseback.  As examples: Equilibrium Capital acquired and leased two greenhouse facilities to indoor agriculture company Revel Green for $11.3 million and plans to finance at least three more greenhouse facilities.  Another firm, Green Acreage provides sale-leaseback and construction financing to companies operating in the cannabis industry.  Green Acreage invested $77.3 million with Acreage Holdings that entered into long-term, triple-net lease agreements with Green Acreage for properties in California.  Other players in the market executing similar strategies include Power REIT, which owns six CEA properties in southern Colorado and Maine with a total of approximately 131,000 square feet of greenhouse and processing space; and Innovative Industrial Properties who focuses on the acquisition, disposition, construction, development and management of CEA facilities across the country.

To better understand the lucrativeness of the opportunity, Innovative Industrial Properties states that their typical absolute net lease terms are 10 to 20 years with base rents at 10% to 16% of total investment and 3% to 4.5% annual rent escalations.  Typical deals range from $5 million to $30 million and carry security deposits and corporate guarantees.  This compares quite favorably to conventional farmland sale-leasebacks that often have 5-year terms and net around 5% of the purchase price as base rent and escalate 7.5% to 12.5% every term.

Other growers have opted for mixed-use facilities where they can rent roof top greenhouse space.  This allows growers to be in deep urban locations and virtually eliminate shipping expenses.  For example, Gotham Greens recently purchased and built a 15,000 square foot greenhouse on a vacant Brooklyn rooftop.  Others have chosen to take the concept directly to the literal market.  BrightFarms has, to date, signed up eight supermarket chains around the country (including three of the largest national chains) to build these rooftop farms for about $2 million per acre.  The facilities are expected generate $1 million to $1.5 million in annual revenue.

International investment continues to be an important funding source for controlled environment agriculture as countries like Saudi Arabia and the UAE look to establish sustainable domestic food systems through the furtherance of the technology.  Many CEA growers have gotten their start through partnerships with sovereign wealth funds.

The opportunity is clear; how real estate investors choose to enter the space is up for debate.  Funded by $82 million from Equilibrium Capital, AppHarvest, a 3-year-old start-up, has purchased 366 acres in eastern Kentucky with the goal of leveraging economies of scale.  With plans to develop a 2.76-million-square-foot greenhouse for $97 million, AppHarvest will be one of the largest greenhouses in the world, supplying much of the Eastern seaboard within one day’s drive.

Conclusion

Although CEA has existed for the past decade, technological development and botanical research have greatly reduced the risk and challenges of the business.  Digital monitoring and control technologies have simplified running a controlled environment agriculture facility.  Concurrently, consumer demand for high quality organics has risen dramatically, creating a bigger market.

As we stand today, the climate crisis has reached boiling point and habitat degradation has pushed biodiversity to the brink.  CEA stands as a profitable, sustainable, lower-risk alternative to conventional agriculture, whose biggest challenge is simply the upfront costs of developing the facilities.

Fresh Alternative Farms:

If you are interested in starting a controlled environment agriculture facility of your own, send us a message and check out our partner organization: FreshAF

Citations


[i] Center for Food Safety and Applied Nutrition. “FDA Strategy for the Safety of Imported Food.” U.S. Food and Drug Administration, FDA, www.fda.gov/food/importing-food-products-united-states/fda-strategy-safety-imported-food.

[ii] FAO, IFAD, UNICEF, WFP and WHO, The State of Food Security and Nutrition in the World 2020: Transforming food systems for affordable healthy diets, 2020. https://www.unicef.org/reports/state-of-food-security-and-nutrition-2020

[iii] GL Barbosa, FD Gadelha, N Kublik, et al., Comparison of Land, Water, and Energy Requirements of Lettuce Grown Using Hydroponic vs. Conventional Agricultural Methods, International Journal of Environmental Research and Public Health, 2015, 12(6), 6879-6891. https://doi.org/10.3390/ijerph120606879

[iv] FAO, Polluting Our Soils Is Polluting Our Future, May 2, 2018. www.fao.org/fao-stories/article/en/c/1126974/.

[v] Euan McKirdy, New Study Suggests Insect Populations Have Declined by 75% over 3 Decades, CNN, October 20, 2017. www.cnn.com/2017/10/19/europe/insect-decline-germany/index.html.

[vi] Maarten Elferink and Florian Schierhorn, Global Demand for Food Is Rising. Can We Meet It?, Harvard Business Review, April 26, 2019. hbr.org/2016/04/global-demand-for-food-is-rising-can-we-meet-it.

[vii] “Growing Beyond the Hype: Controlled Environment Agriculture.” S2G Ventures, www.s2gventures.com/reports/growing-beyond-the-hype%3A–controlled-environment-agriculture.


Date: Jun 3, 2021
AUTHOR: tbaumdesign

The Green Roof Initiative

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Obviously as designers of green roofs, we are very happy about  the Green Roof Initiative being passed this week. But more so, the environmental and energy efficiency benefits of green roofs make for a no-brainer. For those who do not know, the Green Roof Initiative (Ordinance 300) mandates, “every building, building addition, and any roof replacement of a building, with a gross floor area of 25,000 square feet or greater, constructed after January 1, 2018 shall include a green roof or combination of green roof and solar energy collection.” Specifically, the total coverage of rooftop requirements increases 10 percent every 50,000 square feet, eventually capping at buildings of 200,000 square feet or more with 60 percent of the roof requiring coverage by gardens or solar panels.

So let’s discuss the benefits of green roofs, first, from an environmental perspective. Green roofs provide air quality benefits to the city by filtering particulates from the air in the same manner all green space does. They help to mitigate the effects of urbanization on water quality, often dramatically, by filtering, absorbing and retaining rainfall. And ultimately, from a nonhuman-centric mindset, the green roofs restore biodiversity to the urban environment by returning green space habitats to the local ecosystem.

So now let’s discuss the benefits from an economic perspective. Denver’s status as of a 2014 study by Climate Central, found the city has the third-greatest urban heat island effect of any American city. An effect partially produced by the radiating of heat off rooftops and pavements. The only American cities that ranked higher are Las Vegas, Nevada and Albuquerque, New Mexico. (The urban heat island effect is the raising of the temperature in the urban environment in comparison to the surrounding areas). In the summers, by implementing green roofs on the macro level, we can significantly reduce the overall heat index and our energy consumption used to cool buildings. (Urban heat islands are also affected by the reflection of the sun’s rays off the sides of buildings, particularly glass building. The effect can be so intense that it can actually scorch trees and grass. A problem ultimately, solvable with more use of green walls, but we’ll leave that initiative for another day, as we wait for green wall innovation to catch up and make more economic sense.)

On the micro, per building level, green roofs also work to insulate structures by reducing the amount of heat entering a structure in the summers and holding on to artificial heat from the inside in the winters. In addition, the green roof protects the top of the structure from hail damage and wear from the intensity of the sun, ultimately reducing repair and maintenance costs of the roof when compared to a standard roof. From and energy perspective alone, green roof have been found to provide a return on investment within five or six years in many cases.

And finally, from a social and psychological level, green roofs and green spaces in general, provide a mental health benefit called Biophillia. Those who get to enjoy the new view of nature instead of the concrete jungle have been shown to experience therapeutic benefits.

A green roof has a vast range of functional opportunity as well though. Green roofs can be made into community gardens, social spaces, recreational areas, and even meeting spaces in an outdoor setting. The initiative doesn’t have to be looked at solely as a dysfunctional space at higher cost but rather an opportunity, with the required addition of the structural integrity, to turn the roof into a usable space.

Unlike many environmental initiatives, this benefit doesn’t come from taxes at all, because the cost is up to the building owner who in the end is saved money by energy savings. The only people who don’t benefit from this proposal are large scale developers who simply want to build as much, as quickly, and as cheaply as possible to sell. That’s a mindset that hardly represents the best interest of the people of Denver, the ultimate consumer.


Date: Nov 14, 2017
AUTHOR: tbaumdesign
Comments: 2