Many
regular readers of this blog have seen or visited an indoor farming operation and
looked at it as both an opportunity to increase freshness and reduce delivery
cost. According to Steven Johnson Grocerant
Guru® at Tacoma, WA based Foodservice
Solutions®, that day may come but is does not look as if it will came as
fast as many would have liked.
Have
you heard that AppHarvest, a high-tech indoor farming and food sustainability
company, has filed for Chapter 11 bankruptcy protection and is “pursuing a
financial and operational transition to enable the company to reduce its
outstanding liabilities,” according to an announcement Monday from the
Morehead, Kentucky-based company.
Consider
that the announcement by AppHarvest comes about a month and a half after
Newark, New Jersey-based vertical farming company Aerofarms filed for Chapter 11 bankruptcy.
In
a recent article Henry Gordon-Smith, founder and CEO of consulting firm
Agritecture, which works with vertical farm companies, stated that many companies
in the vertical farm industry have reached a do-or-die moment, with investors
demanding they begin delivering results.
Recently,
AppHarvest noted that it has a commitment of approximately $30 million of
debtor-in-possession financing from its largest secured creditor, Equilibrium,
to maintain its farming operations in Morehead, Richmond and Somerset, all of
which are in Kentucky.
Times
they are again changing, the company also plans to sell its operation in Berea,
Kentucky, for $3.75 million, either to its distribution partner, Mastronardi
Produce, or one of its other affiliates, the company said. The goal is to
“restructure the operations at the company in an effort to maximize the value
creditors can expect to achieve and to preserve jobs.”
AppHarvest
CEO Tony Martin stated, “The AppHarvest board of directors and executive
leadership evaluated several strategic alternatives to maximize value for all
stakeholders prior to the Chapter 11 filing,”… “The Chapter 11 filing provides
protection while we work to transition operation of our strategic plan, Project
New Leaf, which has shown strong progress toward operational efficiencies
resulting in higher sales, cost savings and product quality.”
Not
the first, AppHarvest is following the lead of its competitor, AeroFarms, which
announced it was filing for Chapter 11 bankruptcy protection on June 8.
Similarly, AeroFarms said it's working with investors to secure $10 million in
debtor-in-possession financing, at the time of the announcement. The company
said it also was exploring other financing “to maximize the value of the
company and recovery to creditors.”
Guy
Blanchard, president and CFO of AeroFarms had stated, "We are fortunate to
have existing investors who continue to believe in AeroFarms and are confident
that we can hit our targeted profitable operations for our Danville farm,"
…"There is incredible consumer and customer interest for our
market-leading microgreens, and we are excited to continue be able to build our
business to meet that demand."
In
April, Orlando-based vertical farm Kalera also filed for bankruptcy protection.
Now
then, Gordon-Smith, who has written extensively about vertical farming, said
that while there are numerous factors at play challenging the vertical farming
industry, it’s mainly investor confidence that is causing the current shift in
the market.
“This
is what’s happening to everyone—the funding context shifted,” he said, adding
that higher interest rates and the banking crisis earlier this year has
investors demanding results.
He
noted in a column published June 13 in
The Food Industry, that the vertical farm industry has experienced “a
staggering 91% year-on-year decline in venture capital investments in indoor
farming, according to Pitchbook.”
Vertical
farms also have a hype problem, according to Gordon-Smith, who explained that
they frequently sell the idea to investors that their operation will be
environmentally sustainable, but he recently wrote that “most vertical farms
today are powered by non-renewable energy sources and emit significantly more
carbon than their field-based counterparts.”
Many
have a problem with focusing too much of their efforts on both advertising and
research and development. “That's fine and I don’t blame, because that’s where
the money was flowing, but that flow has shifted,” he said.
Operating
costs also pose challenges to the industry, particularly energy costs, which
can be more volatile than other variable costs. But he added that the cost of
energy in the U.S. has stayed relatively stable, compared to its European
counterpart.
Despite
the bankruptcies of three players in the controlled-environment agriculture
industry, Gordon-Smith said he believes the industry is resilient.
Climate
change and other factors will necessitate indoor farming. “Those fundamental
drivers haven’t gone away,” he said.
Are you ready for some fresh ideations? Do your food
marketing ideas look more like yesterday than tomorrow? Interested in learning
how our Grocerant Guru® can edify your retail food brand while creating a platform
for consumer convenient meal participation, differentiation,
and individualization? Email us
at: Steve@FoodserviceSolutions.us or visit: us on our social media sites by
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