Indoor farming is one of the decade’s hottest trends, but regulations make success elusive

BALTIMORE — The next big thing is here, all girders and concrete pads, glass roofing and gravelly dirt. Viraj Puri, cofounder of one of the nation’s largest indoor farm companies, walks through the construction site, and even without the luminous frills of thousands of butter lettuces, it’s easy to see that the building going up where Bethlehem Steel once stood is something ambitious in the world of food.

The Sparrows Point steelworks in Baltimore, once the largest steel-producing facility in the world, was shuttered in 2012, leaving no trace of what once supported 30,000 families with Bethlehem Steel wages. Now the vacated land is dominated by a FedEx distribution center, an Amazon fulfillment center, an Under Armour warehouse.

And by the beginning of December, Puri's Gotham Greens farm will join them, part of a global craze for decentralized indoor food production.

Food and agriculture innovation has sucked up remarkable amounts of investor capital in recent years and could become a $700 billion market by 2030, according to a Union Bank of Switzerland report.

Millions are being invested globally in indoor urban farms because of their promise to produce more food with less impact, with two dozen large-scale projects launching in Dubai, Israel, the Netherlands, and other countries.

Still, the next big thing may be stymied in the United States by high start-up costs, high urban rents, and lack of a safety net in a food system that is highly dependent on subsidies and bailouts for a few commodity crops. (An American Farm Bureau Federation report last month found that almost 40% of conventional farm income in 2019 will be provided by trade bailouts, disaster insurance, the farm bill, and insurance indemnities.)

And for indoor urban farms, especially those that rely solely on artificial light, there's another concern: lightbulbs.

In September, the Trump administration announced it would roll back Obama-era energy-efficiency standards that would have effectively phased out the standard pear-shaped incandescent variety. The step is expected to slow the demand for LED bulbs, which last longer and use less electricity than many other types but are more expensive.

The rollback, slated to take effect in January, is being fought by 15 states and a coalition of environmental and consumer groups that claim the changes will speed climate change and raise consumers' energy bills.

For indoor urban agriculture, especially indoor vertical farms, the reversal represents a threat to an already narrow path to scalability and profitability, according to Irving Fain, chief executive of Bowery Farming. The indoor vertical farming company has raised $122.5 million from celebrity chefs Tom Colicchio, José Andrés, and Carla Hall, Amazon worldwide consumer chief executive Jeff Wilke, and Uber chief executive Dara Khosrowshahi.

“The Department of Energy recognized a lot of our energy was going to lights and that LEDs were a more efficient form of lighting, so they pushed from incandescent to LED in industrial spaces,” Fain said in a phone interview. “Those were the trends that got us here, and we were hoping cost could drop another 50% with more innovation and more volume.”

Some indoor farms stack plants vertically nearly to the ceiling in repurposed shipping containers or enormous warehouses, all of the plants’ photosynthesis achieved via high-tech LED bulbs. Others, such as Gotham Greens, are vast, glass-topped greenhouses, pulling their plants’ needs from the sun and giving a lightbulb assist in low-light times.

In addition to Gotham Greens, the Washington-Baltimore area will become home to an outpost of Bowery Farming in November. In the second half of 2020, a $100 million greenhouse tomato-and-cucumber project with the world’s largest LED installation for a single building will debut in Morehead, Ky., funded in part by Hillbilly Elegy writer J.D. Vance. And around the same time, California-based Plenty, with investors such as Amazon founder Jeff Bezos, will debut a Southern California indoor vertical farm about the size of a soccer field. (Bezos owns the Washington Post.)

But the U.S. Department of Energy’s proposed reversal of energy-efficiency standards could hamper this emerging agricultural sector, according to Fain.

Indoor vertical farming became economically viable when LEDs became plentiful, cheap, and efficient. Before that, indoor growing lights produced enormous amounts of heat — heat mapping was frequently how police identified illegal marijuana growing houses — and thus cooling costs and electricity bills were astronomical.

With the passage of energy legislation in 2007, the Department of Energy required that most general-service lightbulbs emit at a minimum efficiency of 45 lumens per watt by the beginning of 2020. Halogen and incandescent bulbs don't generally meet that efficiency standard. LEDs, which use a semiconductor to convert electricity into light, do.

Within just a few years, LEDs doubled in efficiency and prices fell 85%. Widespread adoption caused energy companies to throw money at research and development. Indoor urban farmers, especially those farming vertically, have built their profitability models on projections that LEDs will continue to get exponentially brighter and less expensive, will run cooler and will become more efficient.

Chris Granda, senior researcher/advocate at the Appliance Standards Awareness Project, says rolling back the efficiency standards will hamper the expansion of LEDs and their continued march toward greater efficiency.

"I think what the efficiency standards rollback will do is slow the rate of consumer uptake," Granda said. "There's a cohort of people who just don't like to try new things. The standards would have nudged them along into LEDs. Even if it delays the adoption of LEDs for five years, that's a huge loss of energy."

Efficient bulbs are not the only challenge to indoor urban agriculture, Fain says. To take a small indoor farm and make it a big one requires innovations in robotics and artificial intelligence. There, too, prices have come down substantially for sensors, processing and data storage. Altogether, these make indoor farming viable but not easy.

Fain talks about Bowery's operating system, "the brains and central nervous system of our farm, with a plant-monitoring system and proprietary deep-learning algorithms" that help predict what will happen to each crop. He says the operating system, one of the most expensive components of Bowery, runs everything at each farm, with real-time data to improve outcomes over a network of farms. The cost of that operating system has to be amortized over that network.

And because profitability is so elusive, some of the early promises of indoor agriculture are slow to be realized. Steep start-up costs mean farmers must grow crops that generate major cash: specialty items, such as flowers, or crops that have quick growth cycles, such as leafy greens. The five main indoor crops are leafy greens, microgreens, herbs, flowers, and tomatoes, items that are a pull for those of high socioeconomic status but aren’t go-to products for low-income people.

There’s inherent elitism that is hard to avoid, even with school tours, food-bank donations, and other efforts toward democratizing access to good food.

Indoor urban farming is frequently touted as a mechanism for urban renewal and job creation in low-income neighborhoods. But farms kitted out with sensors and robots often require highly specialized and educated workers. They typically are not huge employers. Bethlehem Steel employed 30,000 at its peak; Gotham Greens' largest farm yet will have only about 60 full-time employees.

For Puri, Fain and others, the necessity to succeed with indoor urban agriculture is self-evident. More than 95% of head lettuce in the United States comes from two drought-prone states, California and Arizona, and according to the U.S. Department of Agriculture, traditional agriculture accounts for 80% of the country's water consumption, as high as 90% in many Western states.

In 2018 alone, three food-borne illness outbreaks on traditional romaine farms killed six people, hospitalized 128, and infected 300, according to the federal Centers for Disease Control and Prevention. The safety challenges of outdoor farming are becoming more acute with climate change and unexpected shifts in pests and bird migrations.

After Hurricane Sandy in 2012, news stories reported that local Gotham Greens lettuces were some of the only leafy greens available in grocery stores in New Jersey and New York. Indoor farming gives cities "urban resiliency," something planners are increasingly concerned about.

Cities are where most of us live, says Sabine O'Hara, dean of the College of Agriculture, Urban Sustainability and Environmental Sciences at the University of the District of Columbia. The conversation now, she says, is how to shrink the food footprint of cities, how to make cities more sustainable and their food systems robust when disaster strikes.

By the end of the year, Gotham will operate 500,000 square feet of greenhouses across five states.

Gotham Greens’ first indoor greenhouse farm debuted in 2011 in Brooklyn on the rooftop of an old bowling alley. The second was on the roof of a Whole Foods, also in Brooklyn, and the third was in Queens atop what once housed the Ideal Toy Co., which made the Betsy Wetsy doll after World War II and had its last big hit with the Rubik’s Cube. Another, in Chicago, sits on the second floor of an eco-friendly cleaning-products company.

The fifth farm, in Baltimore, will be Gotham Greens' biggest to date, and has raised $45 million in equity capital.

At Sparrows Point, Puri walks past what will be the packaging room, the break room, and the computer control room. He lists off some stats. One indoor acre at Gotham is as productive as 40 acres of conventional soil. Gotham Greens’ Baltimore farm will require 95% less water and 97% less land than a traditional dirt farm, and only about an eighth of the energy consumption of an indoor vertical farm.

Almost nothing will go to the landfill, the majority of its waste being compostable or recyclable. Gotham Greens lettuce can go from seed to full head in 35 days, about half the time it takes outdoors.

The farm's first stage is 100,000 square feet, but there's space to go up to 400,000. Puri talks about eliminating food waste, passing shelf life along to consumers, millennials' desire to know where their food is from. He says Gotham's first farm became profitable within the first year of operation.

"As the largest urban agriculture company in North America," Puri said, "we've demonstrated that urban greenhouse agriculture can be a viable agribusiness that addresses a real need in the commercial supply chain of fresh produce."

But with almost none of the agricultural subsidies and safety nets of traditional row-crop agriculture, and with high operating costs and the trajectory of lightbulb research uncertain, some sectors of indoor urban agriculture may be on shaky ground.