Partner, Roland Berger


Controlled environment agriculture has seen tremendous interest in the investment community in the last decade. Although investments have been largely led by financial players, such as Private Equity, Venture Capital, and Sovereign funds, there has been interest from non-traditional players such as retailers (e.g., Walmart) and traditional growers (e.g., Taylor Farms) to name a few. Resource efficient operations in using land and water leading to 30X higher yields, growing fresher produce with longer shelf life and being situated closer to end-customer has led many to be highly optimistic about CEA as the future of agriculture. With a growing population and limited resources such as arable land and water, uptake of CEA adoption does seem likely. However, there are significant headwinds affecting near-term operations, starting with the cost competitiveness of CEA compared to traditional outdoor growing. Cost of growing produce is still 3 to 6 times more expensive than open-field grown produce. Energy costs are one of the primary drivers of operational expenses and with the current macro economic situation, closing that cost gap is going to be very difficult. Additionally, with rising input material costs, building the infrastructure required for scale will be

challenging. This might lead to additional funding requirements and potential infrastructure partners stepping in. Despite raising more than $4 billion in the last 7 years, CEA farms are still proving out their product market fit and go-to-market strategy. With limited capacity currently, CEA farms still must earn the trust of retailers to reliably supply at scale and build relationships. Players that are able to reach cost parity will be able to take share, others will have to focus on niche segments that are able to demand a premium. Though the foreseeable operating climate seems challenging for CEA farms, there are use cases that favor CEA adoption. Regions which are resource- scarce, with for example limited accessibility to arable land or lack of fresh water, and with a high population density driving demand, could be interesting use cases for CEA growing structures. Examples of such regions are the Middle East, Singapore and Japan. In other regions such as the U.S. and Europe, CEA farms can be expected to play a more complimentary role to the traditional growers, with one use case currently in trial being, cost optimization by focusing on nursery crops as input for outdoor growing.

Figure 13: Controlled Environment Agriculture is promising, albeit with significant headwinds ahead

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