4 Ways to Fund Hydroponic Vertical Farming Ventures
Hydroponic vertical farming may well be the agricultural wave of the future. As a means of feeding a growing population in urban areas, it’s exemplary. Hydroponic farms can produce more yields in a shorter period of time, using less space and less water, and with no need for soil. Because these vertical farms are fully enclosed and controlled environments, they are a great way to avoid contamination and pest problems. They also allow plant growth regardless of climate, temperature, and weather conditions.
So you want to get in on this agricultural revolution, but you don’t happen to have the money lying around to start your own hydroponic farm. Good news - there are several ways to fund your new venture, and your dream may not be as unreachable as you think. First, you’ll want to carefully consider the costs involved so you can put together a comprehensive business plan.
The Cost of Hydroponic Vertical Farming
There are a number of costs associated with this method of farming, and to be clear, the upfront startup costs are considerably higher than traditional farming methods. For this reason, many vertical farms never really get off the ground. However, compared to other indoor vertical farming methods, the cost of hydroponics is balanced out by its likelihood to turn a profit. Pure Greens Arizona estimates that only about 27% of indoor farms are profitable, while hydroponic systems turn a profit about 60% of the time. To avoid the dangers of high startup costs, be sure you’re aware of the business you’re jumping into, and be sure to plan carefully.
When starting a vertical farming business, there are a number of upfront and ongoing costs to consider. Here are a few that you’ll need to factor into your business plan:
Structure
The biggest cost, physically at least, is the structure of your farm. You’ll need some land and a building. Eden Green Technology’s systems require at least an acre and a half of space on which to build a greenhouse. Some vertical farming methods may use existing structures, allowing you to convert a warehouse or other unused building, but beware. If your building isn’t designed like a greenhouse, you’re going to need to get light to your plants somehow, which brings us to our next big cost.
Once you have a building, you’ll need the indoor vertical farm structure as well. This includes the towers or trays where you’ll plant your seeds, the pumps or systems used to deliver nutrients, and all of the other physical structures that make up the vertical farming system you’ve chosen.
Power
One of the most common arguments against vertical farming, or indoor farms in general, has to do with sustainability. Many vertical farming systems rely on indoor grow-lights. This can be an incredibly costly way of powering your vertical farm. At the start, you have to purchase the lights themselves, which can be quite an expense depending on the size of your operation. Then you have to pay to power these lights day after day, through all seasons. Not only is this not cost-effective, it also uses a great deal of electricity, typically leading to greater consumption of fossil fuels.
By contrast, our greenhouses focus on maintaining the climate around each plant spot, rather than maintaining the ambient temperature of our greenhouse. With 99% sunlight shining through our greenhouse windows, our plants can grow without 100% LED lights. This makes our system far more energy-efficient, and less expensive to maintain too.
Labor
Unless you’re planning such a small operation that you can run the whole thing yourself, you’re going to have some labor costs associated with your vertical farm, too. In fact, labor costs are often the largest ongoing expense in a hydroponic farm. In an Eden Green Technology system, you can expect to pay 30 full-time workers per 1.5 acre greenhouse. Be sure to consider local labor costs and associated benefits when figuring out a budget for your farming venture.
Because we do not have high energy costs or run solely on automation like other vertical farms, we have the luxury to provide full-time employment and bring economic growth opportunities to any city.
Ongoing Supplies
Finally, you’ll need to budget for ongoing supplies. This includes your growing medium, plant nutrients, seeds, and anything else needed to keep your farm growing. If you are planning to pack your produce in house, take packaging and shipping costs into consideration. Be sure to do your research and seek out the costs for all of the supplies associated with your preferred farming method.
Ways to Fund Your Vertical Farm
Once you’ve calculated your startup costs and your ongoing budget, you’re likely looking at some large numbers, at least at first. So how does anyone come up with funding for such a venture? Or is hydroponic growing out of reach for small businesses and startups? Here are four funding options you might tap into to fund your new agricultural business.
1. Government Grants
The best option for funding is to get someone to give you money that you don’t have to repay. Fortunately, your vertical farm might qualify for one of several government grant programs.
The newest Covid-19 stimulus bill also includes support for US Farmers. $1 billion will go to initiatives assessing discriminatory USDA policies, while also providing technical support for Black farmers, as well as funding research at historically Black colleges and universities around the country.
The Small Business Administration (SBA) offers at least two types of grants that may apply. The Small Business Innovative Research Grant gives out a minimum of $3.2 billion annually. Additionally, the Small Business Technology Transfer Grants total at least $450 million each year. These are given to for-profit, US small businesses that focus on performing R&D. If you’re starting a farm for research purposes, be sure to apply for these grants.
But what about those who just want to grow healthy food to feed their communities? The US Department of Agriculture (USDA) may be your best bet here. They’ve recently pledged over $4 billion toward strengthening our food system, which is big news for anyone looking to get into modern agriculture. The Build Back Better initiative ensures a fair, competitive, and climate-friendly food production system in the US, and hydroponic vertical farms fit this description perfectly.
Here are a few other USDA grant programs that may be right for your vertical farm:
USDA Agriculture and Food Research Initiative - for “research, education and extension activities” aimed at “meeting food, fiber, and fuel demands”.
USDA Rural Energy for America Program - “provides guaranteed loan financing and grant funding to agricultural producers and rural small businesses for renewable energy systems or to make energy efficiency improvements.”
USDA Specialty Crop Block Grant Program - “to enhance the competitiveness of specialty crops” on this list. This grant is given to state departments of agriculture who then distribute it to growers, so you must go through your state government for this one.
USDA Value-Added Producer Grant Program - “helps agricultural producers enter into value-added activities related to the processing and marketing of new products.”
Be sure to carefully read all of the details of these programs before applying. Also, don’t forget to check for state or local government funds including grants, but also tax abatements, rebates, and other funding.
2. Venture Capital Funding
Venture capitalism isn’t just for phone apps. In fact, Future Farming estimates that the vertical farming sector has raised more than a billion dollars in the past five years. AngelList maintains a list of angel investors who fund vertical farming concepts, and they currently have 132 companies and 570 investors in this category.
Unlike grants, this funding typically comes with a few strings attached. Investors fund projects in return for a share of equity in the business. This means if your farm turns a profit (and we certainly hope it will), they get a share of that money. Want to know how to secure this type of funding? NetSuite has a helpful guide to VC funding.
3. USDA Microloans
In addition to the grants listed above, the USDA also offers a microloan program that could be helpful for vertical farms that are just starting out. These loans are designed for “small, beginning farmers, niche and non-traditional farm operations”. The maximum repayment term is 25 years, and the loans can be used for direct farm ownership or operations, including purchasing land, building your greenhouse, marketing and distribution costs, and all sorts of other needs.
4. SBA Loans
Probably the most traditional way to fund a small business, SBA loans are available for agricultural businesses. Be sure to check out this funding source and see what might be available to you by navigating the SBA financing wizard.
If you’re hoping to get started in a vertical farming business, why not choose a proven system with excellent profitability and sustainability too? Contact Eden Green Technology to discuss how our greenhouses could fit your vertical farming business needs.