Population growth around the world has been accelerating rapidly since industrialized agricultural production was developed. Some estimates show that by the year 2050, there will be a world population of more than 9 billion people. That is a lot of mouths to feed.

Humanity is already facing issues when it comes to food supply/scarcity as the increase in global population and decrease of arable land start to threaten global food production. The same estimates predict that we will have 50% less arable land in 2050, setting us up for an anthropological disaster.

On top of those fun facts (heavy on the sarcasm), food isn't getting cheaper either. Over the past 5 years, food prices have gone up some 30% on average. Much of this is focused on meat and meat-adjacent products (dairies, cheeses, etc.).

It's worth noting that certain cultures have started embracing veganism and switching to plant-based diets, but the pace of meat substitution is far less than the number of people seeking carnivorous diets.

Modern agriculture consumes vast swathes of land that lose its potency after many decades of use. In an effort to produce higher crop yields, the land has been used far beyond what it can provide by adding pesticide and chemicals. This is commonly referred to as the "industrial agricultural system". This form of farming, in turn, further damages the yield potential of the land, striping it of needed organic nutrients, and prevents the same yield from occurring in the future. An ever-decreasing yield is bad news when it comes to our food production needs over the next several decades. There is a growing trend among growers to adopt regenerative farming practices to build healthy soils, but these practices are still the minority around the world.

All of this is to paint the picture that traditional farming and food production practices just don't have the capacity to meet the anticipated demand in the decades to come. Traditional, monoculture and land-intensive farming processes just won't cut it, for the health of our planet or our species.

Luckily, plenty of companies have been developing the technology to produce vast quantities of food (especially leafy greens) that won't have such an impact on the environment and require less land and water.

Vertical farms are one solution. Sci-Fi fans out there will recognize the term and instantly know what it's about. For the uninitiated, vertical farming is a new way to grow leafy greens and other vegetables without the confines of limited arable land.

This article will explain vertical farming operations, sustainable indoor farming, and introduce you to various vertical farming companies building a more efficient and sustainable farming future.

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What is Vertical Farming?

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Vertical farming pertains to growing crops in layers, stacked on top of each other vertically, often in greenhouses, rather than horizontally across a landscape. Since they are protected inside a greenhouse, vertical farms guarantee the ability to grow crops all year round, regardless of what the outside weather is. Growing crops in this way often does not involve using soil but instead nutrient-rich water. This is what's known as a hydroponic system.

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Indoor farms such as these involve the usage of LED grow lights that require little to no human intervention. There are a couple of distinct vertical farming methods but all of them have the same goal - to create a farming solution with increased production capacity, improved growth cycles, and growing high-value crops.

Just to give you an understanding of how popular and cost-effective vertical farming has become, consider that there are more than 2,300 hydroponic farms in the United States. 2020 also saw more than $900 million invested into an impressive number of vertical farming startups.

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It's safe to say that vertical farming is part of our future food system.

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What are the Benefits of Vertical Farming?

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There are a couple of distinct benefits supporting vertical farming and it's not just about the vast quantities of leafy greens you can grow! Indoor farms are highly efficient.

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• Vertical farms use less water - Traditional field farming requires plenty of water and there's no extracting it from the soil once you use it. Indoor farming recycles virtually all the water in the same hydroponic system so there's minimal waste. A vertical farm uses 90-95% less water to grow crops.
• Vertical farms use less land - A huge problem that our planet is facing is deforestation and excessive use of usable land. Even the largest indoor farms use less land than most traditional farms. Vertical farming also encourages a higher crop yield per square foot.
• Vertical farms require less fertilizer and no pesticides - Due to the method used to grow crops in closed environments, there is no need for pesticides or herbicides. On top of that, the amount of fertilizer used is minimal compared to traditional farms. This has an effect on the emission of greenhouse gases, specifically carbon dioxide.
• Reduced cost of transportation - Since most crops can be grown in modular grow systems, they don't need to be transported to specialized fields with the correct soil. These systems can reside in the communities they feed, creating a more localized food production system that supports greater variety of foods, and greater health for its community members.
• Vertical farms produce less food waste - The traditional approach to growing crops often sees those same crops rot away in trucks, stores or on the vine, turning into huge amounts of food waste. In fact, more than 8% of the global greenhouse gas emissions comes from food waste. Vertical farming guarantees that all food it grows is fresh and ready to be consumed as soon as its harvested.

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What Vertical Farming Companies should you know about?

Although the vertical farming market is set to grow exponentially in the coming years, and has already experienced an impressive compound annual growth rate in recent years, it's still a young industry with lots of room for growth.

Start-ups, venture capital and big food companies alike are dumping in a tremendous amount of R&D to create scalable, modular growing systems that can feed more people. Here are some of the top vertical farming stocks and companies making waves in the industry:

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Kalera (designation: KSLLF)

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Kalera is a Norwegian vertical farming company that specializes in improving the availability of nutritious and fresh produce. A trend you'll see with most top vertical farming companies is their use of proprietary technologies, typically combining plant and data science, and Kalera is no exception.

Kalera currently has 8 vertical farming facilities in operation or under construction in the United States and many more around the world. Internationally, Kalera is a leader in producing leafy greens by using sustainable and cost-efficient methods.

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AppHarvest (designation: APPH)

AppHarvest is based out of Kentucky. They are bringing some of the most technologically advanced indoor farms to the sector. They operate by using only completely recycled rainwater, in addition to requiring 90% less water for farming, making AppHarvest a world leader in food-based sustainability.

They're also a B Corp, which we love. The company believes in bringing sustainable agriculture solutions to more population centers around the world. Core to the company's mission is proximity. By placing their facilities within a day's drive of dense population centers and retail stores, the company operates on a low-waste, on-demand provider of specialty leaf crops and other fruits and vegetables.

AppHarvest is still young within the hydroponic and vertical farming industry, so we're excited to see organic sales growth and hydrofarm reported revenue in the months ahead. The company is building a development pipeline that should see numerous future facilities being built by 2025.

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Hydrofarm Holdings (designation: HYFM)

Hydrofarm Holdings is a company that creates advanced container technologies and equipment. Vertical farming technology is still expensive and somewhat hard to come by, and Hydrofarm Holdings is targeted on alleviating these pressures.

Some of the equipment that this company produces includes high-intensity grow lights, various climate control solutions to expand controlled environment agriculture, and more. They are highly acquisitive and have been adding in best-in-class portfolio companies to increase their market cap and support the quickly evolving industry.

Their business model is to consolidate the fractured vertical farming segment by providing an easy and affordable path to access the necessary equipment to make vertical farming a reality.

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Village Farms International (designation: VFF)

Village Farms International has over 30 years of experience operating mega-scale greenhouses. They're one of the most notable and experienced vertical farming stocks around.

The company currently owns and operates more than 500 acres of land for indoor farming. While this number sounds high, it's worth noting that the company uses 97% less land for growing crops indoors compared to traditional agriculture.

One of the most interesting aspects of this company is that it is also influenced by the cannabis industry, thanks to its ownership of Pure Sunfarms, a low-cost Canadian cannabis producer. As the United States inches closer to federal legalization of cannabis, VFF is well positioned to deliver multiple products to market.

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Final Words

It's evident now that the global population growth cannot be stopped and the traditional methods of growing food have become obsolete. Traditional farming practices negatively contribute to climate change and global warming through poor land management and high waste statistics.

Luckily, hydroponic and indoor growing is slowly becoming normalized. It's an exciting sector to follow and there are numerous ways you can help this sector, including investing in well-established vertical farming stocks. Some of these companies have decades of experience.

Agricultural robotics is another exciting and related field within this sector. These companies are focused on things like fast crop turnover of green animal feed in addition to food for human consumption. Vertical farming technology is evolving quickly.

Researching and investing in the best vertical farming stocks may be a good investment as global supply/demand pressures continue to play out. If you're interested in supporting this industry through the stock market, this type of investment, a vertical farming stock, is likely a long-term opportunity. Many top vertical farming stocks will grow net revenue and their pro forma equity valuation will likely reflect increased potential in the months to come.

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