We’re more than halfway through 2024, and many people are already looking ahead to 2025. In my role as Senior Vice President here at AmHydro, I am regularly being asked for my assessment of the current moment and the current market for our industry. Today I want to launch a three-part series to explore the unique opportunities and challenges that I see in today’s business climate, and a list of questions that potential growers and investors should be asking themselves if they want to be prepared to meet the moment.
Through the last few years of industry contraction, AmHydro has continued to affirm our reputation for reliability, expertise and innovation. Despite the last few years of contraction, we’ve continued guiding new growers to successful launches and experienced growers through expansions, but we’ve also urged caution. On one occasion we actually turned away business from a self-financed potential client. Their business plan was insufficient and we were honest that we did not see it succeeding.
I’m about as big of a booster of Controlled Environment Agriculture as they come, but I’m not here to hype you into making a purchase you’ll regret later. It wouldn’t be good for you, and in the long run, it wouldn’t be good for me either. Failures in CEA make us all look bad.
So I hope you don’t take it lightly when I say that 2024 is as good a time to get into CEA as we’ve seen in years. The demand is there, the technology works, and as long as you do your research, there is no material reason why you can’t build a successful farm that is sustainable both ecologically and economically.
Here are 7 reasons why 2024 is an ideal time to get into CEA:
1. There’s never been a greater consumer appetite for localized, small-scale food production.
More Americans than ever are interested in getting fresh fruits and vegetables from local farms, and CEA holds a competitive advantage over traditional agriculture by extending the growing season; even growing year-round in many locations where that’s usually out of the question. This is a pretty fundamental selling point, but we don’t see this trend changing. The market for hydroponic produce is only growing.
2. CEA offers future-conscious solutions to the problems of food security, geopolitical instability, environmental concerns, and fuel costs.
The supply chain disruptions and energy issues caused by the COVID pandemic and the Russian invasion of Ukraine highlighted the shortcomings of a global food system that is dependent on shipping commodities around the world in order to keep populations fed. A couple weeks ago, an IT software glitch shut down airlines and caused Fortune 500 companies to lose over $5 Billion. In a hyper-connected but increasingly distributed world, we need to mitigate the risks of overextension in our food networks in order to prevent catastrophe. CEA mitigates such risks by growing clean and healthy food close to home, making it an increasingly-appealing investment target.
3. Despite the challenges in the industry, the needs have not gone away.
We’re now a few years past the embarrassing bankruptcies of many large VC-funded farms. Those projects failed because of fundamental issues in planning and execution, but they were never wrong about the potential market opportunity. We need to feed a hungry planet, and CEA offers an economically sustainable way to do so.
4. Rising interest rates slowed growth, but successfully averted fears of larger economic crises.
Money is still not as cheap as it was pre-pandemic, making access to capital difficult in some cases. But the numbers can still work for a savvy business plan. As inflation has stabilized, the Fed is edging closer to cutting rates. Growers might not be playing with “free” VC money anymore, but it’s a stable business climate.
5. CEA planning can be a lengthy process.
If you start planning now, you won’t miss the opportunity to jump in later. If your plan is dependent on capital investment at lower rates, it is reasonable to wait and see. When interest rates do begin to fall, it will create incredible opportunities for those who are prepared to take advantage of them. However, site location, market research, and other aspects of planning a farm can take anywhere from months to years. Even if you’re worried about capital access now, it’s a perfect time to start getting your ducks in a row.
6. State and Federal Support for CEA farmers is increasing.
Over the past twenty years, the amount of grants and lending programs available to small farmers has grown, reflecting a growing awareness of the value that growers bring to their communities. Just earlier this year I was invited to speak at the USDA Global Outlook Forum. There’s still a lot more than governments could be doing, but they are paying attention and looking for ways to encourage growth in our sector.
7. People are profiting through CEA, and you can too.
Maybe this should have been first on the list, but I hope that by now I’ve been able to explain why the economic incentives exist right now. Many people are interested in entrepreneurship in order to start their career, change careers, or even to diversify their income streams as they look to end their careers. While many industries are in decline or experiencing disruption, the future for CEA is bright. New farms are opening all the time, and if you know of a geographic market that has not yet been saturated, that’s a real opportunity to take seriously.
People need to eat. They want to taste the most delicious possible produce when they dine out. They want to choose local and avoid pesticides. They want to make choices at the grocery store that reflect their values. Growing hydroponic fruits and veggies is an economical way to meet that demand. It’s the perfect time to get into the market.
But just because there is a market, that doesn’t mean you can throw caution to the wind. That’s what some Silicon Valley investors began doing a few years ago, and it didn’t work out well for them.
Next week I’m going to share a list of cautions that you should also balance against these opportunities. People have learned some lessons the hard way, but you don’t have to.
