Too often, commercial indoor farms fail because farm operators underestimate the responsibility and cost of establishing and operating their farming facility. The costs most commonly being improperly accounted for are location and highly-skilled labor, as well as equipment purchases and subsequent maintenance.

Reason 1: Poorly Chosen Location For Indoor Farm

Proximity to consumers and the ability to produce crops year-round at a sustainable rate is an important part of what is needed for an indoor farm to be successful. This holds true whether the facility is growing for the food sector or pharmaceutical sector, and it further highlights the need to perform market research to determine: the produce demands of local consumers, the type of facilities and equipment needed to grow crops, and whether there is dependable access to a skilled workforce.

In addition to matching your farm’s crop or crops with market demand, it’s important to determine how produce will move from your farm, to the packaging facility, to the marketplace. Accounting for this, the farm should be located as close as possible to the community it serves – including distributors, food processors, supermarkets, and local stores. By reducing the amount of transportation needed to deliver food to consumers, marketplace prices are lowered, making the produce more appealing to an increasingly conscientious customer. Furthermore, the reduction in transport costs can offset the production costs driven by the farm’s significant energy and labor expenses.

Reason 2: Selecting The Wrong Indoor Farming Equipment

Indoor farms require costly equipment, such as climate controls, shelving units, LED lights, water lines, computers and monitors, and more. It is common for this sizable initial investment to be a significant portion of an indoor farm’s startup budget.

Lighting can account for up to 30% of capital expenditure when setting up a vertical farm and between 25% to 30% of operational costs.

Mordor Intelligence 2022

Because of the enormity of the financial commitment, it is paramount that farm operators carefully consider the specific needs of their crop/s and carefully select the best solutions for their farm. Without making the effort to determine the exact lighting and environment requirements of their crops, it can be expected that valuable resources – time and money – will be wasted on experimentation in the pursuit of maximum yield and revenue.

The main issue is a lack of analysis and understanding of the needs to maintain the optimal conditions for plants to interact with their environments … It’s important to understand the actual needs for food production, and then to identify what type of technology is available to address it.

Alberto Lopez, Systems Engineer, Agritecture

Typically, an indoor farm relies on technology – such as the Internet of Things, machine learning, and artificial intelligence – to maintain the effective operation of vital farming systems. And, in most instances, it’s not a single technology operating within the facility. Often, the farm is dependent upon multiple technologies for lighting, climate regulation, and more. Being aware of this dependence on advanced equipment and software to maintain performance and profitability should encourage farm operators to carefully review their technology options and choose a provider with an established track record and an outstanding reputation.

In terms of their initial business decisions, 73% of founders said that they would choose their equipment, technology, or crops differently if they could go back in time.

2020 Global CEA Census Report

Due to the high complexity of operating systems, as well as the continuous operation of the farm, it should be expected that over time components will break down and need to be replaced or serviced. It has been suggested that up to 70% of a vertical farm system will undergo some level of replacement or repair within a 10-year period. In fact, most equipment maintenance will begin to drive up operating costs within five years.

Reason 3: Significant Labor Costs

Typically the biggest operational cost for an indoor farming operation is labor. On average, a hydroponic farm will spend approximately 57% of its operating budget on farm staff. Although wages for some farm workers are relatively low – up to $15 per hour, the costs accumulate quickly. For indoor farms to overcome this enormous financial burden, farm operators need a capable workforce they can depend on to help them grow bountiful crops, harvest plants, and package produce.

49% of founders have no prior agricultural experience.

2020 CEA Census

To be successful over the long-term, an indoor farm requires a staff with a powerful skill set. This may include contributions from data analysts, systems integrators, project managers, engineers, growers, and plant scientists. If you’re not a barber and you open a barber shop, you need to hire an experienced barber. Likewise, if you’re not a grower and you start up an indoor farm, you need to hire an experienced grower to tend to your crops. All things considered, a farming facility without a highly-skilled labor force is not likely to perform well.

Although advancements in automation equipment offer viable alternatives to securing skilled laborers, they require massive capital investment to build, as well as experienced operators to monitor and maintain. Given that securing both capital and skilled labor are already a challenge for indoor farm operators, few can afford to pursue automation solutions. Thus, to ensure an expanding pool of workers and develop capable farm laborers and business managers, the indoor farming industry must continue to introduce accessible opportunities for education and training.

Indoor farming is a cost-intensive endeavor and there is no one-size-fits-all solution. Every step of the process, from finding the right location and choosing the best-performing equipment to hiring competent farm staff, requires a significant investment of time and money. Even though it’s possible to grow almost any crop anywhere, you must ascertain whether it is economically feasible to do so when your indoor farm’s geographic location, equipment needs, and labor requirements are appraised.