Ocado at forefront of vertical farming revolution, broker says

Vertical farming is becoming an attractive asset in the push for reliable, sustainable agriculture, with UK-based Ocado Group PLC (LSE:OCDO) one of the few London-listed players in this growth, according to a note by Credit Suisse.

The broker found that investment into vertical farming reached more than US$2.3bn in 2021, a 161% increase on 2020, while last month's investment of $US740m outpaced the entire amount spent in 2019.

While unlikely to sustain those rates of growth, Credit Suisse quoted external sources, indicating that vertical farming will grow by more than 20% through to 2030.

An offshoot of fast agriculture, vertical farming is the practice of growing plants in vertically stacked layers, under fully controlled conditions, using LED rather than solar light.

It is less resource-intensive, while also much less variable depending on seasons and climate change, than traditional agriculture.

In turn, Credit Suisse note this style of farming can require water intensity that is 90% lower than traditional farming, with yields that are up to 30% higher.

Key challenges identified by Credit Suisse include high levels of capital expenditure, with a single farm costing up to US$40mln to build, or US$3000 per square meter, the high energy consumption meaning renewable sources was required, and the required investment in robotics and automation to make the practice profitable in the long run.  

The broker highlighted academic research that suggested an internal rate of return (IRR) of more than 30%, if consumers were willing to pay a premium for the products of vertical farming.

It also offers the opportunity for agriculture to exist within an urban setting.

In July 2021, online grocery firm Ocado said it was planning to assist with the building of a vertical farm near Bristol, having first entered the market before the pandemic.

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Photo by Petr Magera on Unsplash

Source: Proactive Investors