Why do Vertical Farms fail in India? Lack of Market.

In the previous part of this series, we had discussed one of the significant reasons for failures of commercial Urban Farms in India. The fallacies considered there result in substantially high input costs. The higher input costs force the grower to price their produce at a significant premium to the market price. Higher pricing, in turn, leads to a lower uptake of sales and resultant failure of the farm. This brings us to our second observation for reason of failures of Vertical Farms in India, which is lack of Market.

Of all the inquiries we receive from Commercial Farming aspirants, hardly, few would come to us after identifying a potential market for the crops they would want to grow. An approximate representation of the basic thought process (that we have observed) works in the following fashion.

Step 1 – decide on setting up a Hydroponic / Vertical Farm
Step 2 – decide on the crop-technology combination for the farm (primarily based on googling or hearsay)
Step 3 – make the BIG investment – set up the physical farm infrastructure
Step 4 – try to figure out how to get the farm to work – the learning curve for crop technology combination
Step 5 – try to find a market for the crops

The sequence of steps depicted above is sub-optimal. Even after one traverses from Step 1 through 4 successfully, the farm may still fail when one realizes that the premium, they were assuming the market will be willing to pay for their produce, does not exist.

Often, by the time they reach to Step 5, they have made their cost structure so high that to maintain profitability, the only price they can charge is one that will ensure that they are priced out of the market.

To elaborate on the above decision-making cycle, one small case study of an Urban Farmer who had reached out to us with a SoS call.

Background: Apparently, the grower had set-up the farm based on an excel sheet calculation received from the vendor that assumed an ideal four-week growing cycle and offered a buyback price per head of lettuce as long as it was above ‘x’ grams. The buyback commitment was for one year and the break-even period was depicted as nine months.

Problem Statement: It was almost three months since the farm was set-up however the farmer’s revenue was 0. Reason – he was not able to achieve even 50% of the size (of lettuce head) required for availing the buyback offer.

Root Cause Analysis: We visited the setup and narrowed down the problem at multiple levels:-

1. Faulty RO unit giving output water with high pH (7.6 to be precise)
2. Lack of awareness about pH management at grower’s end
3. Lack of knowledge about the nutritional needs of the crop in question
4. A poly house set-up without temperature control

Learnings: If you look at this case, it typically followed the steps outlined in the above sequence. When the grower reached out to us, he was stuck at Step 4 for almost three months. Sure enough, the vendor did not help as his responsibility got over once the farm was set. From a RoI(Returns on Investment) perspective, this meant that the three months out of the twelve-month buy-back period got over with nil revenue.

Further, the excel sheet assumed consistent production around the year. Given that it was a poly house setup without temperature control, the grower will not be able to grow lettuce for more than 4-5 months in a year at max. Since the buyback was only for lettuce and set-up cost almost twice of what it should be (because of buy-back and 9 month break-even calculations in excel, the gullible grower did not mind paying the premium), the vendor will make a handsome profit even if he discards all the lettuce he ends up buying during the buy-back period.

The grower would have avoided this setback if the steps he followed were in a different order, viz:-

Step 1 – decide on setting up a Hydroponic / Vertical Farm
Step 2 – understand the basics of Urban Farming and different crop-technology combinations. select 2-3 options
Step 3 – do a market survey, to try to establish a market for the produce
Step 4 – decide on the crop-technology combination for the farm based on learnings gained in Step 2 and 3
Step 5 – Set-up a smaller unit for the selected technology – gain the learning curve.
Step 6 – make the BIG investment – set up the full-scale physical farm infrastructure

Of these steps, the Step 3 – the failure in establishing a market before one sets up the farm is one mistake we are discussing today. If one can determine the market upfront and arrive at the price they can command, all the calculations can flow backward from there. This process can help growers be prudent on their cost structure depending upon the premium they hope to be able to command from the market.

Hope this blog throws some insights and help you in your decision-making process.

Happy Growing!

10 thoughts on “Why do Vertical Farms fail in India? Lack of Market.

  • Divith Y Savarkar says:

    Hi, have only been growing for about two years now. Really appreciate your honest opinion on everything i have read so far.

    • Nidhi George says:

      Hi Divith,

      Thanks for writing in!
      And thank you for appreciating our honesty!

      Regards
      Team City Greens
      8310312660

  • vinal loren dsouza says:

    Greetings, i am looking for the cost breakup for a 30000sft indoor hydroponics system with full automation, piping, services etc in bangalore. we are thinking of implementing as a part of our ongoing project in bangalore. Also i would like to know about the running costs i.e. electricity, automation costsm, labour, the return on investments etc. Kindly provide me with the breakup of the above details with your costs so that i can pitch it to my clients.

    Thank you

    • admin says:

      Hi Vinal,

      costs will vary with a lot of components and choices that you will end up making for your set-up. As such it will be difficult to give a fixed cost. You can download a generic cost sheet from the download section in our website to give you a ballpark idea.

      If you have a specific project in mind, you can reach out to us at +91 831 031 2660.

  • Gautam Kothari says:

    It was really interesting to read various articles by you in your website/ blog.

    Although I am not at all related to agriculture sector, but this hydroponic sound interesting.

    Please clarify if we can grow only leafy vegetables/ herbs or also other vegetables like Potato, cabbage, capsicum etc any thing using this process of farming.

    Regards

    • admin says:

      Hi Gautam,

      The only constraint with Hydroponics (when it comes to which plants can be grown) is the amount of strength needed to support a plant in a grow structure (to provide the support that soil can provide to bigger trees).

      Apart from the usual leafy greens, other plants grown in hydroponics include smaller height plants like capsicum, chilies, peppers, eggplants, okra, etc. and vein crops like tomatoes, cucumbers that don’t need much support from grow structure.

      All the root vegetables and plants like cabbage and broccoli can be grown in growing beds of soil-less substrate that uses cocopeat or other grow media instead of soil.

      Hope it helps!

  • Shivam Jindal says:

    Hi, it’s a really interesting post. I have been following your website from some time and it has motivated me for hydroponic farming. I like that your posts are honest, genuine and to the point. I am interested in setting up a commercial set-up but I have zero experience with farming. Also, I am not really sure if it is a feasible option in chhattisgarh. Would really appreciate your opinion on this.

    • Hi Shivam,

      The feasibility will depend upon the price you are able to command in the market. If you try to compete in the local market, getting to profitability will be very difficulty. However, if you can find a customer base who is willing to pay premium for halthier and nutritious food, then it becomes feasible.

      You will be the best judge of if you can find such a market segment in the vicinity of area where you would want to set up the business.

  • Prateek says:

    Hi,
    Just got this article through Google discover.
    Was much needed article, as I was looking for setting up a hydroponic farm but stuck on the thought that were would I sell my produce.
    So, I am in market research.
    How can I do that without a product in hand?
    I am looking to establish it in a city with 12lacs population.
    As far as I googled, I got to know, hydroponically grown crops cost quite expensive to sell to home users.
    And to sell to industry, I should show them something promising to get pricing info.
    Can you guide me something in this regard.

    • admin says:

      Hi Prateek,

      You have identified the right challenge. All Hydroponic producers face this at some point in time. You can give us a call at 8310312660 and we will be happy to guide you on how you can test the market.

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