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

09.01.19 09:20 PM - Comment(s) - By Admin

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

This sequence of steps 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 weight (of lettuce) 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. 

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

make the BIG investment - set up the physical farm infrastructure

Understand your market, before you set-up your farm.

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!

Admin

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