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A POV on the future of urban farming

Urban Farming

Urban farming is coming of age and attracting investor interest. McCains recently paid $65 million for a 5-year old Canadian urban/vertical farm company. Aerofarm, a nine-year old company that only recently made a small profit is valued at US$1.2 billion. Urban-gro, a US company supplying urban farming equipment, is valued at US$111 million, around a 50 PE. Investors clearly think this industry will grow massively. This proves nothing about the future, but it is encouraging.

These big companies make a lot of noise about feeding the planet, social responsibility and all that. But it is mostly noise. They are not local. They grow in warehouses outside of their core market geography and truck the product in. They automate as much as possible to avoid paying salaries to locals. They (try to) develop 'proprietary' technology (hence the high valuations) that they sell to the highest bidder, not to people who need or want to grow food. This model may well have a place, but it is not optimal. I'd like to build an optimized model, and I think it looks something like this:

It is replicable. Once the system is established and 'perfected', it can be codified and the operating model shared widely so that others can build urban farms to a 'simple' proven blueprint (in the right geography, that's critical) around the world.

It's a financially attractive business model at a relatively small scale. Think McDonalds franchise. Every geography has one. As a ballpark vision/target, an urban farm with revenues of $1m, a 20% net profit using $0.5m of capital is realistic, I calculate - small and wealth-generating enough to motivate 100s of entrepreneurs around the world to follow the blueprint.

It is local, serving only a small, relatively wealthy catchment area of perhaps 10 km2, enough potential demand to support a $1m farm supplying a basket of fresh produce direct to consumer. Because it is local, and still relatively labor-intensive, the business is a bit Robin Hood, taking from the rich (customers) to give to the poor (local employees). :) I like that idea.

Locality greatly enables financial viability because a direct-to-consumer channel strategy adds 40 points to your P&L - all existing competitors sell via retail, giving up a massive chunk of their margin. Our farming model can be half as cost efficient as the big players to achieve the same level of profitability. I assume that a small, optimized system could achieve at least 80% efficiency v competitors, so 2-3 times more profitable. Given that competitors are profitable, this feels like an entirely feasible route to superior returns.

Locality creates enormous opportunity to build defensive sustainability. Retailers and big producers will not take kindly so being outfoxed, disintermediated. Locality allows the farm to build a loyal "I know my farmer" customer base. It allows delivery on harvest day, so providing a vastly superior product compared to the days-old competitors' product on the retailer's shelf. It allows customer deliveries by electric bike ridden by local young people. It allow the return and reuse of glass product packaging, so no plastic. It allows genuine outreach to the community - children's education, garden farming know-how sharing, tasting sessions, collaboration with local chefs and other food suppliers, the possibilities are endless

The farm becomes an platform for other optional related products and services. In Beijing? Install the Bok Choy module. As the only farm in the community, potential business adjacencies are rich and may be necessary to get this farming model to an acceptable financial performance. Examples: vegetable seeds, grow-your-own vegetable kits, chicken coops and maintenance contracts, organic compost, :), etc. Every community would surely benefit from having such a business in their midst. Who would not support "my local farm"? Brand awareness should become extremely high, rather quickly, because of the power of good food and strong community.

So, we'll work to build this business model, to create an urban farm in the Junction that performs financially (my win) and is replicable (others hoped-for win).

Wish us luck! Or do that and subscribe, even better. :)

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