Considering starting a vertical farm? Think like a farmer, not an engineer.
Stan Kaplitw, co-founder and president of Zeste Farms, said potential CEA growers should not become preoccupied with the technology of any type of production system.
Zeste Farms has developed its indoor vertical farm production system to be easy to operate and simple to repair.
In April 2020 when Stan Kaplita started Zeste Farms, an indoor vertical farm in Paso Robles, Calif., the coronavirus pandemic was well established in the United States.
“There was a lot of discussion of whether we should go forward with the business or not,” Kaplita said. “We had raised quite a bit of start-up money, so we made the decision to move forward given it was a prototype and we saw ongoing investment in this sector. We knew it was going to take time to procure all the equipment required to operate the facility. But we figured the pandemic would be over in a few months and we would be fine.
“We started the company because we felt there was an opportunity that was being missed by other indoor vertical farms. I was new to the industry but was very attracted to the potential of sustainable farming and eliminating the ‘green premium’.”
Prior to starting Zeste Farms, Kaplita was general manager at Plenty’s former indoor vertical farm in Kent, Wash.
“When I joined Plenty, I was involved with building the Washington farm,” he said. “I was hired to be the general manager of the Washington location. I hired the employees, oversaw the build-out, and got the operation up and running. In the middle of doing that, the company changed directions in terms of its production system design. The company was re-strategizing, making the decision to close its Washington location and to focus on the Los Angeles market.”
While at Plenty, Kaplita got caught up in the hype about indoor farms.
“The team at Plenty really opened my eyes as to the potential of controlled environment agriculture and what it could do,” he said. “I was able to understand how indoor farming provided an opportunity to produce food more sustainably, with more nutrition per serving, less water, no pesticides, and no use of arable soil. Indoor farming looked like a huge benefit that our generation could do for the next, leaving them something that was beneficial and sustainable.
Building a simpler, cost-effective production system
Before being employed by Plenty, Kaplita had been involved in product development, working on the Coca-Cola Freestyle program and for Microsoft where he was a member of the team that developed, manufactured, and distributed the original Xbox video gaming system.
At Plenty, Kaplita worked with both horizontal and vertical production systems. He also traveled to Europe where he visited greenhouse facilities to better understand how hydroponic production systems worked and how they were evolving.
“Taking the best of U.S. automation and bringing all those pieces together was the idea for Zeste Farms,” he said. “We are working to do indoor farming better than anything that’s being done and we’ll do it with a different product set going in.
“We’re not competing head-to-head with some of the other indoor farm companies that are entering the market producing cut salad greens. There is a lot of the cut salad product available. That is a tough grind with a razor-thin profit model.”
Kaplita worked with a grower to design an indoor production system that could be more cost effective and easier to operate. He learned from other field and greenhouse growers that keeping processes simple, being frugal, and self-reliant were critical success factors.
“These vertical farm operations can be so technologically complicated and expensive,” he said. “I came from a cost-reduction background. There was a lot of low-hanging fruit for me in terms of how to put a production system together. Starting out, we planned for just enough automation and no more.”
Zeste Farms production system is called Anaconda. The name comes from the system’s serpentine configuration with a snake-like pattern.
“The Anaconda system was a collaborative effort with contributions from seven key individuals or companies,” Kaplita said. “We tried to incorporate the best of U.S. automation and engineering, and European greenhouse production. We worked with Hort Americas to determine the most reliable lighting so we could narrow in on the right focus on lights. We took that and modified how the lighting was going to be installed so it would be easier to maintain.
“All the companies we worked with had engineers that were very helpful in modifying or customizing their standard commercial solutions. We had no degreed engineers working for Zeste Farms.”
Anaconda was designed not to be proprietary, but to incorporate reliable, commonly available parts and equipment.
“We designed a system so that replacement parts are readily available or easy to stock.” Kaplita said. “We created a farm that anyone with some understanding can operate it. It’s not exclusive to a select few. Everyone is cross-trained and everyone is responsible for food safety.”
Integrating systems
Kaplita sees Zeste Farms as a systems integrator of different technological solutions. “Designing for sustainability, reliability, a great product and economic viability was the goal from day one,” he said. “There is an argument in the vertical farming industry about whether to be a farmer or a technology provider. People have tried to do both. I don’t think you can make money doing both.
“Together with our strategic suppliers we are really a solution integrator. We focused on functional interoperability, so everything works better together in delivering product to market.”
Kaplita said indoor farms face the same issues as field and greenhouse growers.
“Field and greenhouse growers must solve issues with soil, water, food safety, organic growing, and transport. These are the same ones facing indoor vertical farms, it’s just with the application of a new set of technologies to enable food production close to urban areas.
“Taking it one step further, because scale with indoor farming is achieved with multiple operations strategically located near urban areas, our solution allows for a master grower or technical support to oversee multiple farms and support the core team at each farm.”
Know how the supply chain operates
Kaplita said now that he has been in the CEA industry for over five years, he has a better understanding of the pros and cons of vertical farms vs. greenhouse production.
“There are huge benefits with correctly designed and located greenhouses,” he said. “One of my advisers has over 30 years of experience with greenhouse design and construction and understands how to make these successful. He was able to use his knowledge to play into the design of what we did for the Anaconda system.
“Because produce is so highly perishable, potential growers, whether a vertical farm or greenhouse, need to understand how they are going to integrate with the supply chain and execute on sales and distribution.”
Kaplita said prior to starting a business, growers need to understand regional market size for their products, sales channels, proforma P&L, and location.
“Assuming a crop can be grown in either a greenhouse or indoor farm and the production systems and associated labor are equivalent, the key determining factors that can vary widely between solutions include the monthly cost of a location, the needed power, and the transportation from farm to customer,” he said. “These are difficult to model, but imperative before deciding if a greenhouse or indoor farm production is the best choice.
“Location is critical. If the land is available for a greenhouse, but the climate and light levels are less than ideal, then indoor may be a better choice. But if neither operation can really be profitable at the projected scale, it may be better to back out. There are many unique challenges and benefits to each production method that have to be considered.”
Kaplita said a bigger issue is learning and knowing how all the processes and relationships downstream from the farm work together.
“Anyone can set up a farm to grow a lot of different crops,” he said. “Doing it reliably at scale is the next challenge. But if the marketing and demand isn’t exciting, and its introduction is not timed properly, getting the product into food service or onto store shelves can become the ultimate challenge. Additionally, factors such as shelf life after transport, product appearance on the shelf, and the various nuances that can occur between the farm and the store shelf can obsess you.
“For us, it’s no longer the growing that causes the greatest concerns. It’s the sales and distribution that really matter and can create on-going challenges that require constant focus.”
Find your market niche
Kaplita said potential CEA growers should not become preoccupied with the technology of any type of production system.
“The end game is understanding distribution, customer processes, and achieving product market fit,” he said. “This takes several iterations, and you don’t get to iterate until you are in the market at volume. There is so much more to learn once you start to establish market relationships.
“Produce to me is not a friendly market. The CEA players who have succeeded, found their product market fit quickly and their product sales, funded their growth. If you aren’t thinking about product market fit, game over. It’s cool to grow things, but don’t get overexcited about that. You want to survive so you have to be able to plug into the local market quickly.”
Kaplita said successful CEA growers have matched scale with demand and then expanded as demand grew.
“Demand grew based on consumers wanting more product,” he said. “This is basic math. Making money keeps you in the game to follow your quest for sustainable farming. A CEA farm is a big investment, and you learn more as you grow and ship.
“Revising or rebuilding to address major design or process misses on “version one” because of missed product-market fit is very expensive and requires additional investment. That’s what many new CEA growers seemed to have done. They built something, learned a lot and then they built something else. That just gets super expensive and difficult to maintain. It makes evolution to achieve CEA success a very slow process. The point is to learn from other growers, find product-market fit, start small, and iterate across the end to end.”
A long-term commitment
Kaplita said one of the lessons that the CEA industry and Zeste Farms has learned is that it takes time for new CEA farms to be financially successful.
“We’ve learned from the tremendous efforts of other high-tech CEA farms, some no longer in business, that they don’t deliver a quick hit that venture capitalists are looking for,” he said. “It takes patient and strategic capital that is invested in this area, coupled with a long-term view.
“Our approach has been old school. Don’t expand until you know you’ve got the core fundamentals in place. Other than our ongoing learning on sales and distribution, I’m confident we have the core fundamentals in place. Our view was that the unit economics had to be in place or we were going to go nowhere. The margins are way too thin to apply this idea of a Silicon Valley experiment. More money, more people, and more automation aren’t going to make it work. We didn’t know it all when we started. We did some things well and missed on others. We are still learning.”
Author: David Kuack
