On Top Of The World…
Or Your Local Supermarket
Are Rooftop Hydroponic Greenhouses The Future Of Farming?
Jim Prevor’s Perishable Pundit, November 4, 2011
Urban agriculture is a big thing now. Last year, The New York Produce Show and Conference took a tour of a rooftop farm. It was awe inspiring to see farming with a backdrop of the Manhattan skyline. This year, we are going to see a small prototype of a greenhouse that one firm wants to put on the roof of supermarkets all across America. We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
Business Development & Public Affairs
New York, New York
Q: How did BrightFarms come about?
A: BrightFarms is the successor company to several others. We’ve been working five years putting greenhouses on rooftops, now exclusively with supermarkets. We strategize turn-key solutions, where we design, finance, build and operate hydroponic greenhouses on rooftops of supermarkets or nearby locations, sometimes in the back of their distribution center.
Q: Which retailers are involved, and are any of these rooftop greenhouses up and running?
A: We’ve just announced an agreement with McCaffrey’s Markets in Langhorne, Pennsylvania, to build and operate a greenhouse farm directly at one of its grocery stores. We’ve been in negotiations and are developing greenhouse plans with McCaffrey’s and two additional supermarket chains the last eight months, and we’ve received a lot of interest from other leading retailers about our business model. At this point, the downside is that none of the greenhouses on that scale have been built yet. Our first three supermarket greenhouses are scheduled to be built next year.
Q: Is the rooftop greenhouse that attendees will be touring at the Manhattan School for Children a small scale representation?
A: Yes, it serves as a model. As consultants, we were focused on designing greenhouses for other uses, including for public schools in New York City that are used for school cafeterias and to help kids learn about healthy eating, but not for commercial production.
We view the smaller greenhouses as environmental education centers. Students learn how to grow produce in a hydroponic greenhouse using modern agricultural technology. Class projects teach kids about local farming, produce and environmental sustainability, and the lessons become integrated into their school curriculum.
Supermarkets we’ve been talking to are clearly interested in big production greenhouses, but say they love the idea of having a greenhouse as a community resource for local schools and to tie back to the local supermarket in new ways to excite children about eating fresh produce.
The shell of this rooftop greenhouse is high-end and robust, built for 50 years with glass, steel aluminum, and everything automated by computer system to monitor and adjust humidity and temperatures. Still, these projects are much different in scale and magnitude.
Q: How different? What is the scale of these retail rooftop greenhouses? Could you describe the business model in more detail?
A: The ones we’re building next year are all about 40,000 square feet to 45,000 square feet. We’ve signed confidentiality agreements, but the first three hopefully will go public by end of this month.
Development is quite complicated. Essentially, the business model works like this: The supermarket agrees to a long-term, 10-year purchasing agreement. We work together to set the price, quality, and volume of produce, and agree on an arrangement to secure stable prices for 10 years. The predictable price allows us to go out and raise capital. The hard work gets done early on with the legal agreement. Those negotiations are complex, but we are hoping to announce more partnerships soon.
Q: Does the supermarket need to invest money upfront to jumpstart the project?
A: The supermarket is not paying for anything. The only thing the supermarkets pay for is the produce they would be paying for anyway. They figure out on average how many pounds of cucumbers, tomatoes, or other items they’d want through the greenhouse and a set price based on what they’d pay normally.
Q: Approximately, how much quantity and for what time periods are they projecting out?
A: Some $1 million to $1.5 million wholesale per year. That would be produce they’d be buying anyway, which we’ll supply out of our greenhouse. The produce is much better quality because it’s harvested and on the shelves in 24 hours. Some of the supermarkets would need to build the greenhouse a couple blocks away. Many are looking at building on the roof, where the produce is right there. It’s much better because it’s fresher for a longer shelf life resulting in less shrink. Overall margins are improved, and customers will want to buy more. It’s also environmentally beneficial with no shipping and no carbon emissions.
Q: In the produce world, prices can fluctuate significantly due to numerous variables; it’s a real supply-and-demand business. Are you experiencing any resistance from supermarkets that don’t want to commit to a set price in your 10-year contractual agreement?
A: The interesting thing, we initially understood that supermarkets don’t tend to go into long-term commitments for produce, and certainly not for 10 years. We were curious to see if supermarkets would buy in a completely different way. We agree to a quality standard so if for any reason quality is not there, the retailer can reject it. Making the commitment to a price that you know in advance for the next year provides a real sense of security.
It can be annoying when prices go up and down on a staple commodity; some like the game of offsetting profits, but a lot of buyers find it frustrating, and with oil prices up and down, a truck from California can be low one week and high another, and retailers often have to eat that price. We remove market randomness and uncertainty, but we have to work carefully and patiently through people’s concerns.
If the retailer has a set price at what they consider very attractive, $1.90 for a pound of xyz, they can enter a contract and lock it in. Our contract prices creep up very, very slowly based on the Consumer Price Index, a factor of two or three. For produce, prices historically rise faster. For example, average prices on tomatoes went up 6 percent or 7 percent over the past 15 years. If retailers project ahead, prices locked in through a contract over 10 years can be more beneficial.
Q: What products are available through your greenhouses, and are supermarkets targeting particular items?
A: The greenhouses use hydroponic growing techniques to produce all lettuce varieties, chard, mustard greens, kale, all the fresh herbs, tomatoes, cucumbers, peppers, squashes and a range of berries. The reason for this set is that they’re the most perishable items and people want them all year round. This justifies the cost of the greenhouses, which are very expensive to build and operate.
There’s an urgency of getting lettuce from field to shelf. A box of lettuce in the middle of winter lasts a day or two. It’s not an ideal situation trucking product six days from California when it has a 10-day shelf life.
We inform retailers of the range of products we can grow. The ones they know they are getting from big industrial greenhouses in Canada are desirable. Supermarkets know customers would benefit getting product faster and fresher.
Q: Do you think the attention on locally grown and sustainability practices are driving interest?
A: The growth and interest in locally grown produce is so great at the moment. Supermarkets are trying to keep up with it. We are coming at a good time as people become interested in environmental issues. The pushback on local is less about the use of local land, and more about jobs, hiring growers and staff from that state and helping local economies. But good quality is always the bottom line. Per acre or square foot of land, the greenhouse can produce 30 times more yield then conventional field agriculture.
Q: How significant is production in these greenhouses? Will they make a material difference in the store’s overall produce department offering?
A: If talking about a typical greenhouse with an average size of an acre, that greenhouse produces 500,000 pounds of produce a year with 365 days of production. That equates to $1 million to $1.5 million in wholesale price. Just the lettuce and tomatoes amount to more produce than one supermarket can sell. Volumes will obviously vary depending on the size of the retailer; in some cases the demand is 2 or 3 SKUs and in other cases 15 SKUs.
On average, the greenhouse grown product will cover multiple stores in the chain. We’ll send trucks to distribute to the other nearby stores.
Q: Could you clarify the scope of BrightFarms’ responsibilities? Does your company actually operate the greenhouses once they are completed? Do you hire experts and specialists to run day-to-day operations? How do you manage these ventures to insure contractual agreements are being followed?
A: BrightFarms is a finance management development company, New York City-based. We work with supermarkets to develop contracts and design and build the greenhouses, but once they’re up and running, it’s a farming job.
We look for young farmers in that state or region, so local farmers are working in every region across North America. We are dedicated to find local farmers to support the local community. Sometimes this requires training in hydroponic farming. It could be just a matter of not having enough experience in certain crops. Then it is their responsibility to hire staff, operate and develop the right quality.
We watch them from afar to be sure they are following contract requirements, and if needed, we can provide additional training, logistics, and equipment. Farmers clearly have to do rigorous quality assurance plans and training, but at the same time this structure is a highly automated and technology-focused operation, which is half the job.
Q: Are you affiliated in any way with Gotham Greens, a 15,000 square-foot rooftop greenhouse in Greenpoint, Brooklyn, that markets products to New York City restaurants and retailers like Whole Foods, FreshDirect and Eataly?
A: Gotham Greens is separate company, but we have a common history. The two people that started Gotham Greens used to be my colleagues when we were working for nonprofit organization exploring bringing greenhouses in urban areas. After this, we set up two separate companies with different business models but the same concept. From a commercial business perspective, the companies are entirely separate.
Q: How unique is your greenhouse model?
A: Our idea is that each of the greenhouses will be relatively similar, and the contracts relatively similar, though the produce is different. We want to develop a repeatable business model. There are many urban agriculture stories, but they are community specific and difficult to replicate across supermarkets around the country. If we’re dealing with 1300 stores, we have to come up with a model that we can replicate very easily. Our objective is shortening the supply chain, eliminating waste and creating a dedicated source of ultra local production.
Q: What are your biggest challenges? What are the biggest opportunities?
A: The biggest challenge is simply that it’s a new concept. People justifiably need to work through each part of the idea in detail. Many supermarkets responded to marketing emails and phone calls very soon after we launched the business in January (2011), and we spent the next few months in discussions.
Committing to a 10-year plan is a different way of buying produce. They need to have the patience to understand how the process works, this is what happens if produce arrives on one day and they don’t like it, etc. There is nothing brand new here; all the technology exists. The business model is actually copied from the solar rooftop industry, where companies signed long term power agreements and used to pay for construction and installation of panels on their roofs.
Going through the supermarket’s vice president of produce and engineering team, these are all new ideas. The challenging work is going through this process. All chains have different procedures. All have different strengths and weaknesses that impact the best approach.
The opportunities are quite considerable. We like to articulate the benefits of our business model. We need to achieve three things: provide better food because it’s fresher; better prices because we’re cutting out all that transportation; and a more stable price because it doesn’t go up as much as inflation.
We don’t think customers should pay more for better produce. Food safety issues are alleviated and it’s better for the environment in many ways. For example, we have a closed loop water system unit with all recycled water, which is the most efficient form in agriculture use. Each component is desirable, and we need to make sure all three exist at the same time from this business model.
Supermarket executives will see that ultimately as retailers they are judged on price and quality of the product. The rooftop greenhouse allows the opportunity to deliver to their customers a box of lettuce arriving on the shelf the first six days of its natural shelf life. Tomatoes can be grown for nutritional value and taste, not for shelf life, and picked when ready.
It is an interesting idea but so far it raises as many questions as answers. Certainly many retailers will be interested in doing something like this as a PR measure and supporting the school versions is a no-brainer. Still, there are real questions about the sustainability of the business model.
Will it produce needed yields? Can they audit for food safety in a way acceptable to big chains? Is it scalable –where will all these young farmers, expert in hydroponics, come from? How will supermarkets handle it if contract prices diverge from market prices in a way that hurts profitability? Will supermarkets commit for 10 years?
The company has a video that is pretty good at knocking the conventional produce industry. Finding fault is easy, but doing it better is hard. We wish Bright Farms and its staff well, but we will see when the commercial scale operations start opening.
In the meantime, we are touring this prototype as part of a tour of innovative Manhattan retailers. You can see both by letting us know you want onto the tour right here
You can register for all events at The New York Produce Show and Conference right here
Hotels can be reserved here.
And travel discounts found here.
The Story Of Lettuce from BrightFarms on Vimeo.