RaboResearch Food & Agribusiness

This interview details RaboResearch Food & Agribusiness, a research team at Rabobank based in the Netherlands. The interview is with Cindy van Rijswick, Global Strategist Fresh Produce and Farm Inputs

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What are your thoughts on 2023 in the indoor farming space as it comes to a close?

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Actually, the last four years have been a rollercoaster for any farming business, including the indoor farming space, even though that space is not exposed as much to mother nature compared to any open field production system. In particular, startups and vertical farming companies have been sailing through rough waters. The more established traditional greenhouse and glasshouse industry has sailed through somewhat calmer water.

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New businesses and vertical farms were, in particular, impacted by the diminished investor appetite. Higher interest rates and labor costs have impacted nearly every indoor farming business. On the other hand, the ease of energy cost increases during 2023 has given some relief.

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What are some of your predictions for the CEA market in 2024 and beyond?

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During these more challenging times, the best companies stand out from the crowd. These outperformers will continue to expand by buying the poorly performing companies or building new facilities (in a conscious way). In particular, in Europe, the supply of sustainable and affordable energy is the key factor determining where new facilities are built.

Labor and logistics (not too far away from supermarkets or supermarket DCs) are also factors of high importance. As it is increasingly difficult to find those locations and get all permits to build facilities in such locations, greenhouse growth (both for low-tech and high-tech greenhouses) will become more gradual. For vertical farms, we have still not completely passed the ‘trough of disillusionment’, to talk in terms of the Gartner Hype cycle.

It will take another few years before we move towards a phase of viable productive businesses. But even then, the vertical farming production system will remain a niche for specific areas with harsh climates and for specific products with high value or for propagation of starting materials for (greenhouse) growers. This last opportunity may be even the best opportunity looking beyond next year.

Regarding the crop types growing indoors, the cannabis hype is definitely over in the North American market. Probably most of the growth will be in greenhouse strawberries. The leafy green market is also pretty mature. For the typical greenhouse vegetables including tomatoes, peppers, and cucumbers, there will be some growth in countries where still the transitions from field to protected growing have to be made or where retailers want to source more local instead of imported produce.

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Are there any trends you are seeing the market or expecting in the future?

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Adoption of robots and AI is, of course, a major development that will hugely impact indoor farming in the longer term.

Already, robots are used massively in the post-harvest process (sorting, packing) but will also enter the growing facilities more and more. But development of robots will take some more time. Development of AI is extremely fast and can already take over certain management and administrative tasks of growers.

This will only increase. AI and robots will help the large dominant growers to further increase their span of control and expand the footprint abroad. Also, it could facilitate sustainable production but more precise management of energy, water, and other input use.

Disease detection is something that current AI can already do pretty well. Harvesting, deleafing, and some other tasks in the cultivation process are most difficult. Probably it is more difficult for technology to replace a tomato picker than a research analyst like me.

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What are the challenges for Rabobank in particular in this market?

In the Netherlands, Rabobank has decades of experience in financing the greenhouse industry.

We have over 80 percent market share in Dutch greenhouse lending, and overall, our clients have shown to be very resilient over the last four very challenging years. They had to deal with covid that resulted in a lot of uncertainty around sales and availability of labor, with increasing disease pressure (mainly the TOBRFv virus in tomatoes), with skyrocketing costs for energy and other inputs, with logistical disruptions, with a pressured retail market because of the inflationary environment, with an increasingly unpredictable government and more.

For Rabobank, it is challenging to keep up its loan exposure in the Dutch greenhouse industry for various reasons: the market is pretty mature and our market share is extremely high, growers are paying back loans as they had several profitable years and growers are not investing much in such a challenging business environment. However, for the longer term, Dutch growers need to reduce usage of fossil fuels (mainly natural gas in the case of the Netherlands.

That change towards more sustainable energy sources like geothermal heat, hydrogen, and residual heat, will require huge investments. This energy transition is one of the main challenges for European greenhouses, and therefore also for Rabobank. Next to that this challenge, that is actually also a large opportunity for us, we have opportunities to grow our financing to growers abroad, mainly US and Canada.

A challenge may be to select the right clients as we always have the intention to support our clients for the long term..

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Any other news that you would like to share with the audience? How can people connect with you or learn more about Rabobank?

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People usually find me on LinkedIn and can find more about Rabobank’s ‘Growing a better world strategy’ on Rabobank.com.

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