Addressing Developments and Challenges within the North American CEA Market
CEAd recently had the opportunity to address developments and challenges within the North American CEA Market during an interview with HortiDaily. The Original article was published Tuesday August 22, 2023 on the HortiDaily website.
Thomas Larssen, CEAd:
“There are two main developments defining the North American and especially U.S. market,” says Thomas Larssen, President of CEAd. The first consolidation, “The larger, dominant players continue to expand operations not only through their own organic expansion but through the acquisition of smaller producers. Given their marketing presence and capacity to produce large, consistent volumes of fresh produce, this trend makes sense. However, it’s also true that consumer awareness of and demand for greenhouse produce is greatly increasing. We see room for more producers to come online, especially as field-grown crops are replaced by less input-intensive greenhouse crops.”
Second, outside investors are entering the CEA space or are simply expanding their presence within it, Thomas explains. “Venture capital, private equity, and family offices are all making significant amounts of capital available specifically for CEA production. Along with these dollars comes an increasing need to achieve rigorous due diligence requirements to gain access. Experienced, professional support is essentially mandatory to build the right narrative and economic case.”
“Last, it’s worth mentioning we also see greatly increased permitting timelines in areas where it was previously never a question,” Thomas says. “Historically, permitting was sometimes simply a matter of owning land, providing a handful of documents and drawings, and building a greenhouse on the site without any review requirements. Now, we are experiencing some permitting extending for months and months, along with the detailed rigor of heavy environmental assessments. It’s important to understand how to answer questions posed by these regulatory bodies correctly to keep projects in motion.”
Currently, labor is one of the major challenges growers are dealing with. “Greenhouse producers, like traditional field farmers, still require manual labor for certain activities such as harvesting and packing. These jobs are not always seen as desirable in the region of production,” Thomas says. “While labor challenges are increasingly being solved by sophisticated automation, automation does increase the capital required to fully realize a project.
This leads to another point: while the availability of investment capital for controlled climate production continues to increase, potential investors require a level of financial and business knowledge from owners equivalent to the technical challenges of designing a regionally suitable greenhouse. In this vein, especially in North America, there are a few producers who have a significant influence due to their size and volume. Given this massive scale and market presence, producers wishing to compete in the same markets need facilities of a larger size and at a low cost per square foot to compete on a price-per-unit basis.
And, finally, climate change is increasingly impacting energy costs – which is often the single greatest cost of production,” Thomas says.
As for new projects, CEAd does see an appreciable difference in the time before a shovel hits the ground now as compared to the ‘old days.’ “Technical evaluations are taking longer, often due to clients requiring a deeper analysis of which crop(s) to produce along with consideration of varietals within each crop type. Integrating the right technology package to support grow, pick, and pack adds complexity as we need to ensure any grow or logistic system can support the very high yields we see,” Thomas says. “We also see greater detail and due diligence required by lenders in the capitalization process. While there are still some supply-chain issues impacting the availability of certain key greenhouse components, we find that once projects are formally underway – keeping to an accurate timeline for commissioning and finally handover to operations is less of a concern.”
Addressing the Challenges
“When it comes to addressing the challenges in the industry, our longevity, experience, and extensive networking within the controlled environment agriculture space is our greatest offering to our clients,” Thomas says. “We also maintain strong connections with our current and former clients and what they’ve achieved through the facilities we’ve designed for them. This represents a massive portfolio of knowledge across a diverse number of climates and regions. Therefore, we never start at square one with a project but with a rich history of lessons learned to draw upon and de-risk new ventures.”
According to Thomas, models and feasibility studies are at the very heart of CEAd’s work as a design consultancy. “We go well beyond just climate modeling as this, alone, doesn’t indicate the full value or potential of a project. We can always provide guidance on the perfect location and climate for a crop; the reality, though, is that clients often come to us with a specific parcel of land in mind – typically representing the best economic opportunity.”
Part of their services includes building the economic case of a crop in a particular region. “This includes an analysis of competition, market prices, trends, and sometimes even arranging off-taker agreements. We then provide a model of the technology portfolio required to support a specific crop (or crops in the case of interplanting) and the most profitable outcome over the long term. Simply said, we always look at the business case first, including financing, operations, and critically the market(s) available to our clients.”
“Going back to climate modeling, our agriculture-specific application of computational fluid dynamics is one of the most powerful tools we use to project and model the active climate around the crop – meaning, the canopy and movement of conditioned air around it. This is part of how we will continue to evolve our knowledge and help our clients achieve high quality and yields.”
To complement their design services, CEAd also offers a suite of post-construction services. “We’ve clearly heard from both clients and investors that de-risking a project to the greatest extent possible is increasingly necessary. Therefore, we provide a suite of complementary services we call APIS,” Thomas says. “APIS was developed to reduce or eliminate common mistakes which can occur during the commencement of new operations. For example, APIS Commissioning services ensure the proper function of all critical greenhouse systems and that they meet design parameters. Our agriculture-specific maintenance program facilitates maximum equipment lifetime and the least downtime. We also provide a software solution known as APIS IGM (Industrial Greenhouse Management) designed to track and report on facility and operational successes or challenges, either automated or manually. We particularly think APIS IGM is an industry differentiator as many providers are focused on crop level intelligence, while our focus is business intelligence through actionable and insightful reports,” Thomas concludes.