Indoor ag race will be run on multiple tracks

The race to buy and build profitable greenhouses favors capital that can strengthen project finance, construction and government relations networks in key geographies.

There is widespread agreement the coming decade will see a significant build-out of indoor agriculture, beginning with its base in leafy greens and vine crops before extending to potentially meaningful roles in other crop and protein categories.

As the greenhouse networks leading the charge formulate their game plans and war chests, the character of the capital supporting construction projects will be among several factors that determine their relative positions. Project finance and management capability, access to labor, expertise and reliable supply chains, as well as (local and potentially federal) government relations could all prove pivotal in determining which companies benefit most from rapid expansion of indoor production in the US.

“We’re all going to be racing to build in the best geographies,” Equilibrium chairman Dave Chen told Agri Investor after his firm supported its portfolio company Revol Greens’ $110 million new 40-acre facility in Texas. Chen said the site is one of several his firm has identified where state and local development agendas could support “agri-park” complexes.

“You are going to want to build in important places,” he added.

LPs including Australian LGIAsuper, the Japanese Development Bank and the San Francisco Public Employees Retirement Association have backed Equilibrium’s private vehicles devoted to controlled environment ag investments. Among them is AppHarvest, the Morehead, Kentucky-headquartered indoor producer that entered the Nasdaq Exchange in April after a $475 million SPAC merger.

Chen said the pressing demand for scale among indoor producers’ largest retail and supply chain customers will continue to inspire a variety of new public and private approaches to raising and deploying capital for indoor ag.

“There will be more public entities and in the next five years, you’ll see a REIT formed in the greenhouse sector. Some of the real estate and infrastructure portfolios will do a carve-out called ‘agriculture,’” predicted Chen. “There will be the growth of Equilibrium-like entities that are private capital managers, and there will be the growth of public REITs and other forms of infrastructure-holding receptacles.”

Artemis co-founder Allison Kopf – whose Astanor Ventures-backed startup provides indoor ag-focused software – told Agri Investor she expects the entry of midstream ag companies and other adventurous lenders willing to support much-needed greenhouse construction.

“That’s the mechanism that can really scale those development timelines, probably even faster, frankly, than public or private markets,” she explained.

Bringing crop production indoors promises to weaken the relationship between local food security and the location of the world’s most productive soils. The realities of building meaningful greenhouse networks in a competitive environment of regulatory scrutiny and strained supply chains will ultimately underline the importance of geography, albeit with a focus on access to logistics, labor, water, affordable clean energy and supportive policy.

In the effort to strike a balance between the scale required by supply chains and institutional capital’s ESG requirements – along with a need to overcome inevitable obstacles presented by ambitious construction schedules – the coming indoor ag expansion will provide investors on both sides of the GP/LP nexus ample opportunity to demonstrate how and where the value of their networks extends beyond their capital alone.