Vertical Farming and Local Growing Investment Ideas

I came across this today, Vertical Farming, which is pretty cool.

Vertical farms, many stories high, will be situated in the heart of the world’s urban centers. If successfully implemented, they offer the promise of urban renewal, sustainable production of a safe and varied food supply (year-round crop production), and the eventual repair of ecosystems that have been sacrificed for horizontal farming.

This has lots of angles to it, including encouraging higher density urbanism, in-fill potential for decaying inner cities, the retirement of agricultural land for preservation, not to mention the obvious value of having food production close to population centers where there are customers – and more importantly workers. There are some pretty cool and out there architectural studies on the site as well.

I have no idea if the economics work (particularly in high cost real estate markets like NYC or San Francisco) – not to mention what the neighbors might say (500+ acres worth of farm smells in one city block?) – but if we are headed to $8 gas – ideas like this merit some consideration.

It also reminded me of a recent conversation I had with a former analyst of mine about derivative (not financial derivative) plays off of the high cost of oil – trickle down stuff that might have been overlooked by the Street in general.I suggested to look at the agriculture sector to see if the market had made valuation distinctions between those growers that were located near their primary markets and those that were reliant on long distance distribution strategies. The idea was to see if there were mismatches in value between those companies that will benefit competitively on a relative basis from rising transport costs vs. those that will be hurt badly.

One of the big factors in the spike in food costs this year has been transport costs. Transportation costs average of between 14 and 17 percent of the overall cost of getting food to your table. Much of this has to do with the very long distances that food travels to customers. A study by the Leopold Center for Sustainable Agriculture at Iowa State University found that on average – food from growers focused on local markets travels 65 miles to customers while conventional food travel over 1,400 miles – that, my friends, is a big difference when gas prices go up 22% in one year.

With gas prices high – and projected to go higher – the obvious impact for growers that are dependent on a long distance distribution strategy will be higher costs – either forcing prices up or, more likely, cutting into margins. Growers that are focused on local distribution strategies will be able to either gain share by competitively pricing off of their lower distribution costs – or take advantage of higher market prices set by the long distance competitors to book higher profits. Has the market taken this into account with regard to valuations of food companies yet? Or better yet, have Wall Street analysts properly adjusted their estimates for companies in light of this signifcant difference? If the answer is no to either question – then there is money to be made.

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