Vertegrow Scotland

This interview details Vertegrow, an indoor farming company based in Scotland. The interview is with Graeme Warren, Director of Vertegrow.

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What is the origin story of Vertegrow?

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We are an indoor growing company based in Aberdeen, Northeast Scotland. The idea of growing indoors came about four or five years ago when I oversaw farm lands with colleagues. We spent a lot of time looking at what we can and can't grow there.

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The northeast of Scotland is cold and dark for winter, so most crops are spring crops and farmland is not doing much from September to March.

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In the UK, we rely heavily on imported produce, accounting for approximately 50% of our total consumption. This includes a wide variety of items, not just fresh produce. When it comes to fresh produce specifically, a significant portion is sourced from European countries such as Spain and Italy, as well as from places like Israel and Kenya. To make a dent in how we do things closer to home and make better use of the grain we have, we looked at existing technologies and other systems that are writing debates.

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We looked at some growers in the south of England. We were pretty keen to do something ourselves. We took our farming background and approached the problem from a different angle. Instead of building a huge team and hiring a lot of engineers, we decided to partner with a company that already had the expertise and resources we needed. So we can view ourselves as farmers when we engage in cultivating and nurturing.

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We have a good understanding of the equipment we use and how to use it effectively. This is our main strength. Fortunately, we made a wise decision to work with Intelligent Growth Solutions (IGS), and it was fortunate for us that they are located relatively close to us, just an hour and a half away. Our decision to work with them was not solely based on their proximity, but also because we were impressed by their product, their support system, and the overall package they offer. The fact that they are nearby is an added bonus, and it has allowed us to establish a close working relationship with them.

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Why do you think there aren't more companies using the IGS model? Do you have a one time investment on the system or do you pay a licensing fee on an ongoing basis?

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It is easy to get drawn into trying to do everything, and that there is a risk of being too late if the product isn't genuinely innovative. However, the IGS business model works well because it allows customers to buy their kits and not compete with them, and they listen to their feedback and use it as well as they can. This is a good way to go.

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They offer hardware components, such as trays with LED units that have been assembled through trial and error to create a reliable product. Additionally, they provide the necessary operational software. We made a capital expenditure (CapEx) investment to purchase the hardware, and there will also be a monthly fee based on the number of trays we use for growing plants.

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‍What are some of the biggest challenges facing your team in the future?

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Energy is undoubtedly the primary concern that causes sleepless nights, not only in the UK but also in other parts of the world. The ongoing war in Ukraine can significantly impact energy markets, even though we don't rely on it for heating our facilities. It is intriguing to observe the repercussions due to the market structure in place. Specifically, as gas prices surge in Europe, primarily due to the reliance on Russian gas, there is a domino effect. Gas generators, in turn, have to pay higher prices, resulting in an increase in electricity prices from the grid.

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Currently, our facility is relatively small, and we rely on external power grids for charging. However, we recently had an opportunity to switch to electricity generated from a renewable source, specifically a green tariff. Unfortunately, during the winter period, the entire market experienced a surge in prices. Thankfully, the situation is starting to stabilize, and prices are gradually returning to a reasonable level. Nevertheless, we still face the consequences of that challenging period when we were just starting out. Consequently, it remains our main obstacle to overcome.

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When considering production costs, two significant factors stand out: energy and labor. Currently, both of these contribute significantly to overall expenses. Energy, in particular, poses a major challenge as it constitutes our biggest cost. This challenge is likely to persist throughout the industry in the long term. From a broader perspective, I believe that vertical farming should adopt renewable energy sources to address this issue.

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If you are considering implementing this on any scale, it is important to incorporate it into your business model before constructing a facility. For instance, if we were to build a larger facility elsewhere, we would strategically choose a location adjacent to an existing wind farm. We would establish a private agreement with them to ensure a stable pricing arrangement. This approach ensures genuine environmental sustainability, leaving no room for debate. By securing long-term contracts at the right price, we can confidently determine our production costs over a specific timeframe.

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What is unique about Vertegrow compared to competitors?

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Currently, there are not many vertical farms in Scotland from a geographical standpoint. Therefore, we were the first to establish a commercial-scale vertical farm in the country. Although we are not exceptionally large, we were excited to start with a single tower spanning 300 square meters for cultivation. We are still relatively small but currently the largest vertical farm in Scotland.

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Our focus lies in cultivating crops that would typically be challenging to grow in Scotland's climate. We do not aim to replace crops that thrive in open fields, such as potatoes and carrots. Instead, we concentrate on growing crops like basil, which is grown abroad, and we even produce lettuce in January. Additionally, we cultivate chilies and rocket, among other items that are typically transported by air freight to the region.

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We are focusing on these specific aspects because we are not competing solely based on price. Instead, we aim to create a financially sustainable model. Our focus lies in reducing the carbon footprint from the entire supply chain, from the cultivation of the produce to its delivery. In the UK, a significant amount of produce is imported, and perishable items are often transported by air due to their short shelf life.

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We have positioned ourselves with our buyers to offer produce that can be harvested and delivered within a day or two, ensuring exceptional freshness. By doing so, we avoid the need for long-distance transportation and reduce the carbon emissions associated with it. Many of our buyers find this environmentally friendly approach appealing. As other businesses are also looking for ways to become more sustainable and reduce their food miles, we have been actively tapping into this area since our inception.

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How do you measure the impact of your company so far? (Revenue, Employees, Customer Quantity, Production Volume) etc?

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The way crops are cultivated can vary greatly, resulting in different approaches. However, in theory, depending on the type of crop, it is possible to grow them in a tower that stands nine meters tall. In our setup, we have 50 trays, with each tray covering approximately six square meters, giving us a total growing space of around 300 square meters. If we were to operate at maximum capacity throughout the year, the yield could range from 10 to 12 tonnes annually from a single tower, depending on the specific crop being grown.

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Currently, we primarily focus on growing microgreens in our crops. This means that most of our plants are placed under artificial lights for approximately one to two weeks, allowing for a relatively fast turnaround. Our goal for this year is to generate around $120,000 in income from a single tower. This amount may seem relatively low, we're slowly scaling up the business rather than gung ho going in. 

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We are continuously improving our crop selection, introducing new crops every month, and collaborating with our customers to ensure that we can grow our crops profitably while maintaining a fair price for everyone involved. Once we are satisfied with the success of a particular crop, we incorporate it into our regular offerings for our loyal customers. Initially, we designed the facility to accommodate a single tower, but it has the flexibility to support multiple towers in the future. We partnered with local contractors to construct the external structure of the facility, while the internal setup is based on IGS kits. Once we have secured customers for all the produce from a tower, we can easily add more towers. We have a dedicated service area for tasks like planting, packaging, and harvesting, which allows us to handle larger volumes of crops.

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What do you think the minimum size is in your market at least? Would you think you're below the minimum right now?

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I think ideally, for the kind of facility we have, it's probably 2-4 towers.

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Yes, I think we’re below the minimum right now. Our business would greatly benefit from having two to three times the current volume. With increased volume, everything would run more smoothly. Take our tray washing process, for instance. A significant amount of time is wasted on setting up and cleaning up afterwards, while the actual task itself doesn’t take much time.

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I believe we would greatly improve our efficiency by increasing the volume we handle. This would also allow us to set a lower entry fee for entry-level tasks such as packaging. Advanced packaging machines that offer faster and smoother operations are expensive, but their cost becomes justifiable when we are processing a larger  volume. Therefore, there is a clear advantage in terms of economies of scale in this argument.

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Have you calculated at least an early payback period on the system, or is that still being finalized with all the figures and everything?

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Currently, there are many factors at play, and we are fortunate to have the funding we need. Right now, we are not primarily focused on the return on investment, but on profitability.. However, as the industry and our company mature, that will definitely become a priority. If we were considering the second tower, we would have a better understanding of our current resources and could make a more informed calculation. Our background is rooted in investments, with our parent company Steadman Partners being our main investment partner.

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When considering investments, we prioritize commercial properties and carefully assess their return on investment using various metrics. Currently, our focus is on establishing a viable business. We want to concentrate on building a strong foundation and then determine the return on investment at a later stage. As mentioned earlier, there is a significant barrier to entry due to the high cost of constructing the tower. We are cautious about constructing multiple towers until we have a clear understanding of the potential returns and evaluate other investment opportunities as a group. 

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What have you learned that you wish you knew when you started the company?

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We were simultaneously engaged in the development and design of towers while also interacting with potential customers. This posed challenges because we were trying to sell the idea of a product that had not yet been grown by us. To address this, we implemented a smaller container based system. I strongly recommend adopting this approach as a method of starting on a smaller scale, however, it should be noted that the container system does have some limitations.

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We might also now make different decisions on some of our equipment for example our seeding line. Our team have expressed a preference for a different sowing arrangement, for instance, which would improve efficiency.

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I believe it mainly comes down to gaining more experience over time, which would lead us to make slightly different decisions. We initially planned for a larger facility with four towers. However, after evaluating the costs involved, we decided to scale it back and make it more practical.

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Initially, we may have wasted some time by setting overly ambitious goals. Eventually, we realized the need to adjust and scale them down to a more practical level. The challenge we encountered was that there seems to be a minimum size requirement for vertical farming in order to achieve cost efficiency through economies of scale.

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How can people connect with you or learn more about Vertegrow?

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Our website is designed to be simple because our main focus is on selling through wholesale rather than directly to consumers. However, we do provide our contact information on the website as well as on social media Instagram and Twitter. We are constantly experimenting and growing, and we use technology extensively. Instagram is particularly helpful in showcasing our products and overcoming the challenges we face as a small team.

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