By Noah Rothstein
On July 29, the House Agriculture Committee held a hearing on the importance of controlled environment agriculture’s (CEA) role in protecting, securing, and fortifying America’s food supply chain and infrastructure.
COVID-19 and extreme weather have tested America’s fragile food systems. One solution proposed is the building of controlled environment agriculture in conjunction with traditional methods of agriculture to create a more sustainable and stable future for our food supply chains. The panel invited five guests to speak about their expertise on CEAs: Mr. Karim Giscombe, Mr. Edward Verbakel, Mr. Aaron Gadouas, Mr. Jason Kelley, and Mr. Kevin Safrance.
Giscombe, Chief Executive Officer of PLANT-AG, recommended we “reduce our reliance on imports for fresh produce, which tops about 53% of consumption… and increase the scale of controlled environment agriculture production in America.”
Lettuce and tomatoes are statistically the most consumed and purchased products in America and the world. Sourcing them has become a challenge with increasing food prices across the board in line with global trends.
Giscombe said the measures in the FDA Food Modernization Act are, to date, the best steps towards enabling the trust of the consumer.
Controlled Environment Agriculture is a necessary contributor and the most viable solution if Americans want to trust their food once again. Giscombe stated that it is imperative to “build the necessary infrastructure to enable American producers to have a viable platform and to grow and expand their businesses and be competitive in an open market where the consumer speaks with their dollar as they do with their vote.”
Verbakel, Chief Executive Officer and Co-Founder of VB Group and Atrium Agri Group, said the U.S. is behind other countries regarding the use of controlled environment agriculture comparatively.
“We are seeing a significant flow of public and private equity capital being allocated to agriculture tech and facilities. Private equity sources typically fund 100% of the capital expenditures of an indoor facility,” said Gadouas, Managing Director at BC Ziegler & Company Investment Bank.
Equity as the sole source of capital is an exceedingly expensive plan of finance for large-scale projects. There are many traditional economic development tools out there, but they are not sufficient to finance the scale of the necessary production and facilities.
“The heavy lifting is almost entirely done by equity — private equity cannot do it by itself to provide all the capital that is needed, nor can the public equity markets,” Gadouas claimed.
“Credible investment candidates in the renewable space that are often too small to be of interest to corporate bond investors can be purchased by tax-exempt funds. This tax-exempt marketplace serves as an economic development tool that is unique to U.S. capital markets and provides a source of debt financing or other alternatives that may not exist,” Gadouas added.
Kelley, General Manager at IBM Strategic Partners, said food recalls could cost up to $30 million per incident. He argues that blockchain technology “provides immediate and completely transparent information to the specific person who is permissioned to see it, which promotes trust. If a food safety issue was reported, those using blockchain would immediately know who was impacted and the potential actions they could take — this can improve efficiencies and resiliency.”
According to the UN, 1.3 billion tons of perishable food is wasted each year due to inefficiencies, one-third of all processed food.
“Blockchain can eliminate time wasted in audits and reconciliations because participants know the origin, real-time location, and status of their food products. Furthermore, integrating artificial intelligence with blockchain provides retailers with insights to proactively remove products before an issue even occurs and predict inventory needs flattening the demand spikes and lulls,” according to Kelley.
He adds that enabling a blockchain could save over $150 billion annually in food waste.
Safrance, Executive Vice Chairman of Mastronardi Produce, said, “during the pandemic, [they] grew more food than [they] were able to harvest with [their] current workforce, which meant [they] were forced to throw food away rather than harvest it and sell it or donate it.”
Safrance urged Congress to pass the Farm Workforce Modernization Act of 2021. He said that the biggest problem in our supply chain is the availability of product.
Rep. Jim McGovern (D-MA) asked Mr. Giscombe if he believed CEAs could end hunger in America.
“CEAs cannot end hunger in America. What they can do is supplement the other elements of agricultural production in the U.S. to better equip the overall supply chain to be more efficient and effective in the delivery of fresh, high quality, contaminant-free and nutritious products,” Giscombe explained.
He went on to say that “by moving indoors, you eliminate the risk of airborne pathogens and bacteria, which are the leading causes of food-borne illness in America.”
Limiting the distance products travel is critical because when a fresh produce item travels more than 4500 miles, it loses upwards of 50% of its nutritional value.
Rep. Jim Costa (D-CA) asked Gadouas where we can find the financing for this effort. Gadouas answered by saying that we need to diversify as much capital that’s available as possible, in addition to tax credits, tax increment financing, and more.
Giscombe noted that CEAs located in metropolitan areas or those built 8 to 10 hours outside of a metropolitan statistical area “can cut costs by 30 cents per item, which means that the retailers and distributors that are subsequently delivering that produce to retail outlets and foodservice outlets now have a benefit and their margins become larger.”
Produce grown in a controlled environment, like a greenhouse or vertical farm, is arguably more nutritious than produce grown in fields because there is no use of pesticides, and the quality of the food is better preserved.
In Europe, there are approximately 700 acres per one million people, and the U.S. only has about 16 acres per one million people, so it is very under-indexed. This is what Safrance believes is driving imports and can be changed through the expansion of CEAs.
Safrance added that it is much more expensive to produce organically because it is more labor-intensive, the fertilizers are more costly and is much more in terms of cost per pound. There is markedly less yield and drives the cost per pound up considerably (could cost approximately 30-35% more).
Both Chairman David Scott (D-GA) and Ranking Member Glenn Thompson (R- PA) expressed the grave importance of access to rural broadband to make everything discussed in this hearing possible. In his closing remarks, Ranking Member Thompson stated that “without a robust rural economy, all people, including those in the cities, will wake up in the cold, dark, and hungry.”
