Food production in the United States is currently dominated by two methods: organic farming and traditional farming that incorporates the benefits of engineered seeds. If early successes are any indication of the future, then it may soon be time to make room for a third: vertical farming. There are numerous benefits to vertical farms, which are springing up from Singapore to Pennsylvania, ranging from the elimination of pests to significant reductions in the amount of water used to irrigate crops. However, the disruptive shift in the way the world produces food will also reshape the battle between organic champions such as Whole Foods Market (NASDAQ:WFM) and engineered seed producers such as Monsanto Company (NYSE:MON).
Consider that the conditions of enclosed vertical farms could be precisely controlled. Farmers wouldn't need seeds that resisted droughts or pests. Pesticides use would be greatly reduced, if not eliminated, while water and energy use would also plummet. Does that set the stage for Whole Foods Market to throw its weight behind the new production systems? Will this mark the beginning of the end of GMOs and pesticides from Monsanto?
Advantages of vertical farms
Genetic modification of foods is often considered necessary if the world is going to feed 9 billion hungry mouths by mid-century. In fact, some estimate that we'll need to double food production from 2011 levels to do so. Traits that increase yields and hardiness will become ever more valuable as global farmland shrinks and environmental conditions pressure farmers to perfect each harvest. Monsanto has a website dedicated to educating individuals about the state of agriculture in 2050. In addition to a growing population, the United Nations estimates that 86% of the developed world will live in urban centers by mid-century. That alone promises to make traditional farming even more energy intensive, since more food will need to be transported to cities for consumption.
Enter vertical farming. Old warehouses can be converted into multi-story indoor farms and new skyscrapers can be built from the ground up. Specialized production systems utilizing LED lights could be scheduled to mimic sunlight, hydroponic systems could replace or reduce the need for soil, water, and fertilizers; and planting, spraying, and harvesting could be automated. Better yet, you can stack surface area in a building to reduce the overall footprint of the farm -- something traditional land-based farms can't do.
How would that affect Whole Foods Market and Monsanto? The country's largest organic food supermarket has already announced plans to eliminate products containing ingredients produced from genetically modified organisms, or GMOs, from its shelves by 2018 as well as plans to boost store count by 20%. Vertical farms appear to fit with the company's mission quite perfectly. Perhaps Whole Foods Market will become a vertically integrated business (no pun intended) by owning everything from food production and product distribution. What better way to supply urban stores throughout the country than with a vertical farm right next door?
This is all speculation, of course, but it never hurts to consider possible growth directions for companies in your portfolio. While it's certainly plausible for Whole Foods Market to invest in vertical farming in the future, the pressing issue many will ask is, "Will vertical farms kill GMOs and Monsanto Company?"
The end of GMOs?
Vertical farms that are completely enclosed would virtually eliminate many pests that plague modern agriculture. Winged insects, soil insects, and weeds would find it difficult to infiltrate such a system. In the event they did, they would find a very difficult environment to what they were used to. And of course, there wouldn't be any droughts or temperature swings to worry about in a vertical farm. So GMOs are dead, right?
Not quite. For starters, not all vertical farms will be enclosed. For those that are enclosed, the advantages come with several drawbacks, too. Bacterial or viral infections could become more rampant and more difficult to eradicate. It is also possible pests will take advantage of the oh-so-perfect conditions that make crop growth optimal. And since a vertical farm is sealed off from the outside environment, it would lack the necessary predators to control pest populations. Pretty quickly we can see that Monsanto's products will be needed once again. However, there is great potential to reduce the amount of pesticides needed for growing crops while maintaining or boosting yields -- an advantage no scientist would argue against.
Additionally, one has to consider that genetic modification would be far from unnecessary in a vertical farm. Sure, traits for resisting droughts would (presumably) no longer be needed, but genes that allow plants to grow in shallow soil or in sitting water would suddenly become more valuable. If anything, the growth of vertical farms could lead to an explosion in trait development. Think about it: What conditions are agricultural plants more adapted to, an open field or a renovated warehouse? The answer is simple.
Foolish bottom line
The arrival of vertical farming will be one of the most important changes in the history of agriculture. Suddenly, a 1-acre plot of land could support 30 acres of farmland (in a 30-story building), food can be produced in the heart of population centers, and the amount of resources needed to grow crops could be greatly reduced. The possibilities are endless and the advantages undeniable, but a third major food production method doesn't have to mark the end of biotech seeds -- far from it. In fact, I think it's quite possible vertical farming spurs decades of growth for Whole Foods Market and Monsanto. Savvy investors will certainly want to keep an eye on developments in the field, er, warehouse.