AppHarvest Post-SPAC Update – Tomato Production
Positioning & Competitive Landscape – 15 October 2021
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Specialist:
Title:
Moderator: Nyree Hinton (NH), Third Bridge Sector Analyst
Gary Wysocki (GW)
Former Director, Engineering at Nitta Casings Inc
Agenda:
1. AppHarvest’s (NASDAQ: APPH) category positioning and differentiation, focusing on tomato
production – water claims, soil treatment procedures and lighting research progress
2. Competitive landscape – facility differentiation, tech advantages and scalability, highlighting
respective vertical vs greenhouse crop cycles
3. Operational and distribution challenges and AppHarvest’s relative positioning
4. Vertical farming opportunities and risks – consumer perception, global expansion prospects and
comparative exposure to market headwinds
Contents
Q: What are the key drivers underpinning controlled agricultural farming and who are the top competitors? 4
Q: How has the shift between greenhouse and vertical farming trended? What are the pros and cons for
efficiency and profitability?
4
Q: How popular is experimentation with lighting throughout the market? Is it new to AppHarvest? By my
understanding, there’s a focus on seeding even before you get to lighting, and many of the seeds are made for
5
outdoor farming. How are players trying to grow crops quicker, and what’s ultimately been successful?
Q: How has the pandemic accelerated the need for vertical farming innovation such as passive solar and
other types of agronomics? How did it impact companies getting their production capabilities up and
running as quickly as possible to take advantage of this demand?
Q: What are the challenges for new entrants such as Bowery Farming to build relationships with retailers
and get their product out there? What is the value prop when AppHarvest is approaching Whole Foods or
Walmart? Is it that the company doesn’t use pesticides, but uses artificial lighting?
5
6
Q: How would you grade AppHarvest’s capabilities to roll out a full-fledged tomato product? Does it possess
any unique technology or niche know-how?
6
Q: Which category potentially enjoys the best profitability or margin profile? It seems AppHarvest can’t
currently make high-graded tomatoes due to quality issues. Do you think tomatoes are the best opportunity?7
Q: Why has AppHarvest seemingly struggled to make high-quality tomatoes? Isn’t the benefit of indoor
farming the ability to control the environment and monitor quality in real time to hit targets?
Q: How should we frame AppHarvest’s decision to go public so soon given it didn’t even have a product to
sell, relative to peers such as AeroFarms or Bowery?
Q: Is it common throughout the industry to potentially overinflate goals relating to environmental factors
such as water conservation? Is it essentially free game for agtech players to say what they want, or is there
accountability around the statements?
Q: What distribution challenges might AppHarvest face? How should we frame its geographical footprint,
given you noted the distribution profile is much easier to manage as you get closer to bigger cities?
7
7
7
8
Q: What are the biggest opportunities to lower environmental impact or increase efficiency and resiliency
across controlled environmental agriculture? Which ESG factors could represent the biggest opportunity? 8
Q: How would you characterise the regulatory tone of this market, given how quickly it’s developed? What
are the prospects of standardising ESG qualification, especially around B2B marketplaces such as FBN
[Farmers Business Network] or players such as Indigo? The term encompasses a lot – there’s so much going
on, and everyone calls it better or cleaner.
8
Q: How challenging would it be for AppHarvest to add further categories to its current structure of growing
tomatoes? Would this require a complete rehaul of its operational facilities or could it easily start growing
another type of crop in those same facilities?
Q: What does it take to qualify as a leader in growing organic tomatoes? Would AppHarvest have to change
its complete soil profile? Is it just treating pesticides?
8
9
Q: It seems many speciality crop players are figuring everything out as they go, given their start-up nature. Is
there a proper roadmap? Should there be testing on a smaller scale before scaling to a full-fledged public
company with facilities being built across the US if the production process isn’t proven? How should we
frame the dynamic of lacking a proven way to build their product, yet still trying to grow?
9
Q: Do you think AppHarvest has long-standing research in a particular field – whether different types of
lighting structures or feeding for tomatoes indoors – or is it still trying to figure out what works?
Q: Vertical farms have a high CAPEX, but this should lower relative to scale over time and make players
more profitable. How has that worked out in real-time, based on your experience? Has that higher CAPEX
been necessary for longer than anticipated while scaling owing to various challenges?
9
10
Q: How can AppHarvest differentiate? The company is growing indoors, and can claim energy conservation
and recycled water, but so can many other players, and it may just be cheaper to go with a local farm that
may be a greenhouse.
10
Q: Pricing for indoor-grown products seems to be on par with organic. What will make a consumer buy a
tomato that’s indoor vs organic? Can they even tell the difference? Anecdotally, I wouldn’t know the
difference – I would just look at the price. How does that play into demand for these products?
10
Q: Are vertical farms better-positioned amid the costs agricultural producers face from row crops and seeds
to speciality and distribution? Alternatively, is there a negligible technical advantage, and everyone faces the
same labour and distribution issues and higher input costs?
11
Q: How should we frame the global opportunity for vertical farming? In Asia, there’s tons of land. What
regions are leading in trying to adopt this technology?
11
Q: What do you think is the biggest risk to vertical farming? The indoor model and crop cycles seem to make
total economic sense, but what’s the biggest potential concern investors or start-ups commonly overlook? 11
AppHarvest Post-SPAC Update – Tomato Production
Positioning & Competitive Landscape
Transcription begins at 00:00:06 of the recorded material
NH: Welcome to Third Bridge Forum’s Interview entitled AppHarvest Post-SPAC Update – Tomato
Production Positioning & Competitive Landscape. I’m Nyree Hinton and I will be facilitating today’s Interview
with Gary Wysocki, former Director Engineering at Nitta Casings Inc.
Gary, before we get started with today’s Interview, please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.
GW: I agree.
NH: Thank you, Gary. Could you start with an introduction of your background and the various roles you’ve
held in the industry?
GW: Been exclusively in the consumer products and goods industry for 40 years, from produce and vertical
farming systems, to frozen foods, to beverages, to dairy, to bakery. Been involved with many aspects within the
food environment. Degreed mechanical engineer. Basically, over the years, worked my way up to being a Vice
President of Operations, so been in all departments, very diversified in the food industry. That’s the gist of it.
[00:01:41]
Q: What are the key drivers underpinning controlled agricultural farming and who are the top competitors?
GW: The vertical farming system or anything relative to greenhouse growing some products or different types
of produce species, from lettuces, to herbs, to basil, and arugula and all that stuff, the mission statement would
be to basically grow high-value crops at a maximum productivity. That’s what the drivers or the mission
statements are for greenhouses that use hydroponics or aquaponics, or vertical farming systems that utilise
aeroponics, to different types of processes. Some competitors in this space would be folks like, besides
AppHarvest, would be Fifth Season, they’re in Pennsylvania, Revol Greens, they’re in Texas, AeroFarms, who I
used to be the Vice President of Operations for as a start-up company, they’re in Newark, New Jersey. There’s
another company called Elevate Farms in New Jersey. You have Gotham Greens in New York, Bowery
Farming in New York, and then you have big players like Fuji in Japan, Plenty. Big companies. They’re just
some of the top competitors in this type of space.
[00:03:55]
Q: How has the shift between greenhouse and vertical farming trended? What are the pros and cons for
efficiency and profitability?
GW: Vertical farming, it’s heavy on CAPEX. Greenhouse, it’s a little bit less pertaining to that, but it depends
on the processes. Hydroponics have rooting systems in water only or hydroponics also have rooting systems
that utilise soil and become saturated in water. Aeroponics developed some patents on the atomisation of
nozzles to spray and break down H2O, or water, so the rooting systems can pull the water in quicker. In turn,
Private and confidential 4
that provides greater crop cycles, so I would say that vertical farming has a greater potential than greenhouses,
but it’s heavy in the pockets on start-up companies pertaining to CAPEX, and pertaining to OPEX or
operational costs, it’s still rather high with the HVAC or the air filtration systems, and the cooling and heating
systems, along with LED lighting. Now, there are companies like AppHarvest that are trying to get into passive
solar, and utilise some of the solar panels and transparent roofing systems for sunlight. That’s a few little
things that I can add to that.
NH: It seems AppHarvest are already adding sunlight options vs just traditional artificial LED lights.
GW: They are. They’re working on some things, like I’ve mentioned. Also, they are doing research on hybrid
lighting arrays, different lighting spectrums. The spectrum of red light and blue light besides white light do
grow baby spinach quicker, so if you take away sometimes the relative humidity, and the temperature and the
dew points that the baby spinach needs to grow quicker, they’ve established that the red spectrum and the blue
spectrum, those two lighting spectrums together, which they’re using the term hybrid lighting, seem to be
growing the baby spinach quicker.
[00:07:40]
Q: How popular is experimentation with lighting throughout the market? Is it new to AppHarvest? By my
understanding, there’s a focus on seeding even before you get to lighting, and many of the seeds are made for
outdoor farming. How are players trying to grow crops quicker, and what’s ultimately been successful?
GW: Instead of manually doing germination, they’re doing germination automatically on a type of a fleece,
like a wool product, and the wool gets saturated, and it holds the seeds and the moisture there, and it
germinates some of their produce between 48 [sic] and 48 hours. Also, for cross-pollination, they’re using
bees, so they have beehives, and they allow the bees to flourish and they cross-pollinate the produce, and what
I mentioned about utilising atomisation-type nozzles on the nutrient solutions to break down the water
droplets so fine that the rooting systems pull the water in quicker. They’re the three things that I’ve seen and I
don’t know how successful the passive solar is being right now. That’s in a research and development mode.
[00:10:00]
Q: How has the pandemic accelerated the need for vertical farming innovation such as passive solar and other
types of agronomics? How did it impact companies getting their production capabilities up and running as
quickly as possible to take advantage of this demand?
GW: I’ll make something a little bit funny on it. Toilet paper and paper towels increased dramatically by
1,500%, but there was a reduction in produce through farms, through greenhouses, through vertical farming
when COVID hit. Basically, they went to grocery stores and stuff like that, but everybody stayed in their
homes, as you recall, when this all came upon us, so it was a reduction in the market growth temporarily, but
the market growth now is continuing. Consumers are out purchasing again. The best that I can say for vertical
farming systems that do lettuces and herbs, depending on their factory demographics, let’s say, or their land
demographics, it’s relevant in their profit and loss structure because if they’re near large cities, the logistics
and transport is not a problem. Logistics and transportation right now throughout nationally for all different
types of consumer products is hurting because we don’t have enough of truck drivers, so if their factories are
within an urban area but close to cities, it’s better for their profit and loss structure. The other thing is, vertical
farming is slightly more expensive than typical farming on 10 ounce clamshells or the poly bags that the
products come in, mixed greens and stuff like that, so I would say that it markets to people that have a
medium income, in the middle class rather than in the poverty class. That’s what I see.
Private and confidential 5
[00:13:06]
Q: What are the challenges for new entrants such as Bowery Farming to build relationships with retailers and
get their product out there? What is the value prop when AppHarvest is approaching Whole Foods or
Walmart? Is it that the company doesn’t use pesticides, but uses artificial lighting?
GW: They’re trying to sell that it’s a reduction in water, pesticides, herbicides, insecticides, the quality with all
the data that’s accumulated in the automated software, and sensors and components, that they gather a lot of
data and they look at the telemetry, and it makes the product much better, so let me see if I could give a few
golden nuggets to the people that may be listening to this. The typical topic is, we save 99% water vs
traditional farming methods. That’s not true, and why am I saying that’s not true? I’ll go against anybody that
wants to make that claim, any company, is because their nutrient solution, they cannot keep it captive and
closed because there’s a bacteria growth from the plant tissue and if you keep the circulatory system captive, it
starts to grow bacteria no matter what species, herbs or anything. They need an open vessel to circulate it so
you have oxygenation. With this open vessel, as the nutrient solution circulates through the produce, you have
an evaporation rate. When I worked for AeroFarms, we had 500-gallon tanks and as the nutrient solution
circulated through the spraying systems for the rooting systems on a weekly basis, on an average, 35 gallons of
water evaporated, so you had a high evaporation rate and that equates to you use more water than the savings
that is claimed, that 99%. Maybe you would save 90%, but the claim of 99% more efficient in water claiming
and reusage, that’s incorrect.
The other thing is how some people would say they don’t use any insecticides. You have to make the room that
you’re growing a positive static pressure so when you open egress doors, that insects don’t come in. That’s a
large capital cost for the HVAC. The other thing is, if you’re doing growth with soil, that’s another problem.
You have disease that grows in soil, so the people that are growing soil have to go and treat their soil. That’s
why a lot of companies now are doing submerged water for the rooting systems, spraying on the rooting
system directly and illuminating the soil-based planting, and the last thing that I can probably offer the folks
that are listening is I give you an example of arugula. Some companies have arugula growth and when you
taste arugula, it’s more peppery than the other arugulas that other companies use. How you get arugula to
become more peppery is you add and drop the pH down to 5.3-5.6 in pH rather than utilise regular water at
7.2, 7.4, 7.0, depends on where you get the water from and how it’s treated, but you drop the pH to be acidic,
and some claims are that they don’t use chemicals. That’s not true, because for 500 gallons of water that
circulates through a nutrient solution, one gallon of diluted sulphuric acid gets put into the nutrient solution
to drop the pH to 5.3 and that’s how arugula becomes more peppery in the vertical farming space. That’s some
of the information that you won’t get publicly, I guess, but I don’t have an NDA, so I can say what I need to
say.
[00:19:06]
Q: How would you grade AppHarvest’s capabilities to roll out a full-fledged tomato product? Does it possess
any unique technology or niche know-how?
GW: They did a lot of research on different types of species of tomatoes, I know that much, but the reason I
guess, in my opinion, this is just an opinion, why they grew tomatoes is because there are many different types
of species, growing tomatoes is easy to grow, it’s hard to overwater tomatoes and tomatoes have a lot of health
benefits. Vitamin A helps with human cell division, it helps the lining of your retina in your eyes, it helps with
bone growth. These are the claims that they have, and the medical went and agreed with this, because I did
some research on it, so I would say those are some of the reasons why they grow tomatoes and our population
eats a lot of tomatoes, makes a lot of sauce. That’s what I think.
Private and confidential 6
[00:21:06]
Q: Which category potentially enjoys the best profitability or margin profile? It seems AppHarvest can’t
currently make high-graded tomatoes due to quality issues. Do you think tomatoes are the best opportunity?
GW: You can grow corn rather easily. You can grow different types of species of wheat, and I’m not even
talking about GMO. I’m just talking about standardised, not hybrid corn or wheat, but if I was running a
vertical farming system, I would probably go and also grow string beans. They’re very durable, versatile
products, string beans, and string beans are also easy to grow. I guess that’s some of them.
[00:22:28]
Q: Why has AppHarvest seemingly struggled to make high-quality tomatoes? Isn’t the benefit of indoor
farming the ability to control the environment and monitor quality in real time to hit targets?
GW: I don’t know if they’re missing their quality targets. That, I haven’t heard about. Their product is
genuinely good. They have a good quality assurance department that I know of, so folks saying that they’re
suffering with quality issues, that is unknown to me, sir.
NH: AppHarvest’s financial press release noted that poor quality makes fewer USDA-grade number one
tomatoes, lowered the sales and impacted revenue. I think the company said total production associated with
ramping up facilities adversely affected results.
GW: Maybe it’s quality for procedural since they’re growing astronomically relative to the space. Maybe
they’re having growing pains within the quality department. That’s all I can assume.
[00:24:35]
Q: How should we frame AppHarvest’s decision to go public so soon given it didn’t even have a product to sell,
relative to peers such as AeroFarms or Bowery?
GW: I think they did the right thing going public. If you look at when they went public, since they’ve been
public, their stock is continually increasing and when they went public, they also gained a bunch of publicity,
so right now, with people investing publicly, I think it’s a good thing for AppHarvest. That’s an opinion, but
I’ve been watching their stocks and they’ve been increasing. Yesterday, I think they went 1.56% upward also.
[00:25:53]
Q: Is it common throughout the industry to potentially overinflate goals relating to environmental factors
such as water conservation? Is it essentially free game for agtech players to say what they want, or is there
accountability around the statements?
GW: As this space and industry is growing, so is regulatory compliance. We have well-established companies
that I can name many within the food environment, and they still don’t give 100% accuracy on labelling and
the ingredients that are in their foods. Some produce, they say it’s organic. How is it organic when they still
use pesticides in soil? You know what I’m saying? They use that terminology. That doesn’t mean that it is
chemical-free, so there’s still a little play on words and stuff like that. That’s continuous in probably just about
all industries. They don’t tell you everything.
Private and confidential 7
[00:27:45]
Q: What distribution challenges might AppHarvest face? How should we frame its geographical footprint,
given you noted the distribution profile is much easier to manage as you get closer to bigger cities?
GW: They use third-party and they have their own trucks. When you use third-party, there may be some
scheduling issues and stuff like that, but I can’t say that they’re doing great with logistics and delivery to
different demographics because everybody is suffering with that right now. That’s about all the information
that I could bring forth pertaining to their distribution.
[00:29:21]
Q: What are the biggest opportunities to lower environmental impact or increase efficiency and resiliency
across controlled environmental agriculture? Which ESG factors could represent the biggest opportunity?
GW: It would be automation. We’re going to talk about AppHarvest. Pulling tomatoes off the vines is always
manual. They’re looking to try to automate that somehow, but with produce, the cutting, they’re working on
automation for cutting the products when the trays are delivered to the conveyor systems that have the
produce on them. The other thing is pertaining to not automation, but higher efficiency, and it’s all about the
year-round growth potential that they have assisting logistics, and transportation and distribution, rather than
having it seasonal like farming in some demographics, so I would say automation and higher efficiencies.
[00:31:22]
Q: How would you characterise the regulatory tone of this market, given how quickly it’s developed? What are
the prospects of standardising ESG qualification, especially around B2B marketplaces such as FBN [Farmers
Business Network] or players such as Indigo? The term encompasses a lot – there’s so much going on, and
everyone calls it better or cleaner.
GW: I could tell you that they already have standardised GMPs. That’s just good manufacturing practices
relative to food for consumers, so they standardise on GMP practices, and you know what they are. That’s you
wear clean clothes, you wear hairnets, if you have a beard you wear beard nets, you have gloves on, certain
things like that. You know what I mean? You can’t wear jewellery that can drop into produce, so all of the
GMPs are standardised just like any food type of company that manufactures and make food products. What is
growing and continually changing in the ag space is specific regulatory compliances relative to produce where
if you need to have it air conditioned and chilled, the environment, air filtration while growing, like utilising
HEPA filters or V-groove media-type filters, do you need to sterilise the air utilising UV radiation, stuff like
that. These things have not been standardised. They’re still being researched in this space, so the regulatory
compliances change, I’m not going to say monthly, but maybe every six months or so, twice a year because of
the learning in the space and the growth in the space.
[00:34:23]
Q: How challenging would it be for AppHarvest to add further categories to its current structure of growing
tomatoes? Would this require a complete rehaul of its operational facilities or could it easily start growing
another type of crop in those same facilities?
GW: They can use their systems for it, but they’re going to have to make compartmentalised rooms because
products grow differently. You can’t grow baby spinach in really hot weather. You need lower humidity, and
drier and lower temperatures to grow spinach. If you tried to grow it in the same environment as tomatoes or
cilantro or something like that, you won’t get your crop yield, so they can. They can go and grow tomatoes, I
Private and confidential 8
mean strawberries, and different types of lettuces and stuff like that, but they have to have that research done,
and the data collected to see what the ambient temperature and relative humidity is for growing, so they may
have to change some of their systems.
[00:36:11]
Q: What does it take to qualify as a leader in growing organic tomatoes? Would AppHarvest have to change its
complete soil profile? Is it just treating pesticides?
GW: No insecticides, no pesticides. Like I said, it’s probably mostly that, saying growing organically.
AppHarvest uses rainwater, so they collect rainwater with a big collection system, and if you check rainwater
right now, rainwater is acidic, so they use some chemicals to bring the pH up to neutral. They don’t use all the
rainwater that’s acidic. I think in the future, you were talking about renovations and additional things for
quality, they may even go and purchase an RO system, which is reverse osmosis, and run the nutrient solution
through an RO system to really clean the water, make the water mineral-free. It depends on the P&L for that,
because you have to change the membranes in a reverse osmosis system and they’re going to have to add that
to the manufacturing cost, so they would need to see if that’s feasible or not. It’s just talk about.
[00:38:10]
Q: It seems many speciality crop players are figuring everything out as they go, given their start-up nature. Is
there a proper roadmap? Should there be testing on a smaller scale before scaling to a full-fledged public
company with facilities being built across the US if the production process isn’t proven? How should we frame
the dynamic of lacking a proven way to build their product, yet still trying to grow?
GW: That’s a really good question. Thanks for asking that question. I can give you an example, and the
example is for AeroFarms. I designed a vertical structure for them, the 6061 aluminium structure, besides the
nutrient circulatory system, germination, carding and stuff like that. Dr Ed Harwood from Cornell University
researched LED lighting spectrums on over 200 species of leafy greens, Japanese greens, different types of
herbs, for 10 years before they started to go and bring AeroFarms up as a company, so there’s a lot of research
that really needs to be done. He went as far as the intensity of photons off of the fluorescent lighting at the
time, because they didn’t have LEDs back then. How do I know that? He told me so. There’s a lot of research
that’s done into it, or some companies share data, which I doubt, so you have to do a lot of research. You could
start with not much research and plant some seeds, and do germination and see how systems grow. I
guarantee you won’t get your yield and your profit that you think you’re going to have. You need a lot of data
for the growth systems in order to try to be successful.
[00:41:00]
Q: Do you think AppHarvest has long-standing research in a particular field – whether different types of
lighting structures or feeding for tomatoes indoors – or is it still trying to figure out what works?
GW: They’re just doing some continuous research, but they also did cell structure analysis on the plants to see
which one’s going to be vibrant, more durable, more robust, taste and flavour profiling, stuff like that. I don’t
have all the detail, but I know they did those things that I’ve mentioned.
Private and confidential 9
[00:42:00]
Q: Vertical farms have a high CAPEX, but this should lower relative to scale over time and make players more
profitable. How has that worked out in real-time, based on your experience? Has that higher CAPEX been
necessary for longer than anticipated while scaling owing to various challenges?
GW: You know how it is. It’s like anything else when you do financials. It’s your OPEX costs, and then you
add your depreciation to the equipment and stuff like that over time, and then you do the design criteria of the
speed of the equipment. It’s typical. There’s nothing different. It’s, you harvest so much in pounds, what your
overhead costs are for packaging. Same things that all the other companies do relative to consumer products.
It’s nothing really different. What’s different is gaining all the data and telemetry on growth. When you have
product that’s in a can, or sauces or dips and stuff like that, it’s just mixing and not so much all of this data
that’s required. There’s much more data and quality control for produce and tomatoes, and fruits and
vegetables.
[00:44:03]
Q: How can AppHarvest differentiate? The company is growing indoors, and can claim energy conservation
and recycled water, but so can many other players, and it may just be cheaper to go with a local farm that may
be a greenhouse.
GW: It’s really simple. It’s establishing your relationships with the distributors, your marketing strategies,
your percentage of profit. What else? What you’re going to allow the distributor to make in percentage. It’s just
a negotiation process, just like the majority of all the other things. There’s nothing special. You can go and say
that, “It saves water. No insecticides,” and all that. That’s a marketing strategy for consumers. If the
consumers want the product, then the distributors will come after you, but they want their percentages of what
type of margin they’re going to get in having utilised their space, because it’s called slotting costs. If you put
the product right at hand length where it’s right by your eyes and you can get the product quickly, those
slotting costs are much higher than where you have to bend down or reach up high in the supermarket. I don’t
know if you know about that, but that’s the gist of it. That’s the difference in slotting costs.
[00:46:31]
Q: Pricing for indoor-grown products seems to be on par with organic. What will make a consumer buy a
tomato that’s indoor vs organic? Can they even tell the difference? Anecdotally, I wouldn’t know the difference
– I would just look at the price. How does that play into demand for these products?
GW: Some people that are health-conscious, they’ll look towards going organic and stuff like that and
seemingly, it’s better for you. I don’t see it either way. If I go and buy tomatoes in packages from AppHarvest,
I’d probably buy them in not cellophane wrapping. I’d just buy them where I can grab a hold of them, take a
look at them, feel them and stuff like that. Pertaining to produce, I always buy clamshells. It’s the plastic
containers that you open up and then close them again. For the people that are listening, let’s use an example
of purchasing baby spinach again, you buy them in a vertical poly bag in a supermarket and now, you go to
utilise it and you open up the poly bag. You take some out, you make your salad, then you put one of your
closing clips on the poly bag and you put it back in your refrigerator. If you notice, 3-4 days go by and then you
go to open it up again, you see some spoilage on the leaves. If you utilise a clamshell and not a poly bag and
you do the same thing, you purchase baby spinach or lettuces in a clamshell and you take some product out,
you put it back in the refrigerator again and you don’t use it for a week or a week-and-a-half, and you go back
into your refrigerator and you take some out, there’s minimal spoilage. There’s a reason for that. The
clamshells have microholes in them by laser. Landus company does that. You have what they call an exchange
of air or a percentage of respiration rate in a clamshell, so you have air exchange, where polyethylene bags
don’t have that. I don’t know if the consumers or folks that are listening understand that. I always buy produce
in clamshells or where I can just put them in a bag myself and put them on a shelf or something like that and I
Private and confidential 10
don’t buy those vertical poly bags any more. Folks buy them because it’s cheaper, but it’s not cheaper when the
spoilage is increased. I hope that helps.
[00:50:09]
Q: Are vertical farms better-positioned amid the costs agricultural producers face from row crops and seeds to
speciality and distribution? Alternatively, is there a negligible technical advantage, and everyone faces the
same labour and distribution issues and higher input costs?
GW: A few concrete things that are 100%, it does save water, you’re in a controlled environment, you have
less insects bothering the produce. The other reason is, you take much less space in growing, and probably the
greatest difference where vertical farming will continue to succeed and grow, in my opinion, is the crop cycles.
Depending on the demographics, farming within a season usually has 2-3 crop cycles annually, California,
Florida, stuff like that. Colder states, it’s different. Greenhouses, depending on what they’re growing, there’s a
range. They say 13-17 crop cycles annually. Vertical farming systems utilising aeroponic processes go into 20,
21, 22 crop cycles annually with the different lighting spectrums and all that. You’re going to be paying higher
costs relative to utilising LED lighting, passive solar, stuff like that, operational costs are higher, but look at
the crop cycles and turnarounds that you get relative to volume, so that offsets the higher OPEX costs, and
they’re the main reasons why I think it’s successful and why it will continue to grow, and prosper and other
companies will come up to start doing this.
[00:53:16]
Q: How should we frame the global opportunity for vertical farming? In Asia, there’s tons of land. What
regions are leading in trying to adopt this technology?
GW: I can’t really talk about that much because I don’t have that much information on it. I know nationally,
we’re growing, I know there’s a partnership in Spain. I know Saudi Arabia, Dubai is starting to grow vertical
farming systems. Japan, absolutely, but Asia and stuff like that or Germany, Romania and Switzerland,
Mongolia, I don’t have that information, to be honest with you.
NH: Could you share an overview of the discussion around carbon credit and reducing carbon footprints for
vertical farming players?
GW: I have no information on the carbon footprint market for agriculture, for the vertical farming systems
and folks like AppHarvest. I do not, and I’m sorry. That’s one thing I don’t have.
[00:55:01]
Q: What do you think is the biggest risk to vertical farming? The indoor model and crop cycles seem to make
total economic sense, but what’s the biggest potential concern investors or start-ups commonly overlook?
GW: It was the initial capital expenditures that are required, so you need some high-dollar, up-front cash.
Even if it’s a small system, you still need it, and I would say the demographics, where you’re going to have this
facility. Let’s see. What else? Research and development on what you want to grow. You know what I mean? If
you have more variable-type products, there’s more research involved. If you have one species of product, like
tomatoes of AppHarvest, there’s research involved, but the research is confined and limited to that vegetable,
let’s say. You don’t have to go and do a lot of long-term research on different types of species of product. That’s
what I see.
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[00:56:43]
NH: I think that’s a great place to wrap up. Let me close by saying thank you, Gary, for your time. We covered
an extensive amount. Thank you, clients, for joining Third Bridge Forum’s Interview today. If you would like
to speak to Gary in a private call or meeting, please let your relationship manager know. Have a good one.
GW: Thank you, sir.
Transcription ends at 00:56:58 of the recorded material
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