Economics of Commercial Hydroponic Food Production

The worldwide food production system has a great challenge to face over the next few years: to guarantee a food supply to our growing population in a sustainable way.

Despite the technological developments improving our industrial agriculture productivity, issues such as land availability, seasonality, high water consumption, and carbon emissions are in fact the main obstacles preventing us from meeting food security and sustainability targets. Therefore, in order to reach these goals, is it possible to implement alternative farming methods that could increase agricultural outputs and reduce environmental impacts?  One of these solutions is hydroponics, an ancient culture method that allows for soilless food production.

Hence, this article will investigate the pros and the cons of commercial hydroponic food production methods both from environmental and economic points of view.

Commercial hydroponics farm. Image via Emirates Hydroponics Farm.

Environmental Benefits of Hydroponics   

Hydroponic agriculture provides many benefits to the ecosystem. Being a soilless production it doesn’t need herbicides or chemical pesticides and so, it positively affects human health and the environment. Moreover, commercial hydroponic food production method allows on average four times the amount of crops in the same space as traditional soil-based farming, and it can guarantee a faster growth for many kinds of crops.

Furthermore, it can reduce water consumption by up to 90% compared to traditional agriculture’s water usage. These water savings can be huge because, according to World-o-Meters, agricultural production accounts the 70% of the world water consumption. In addition, hydroponics can be a valid alternative to produce food in areas that are not rich in natural resources, such as deserts or even urban buildings. This method can result in important social benefits, especially for the poor, and this can positively retrain our urban areas.

The following video, from Reuters, shows how a hydroponics system has been easily developed in the Philippines to provide to small communities, with little land and water, an inexpensive way to produce their own vegetables.

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All these elements highlight that commercial hydroponic food production has positive impacts on the environment and on natural resource management. Also, hydroponics will provide cost savings, such as on water, land and fossil fuels costs, or on chemicals purchases. However, these saving might not be always enough for farmers to cover the hydroponics costs or to justify a shift to it.

The Hydroponics Market

Today the hydroponics industry is a niche food production market, especially if you compare its characteristics against traditional agriculture. According to the EPA, total US crop production is worth $143 billion, while US hydroponic revenue has been estimated by IBIS to reach $607 million.

Despite that, the US hydroponic industry has grown at an annual rate of 3.6% in the last five years, faster than the growth the US GDP had experience in the same period. Revenues in the sector will continue to increase in the next five years. This will not only happen in the US but, it will continue as a worldwide trend. The rising demand for healthy eating and organic food, especially from developed countries, are key factors to foster this growth.

The Hydroponics Crops Farming industry has a low concentration, with a lot of small farms and a few big players such as Village Farms. According to the IBIS World Industry Analyst Agiimaa Kruchkin: “Consumer demand has helped grow the number and earnings for small hydroponic farms, but their market share is limited because of their production capacity, distribution constraints and smaller localized demand”.

Village Farms hydroponically produced tomatoes. Image via Village Farms.

Hydroponics Challenges

As suggested by Manifest Mind, there are many market risks, entry barriers and challenges that hold back investments in the hydroponics industry. These include the high startup and energy costs, the necessity of qualified workers, the operational complexity, and the uncertainties generated by the crops’ price volatility.

The startup costs to implement a hydroponic farm can vary widely but, they are usually much larger than soil-based farming costs. So, the higher upfront capital needed to develop hydroponic food production solutions is a factor that can slow the farmers’ adoption of hydroponics, mostly in developing countries. However, solutions to implement it in an affordable way, such as the aforementioned system developed in the Philippines are becoming more common, and the interest of researchers on the topic can provide more efficient and less expensive solutions.

Also the operational costs of commercial hydroponics sometimes can be higher than traditional agriculture. According to the Groucher College report, “Economic Assessment of Hydroponics Lettuce Production”, 90% of the production costs of hydroponics are composed of energy (20%) and labor (70%) costs. Despite its lower energy consumption over traditional productions, its labor costs represents a much larger share than farm labor, which is estimated by the USDA to vary from 17% to 40% of total operating costs in labor intensive productions.

Therefore, to foster the hydroponics industry’s growth, it’s important to implement technologies that reduce dependence on human labor and lower overall startup costs. Also external factors, such as climate conditions and crop price levels, as well as consumer demand and governmental support for healthy food, can significantly help the adoption of hydroponics.

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