Optimizing the Controlled Environment Agriculture Supply Chain: A Case Study for St. Louis, USA

Abstract

Controlled environment agriculture (CEA) pivots food production from an outdoor field setting to the indoors where growing conditions can be calibrated to fit crop needs. This research investigates vertical farms as a type of CEA. In particular, using the St. Louis area as a case study, it provides data-driven support for optimizing a vertical farm’s business model including its supply chain. The methodology presented here informs agri-preneurs about what crops to grow in a vertical farm, how much to grow given local market demand, and what vertical farm configuration (e.g., Dutch bucket, nutrient film technique, deep water culture) a facility should use. Based on the case study’s base scenario, the simulated vertical farm business would record an economic loss. However, the study did find several paths to improving profitability. First, reducing fixed and variable costs benefits profitability. Proper facility-level production and resource planning helps with managing the fixed costs. Second, increasing market prices may benefit profitability, but it has diminishing returns. As a result, firms can justify making investments that enhance their reputation and market competitiveness, though the advantage these marketing activities provide will decline as prices increase. Third, growing demand or increasing market share does not necessarily improve profitability.