Breeding may be one of the most important factors for the long-term success of controlled-environment agriculture and crops like leafy greens, along with food safety, maintaining quality, reducing packaging, and maximizing shelf life. Photo: Sippakorn Yamkasikorn/Pixabay
Outdoor leafy greens growers have historically enjoyed a competitive pricing advantage over greenhouse and vertical farm producers owing to their lower production costs. Times are changing, though, as indoor growers make progress on shrinking the pricing gap.
A crowded marketplace is often a highly competitive one, and the leafy greens space fits that criteria. There is no shortage of companies vying for market share in the vegetable space with the jumble of existing greenhouse and vertical farming companies looking to expand their production capacity, new indoor producers entering the market, and a slew of outdoor growers. While demand for leafy greens remains high, consumers only have so much to spend on their produce. And while price is not the only motivating factor for a purchase, it is one of the most impactful. It follows that producers with lower prices have an advantage over those that charge higher prices.
“I think our products must be competitively priced with traditional field-grown products to continue to grow our portion of the category,” says John Bonner, co-owner with Tim Ryan, of Great Lakes Growers in Burton, OH. “With inflation on the rise, consumers have fewer real dollars to spend, and depending on your demographic, that absolutely matters.”
Price Parity in Sight for Some Leafy Green Products
With so much at stake, how are controlled-environment agriculture (CEA) growers doing with pricing in comparison to their outdoor counterparts?
“I believe there are successful CEA companies that have already achieved price parity for many retail products,” Bonner says. “Food service products, like romaine, still have a long way to go. Breeding achievements and increasing cost and production efficiencies will be the key.”
Peter Tasgal, a strategic consultant to the food and agriculture industries and co-founder with Xander Yang of the Farmbook Project, says indoor growers have nearly closed the price gap when it comes to competing with outdoor-grown organic product sold in clamshells, but they cannot compete with whole heads of lettuce sold in a loose format (whether organic or conventional).
The current price point for most CEA-grown leafy greens sold in a clamshell format (typically 4 oz. to 5 oz.) ranges at retail between $2.99 and $3.99 per box, according to Tasgal, who says based on his consumer research, as pricing gets closer to starting with a two (e.g., $2.99), the product will move from a more niche/premium product to a more mass-market product.
Indoor Growers Have a Slight Edge on Premium Products
This begs the question — are lower prices for leafy greens ultimately a good thing for indoor growers, or is it better if consumers see indoor-grown products as higher-class produce, where quality, taste, and other premium classifiers outweigh price? After all, when you are shoulder to shoulder with your competitors, it is much harder to fetch high profit margins for commodity products.
“I think many of our products can achieve price parity with the field and even command a slight premium because of shelf life, taste, cleanliness, and overall quality,” Bonner says. “When a company achieves price parity and can offer a superior product at the same time, it is in the driver’s seat. However, there are some big movers like romaine and iceberg that have a long way to go. The breeders are doing a great job, but efficiency in the greenhouse will be the ultimate gap closer.”
Tasgal comes at the question from a financial perspective.
“If growers can be highly profitable selling a premium product, and they can provide barriers to entry for others entering the market, then I think it is perfectly okay for CEA lettuce and leafy greens to be a premium product,” he says. “However, if there are not barriers to entry and there is significant profitability, large growers will enter the market and likely drive prices lower, at least in the short term.”
Breeding efforts that result in and identify products with characteristics more suitable for indoor growing could offer one possible barrier to entry, notes Tasgal, who says this would allow for much-needed market differentiation, which would be a good selling point for consumers that are not price-sensitive. To Bonner, breeding is perhaps the most important factor for long-term success in the CEA space, he says, along with other key elements such as focusing on food safety, maintaining quality, reducing packaging, and maximizing shelf life.
“The breeders we have been working with for the last decade have stepped up their efforts in the past few years,” he says. “I only see good things coming down the pipeline.”
Finally, reducing plastic use may be a potential element in the future that further helps reduce costs and close the pricing gap between indoor and outdoor growers.
“Most product is sold today in a plastic clamshell (PET1),” Tasgal says. “There is a lot of work going into reducing packaging and especially the use of plastic. If someone could figure out a way to sell CEA lettuce and leafy greens without using as much plastic (or no plastic), yet still make the product look substantial, I think that would be a game changer.”