CEA should enhance client demand to realize mass market enchantment

CEA must increase consumer demand to achieve mass market appeal

Peter Tasgal he’s an agri-food marketing consultant and CEA and co-founder of Farmbook Venture, primarily based in Boston, USA. The views expressed on this article are these of the authors and don’t essentially symbolize these of AFN.

A lot of the managed surroundings agriculture (CEA) trade at the moment focuses on bettering the associated fee and effectivity of cultivation (provide). Articles and discussions spotlight issues just like the implementation of robotics and synthetic intelligence, the usage of various power sources and higher seed choice, to call just some areas. All this is essential to convey CEA merchandise nearer to price parity with merchandise grown outdoor.

Nevertheless, the trade should additionally work to extend client demand for CEA-grown specialty merchandise, which is crucial to the trade’s total progress.

Definitely there’s demand for produce grown by CEA, however just for these offered at a value on par with these grown outdoor. For instance, at this time a big proportion of the tomatoes, cucumbers and peppers offered to US grocery retailers are grown in greenhouses.

Alternatively, CEA-grown merchandise that don’t meet the costs of conventionally grown merchandise (specialty merchandise) have up to now proven restricted demand. Based mostly on my analysis, retail gross sales of lettuce and leafy greens grown at CEA have been lower than $500 million in 2022; strawberry gross sales have been underneath $100.

Key elements influencing client buying selections embody:

  • Retail costs: What value vary will considerably decide volumes
  • Produce inflation: What’s occurring to the general costs of lettuce, leafy greens and strawberries
  • Availability of natural: A restricted quantity of produce grown by CEA is licensed natural
  • Client schooling: Improve client understanding of CEA
  • Competitors:What are the alternate options

Worth will seemingly all the time be a very powerful issue driving customers’ buying selections. Nevertheless, if the trade can slender the value hole between outdoor-grown and CEA produce, different elements could have an growing influence on buying selections.

Retail value:

Strawberries grown in a CEA surroundings nonetheless price considerably greater than strawberries grown outdoor. For instance, contemplate Costco Northeast’s retail costs:

  • Out of doors grown, standard: $2.85/lb
  • Out of doors grown, natural: $3.70/lb
  • Greenhouse grown, standard: $6.28/lb

Greenhouse grown (non-organic) berries are priced 121% larger than standard berries and 70% larger than organically grown berries.

Equally, most lettuce and leafy greens grown in a CEA surroundings promote at a big premium over outdoor-grown lettuce offered complete heads or in a bag format. Most of CEA’s grown lettuce and leafy greens are offered in 4 oz. shells with a retail value of $2.99 ​​to $3.99. That equates to $12 to $16 per pound.

Meals value inflation:

CEA services have excessive ranges of fastened prices in comparison with out of doors growers, together with capital expenditures for high-tech services and inner programs, in addition to the tools and administration wanted to supervise the advanced services.

The good thing about vital upfront capital expenditures must be the discount of variable prices (eg, direct labor, water, and so forth.). Conversely, out of doors rising ought to have the next share of variable prices than fastened prices.

In a time of excessive inflation, each meals costs and variable prices are anticipated to rise. This state of affairs must be a constructive growth for the competitiveness of fastened price constructions equivalent to these of the CEA.

In accordance with the California Strawberry Fee, freight on board (FOB) costs for conventionally grown strawberries elevated at a CAGR of two.6% between 2012 and 2022. Throughout the identical interval, natural strawberry costs elevated at a CAGR of 0.8%. The excessive ranges of meals value inflation, a minimum of by way of produce that may be grown within the CEA, have but to materialize.

The narrowing of the value hole between CEA grown and conventionally grown merchandise shall be elevated if there’s vital meals value inflation for the related merchandise.

Natural product:

Most produce grown in a CEA surroundings at this time just isn’t licensed natural. There was a longstanding controversy over whether or not produce grown off the land (hydroponics, aeroponics, aquaponics) may even be labeled licensed natural. Regardless of current California court docket rulings, most CEA services aren’t at the moment thought of natural. Causes for this embody:

  • Uncertainty about future selections
  • Downtime required to change to natural farming strategies
  • Diminished yield/elevated cultivation prices
  • Willingness of customers to pay a premium over conventionally grown CEA produce

In my work, almost all newly constructed CEA services are a minimum of finishing a cost-benefit evaluation of natural produce manufacturing. There may be vital crossbreeding between premium consumers of CEA grown produce and premium consumers of natural produce. To the extent that the product just isn’t licensed natural, the marketplace for premium consumers is additional subdivided.

Client schooling:

In some ways, produce grown at CEA is the cleanest, most ESG-friendly and tastiest produce available on the market. Some causes for this embody:

  • It’s usually grown nearer to the ultimate client, leading to much less mileage and a brisker product.
  • Services might develop selection for style and texture moderately than portability.
  • There isn’t any pesticide use and far much less water use within the rising course of.
  • All entrances are managed indoors.

Given the early stage of the CEA trade for merchandise equivalent to lettuce, leafy greens and strawberries, there was little give attention to educating the buyer concerning the above advantages. Many of the investments to this point have been geared toward effectivity and enchancment of the provide. If the value hole narrows and the trade turns into extra worthwhile, I anticipate way more assets to be dedicated to customers.


People who compete with CEA for share of client wallets embody out of doors growers, various produce and different CEA growers.

Based mostly on my analysis, customers pays a premium for conventionally grown product as much as the value of organically grown product. The prize quantity relies on the significance of the acquisition resolution. If the buyer considers the buying resolution necessary (for instance, contemporary strawberries for the kids in midwinter), they’re extra prone to pay the next premium. There’s a restrict, nonetheless. Based mostly on my analysis, that ceiling is at or close to the value of a comparable natural product.

Within the case of the strawberries talked about earlier, the greenhouse-grown product sells for a 70% premium over the natural product. This greenhouse grown product in all chance won’t attain scale till the product could be offered at or close to parity with natural produce.

CEA grown leafy greens and lettuce offered in 4 ozpackages. clamshell format offered price-matched with natural, free-range product offered in 4 oz. shell format. If this a part of the market grows, I anticipate giant packaged salad producers (Dole, Contemporary Specific, Taylor Farms) to enter the CEA market.

In direction of the mass market:

The CEA trade as an entire has performed an incredible job of bettering effectivity and in the end decreasing the price of produce grown on this format. That is important to maneuver to a completely mass market.

As value parity approaches for conventionally grown produce, consideration to demand attributes shall be more and more necessary to your entire trade competing within the mass market. Will probably be very obvious that the trade has reached scale when the quantity of shelf area allotted to all produce grown by CEA is elevated considerably.

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