The CEA industry currently sits at a curious intersection. After a year of closures and consolidation, market expansion is going to look different this year than it has in the past. There’s a throttle on the speed of and amount of growth now that access to capital is more difficult. But the industry is learning, albeit through tough lessons, how to grow sustainably and innovate effectively.
Eddy Badrina is the CEO of Texas-based Eden Green Technology and has experienced some market shifts since the company was founded in 2017. The company launched a vertical microclimate hydroponic system, focused production on leafy greens and created shipping efficiencies by locating next to major retail distribution centers. Badrina shares his outlook on the industry’s market expansion and consolidation in the space.
Moving beyond leafy greens
Leafy greens have dominated the CEA market, but now, that sector is saturated. That doesn’t mean there’s no room for growth, Badrina says.
“As the cost comes down on the production side of CEA and prices goes up in the overall produce market, I think you’ll see that market share expanding because all the macro trends,” he explains. “From an environmental perspective, from a supply chain perspective, all the macro trends point toward more CEA and not less. I think it’s really incumbent on the industry players like us to make sure it’s affordable and it’s economically positive to meet that demand.”
There’s very little price elasticity when it comes to a commodity like lettuce, he adds, which “requires the industry to continue focusing on unit-level economics, which then passes down to the consumer to where it’s not such a huge gap between conventional lettuce that you see on a wet wall and then the clamshell packages you see right next to it.”
Some lettuce growers added salad kits, which resonated with consumers. And there are companies that will continue to successfully make inroads on high-cost items, such as Oishii strawberries, he predicts.
While Eden Green still grows leafy greens, they’ve added the major suite of herbs to their production offerings.
“It’s proven to be a great strategic shift for us. One, because herbs have higher margins, and two, because our core technology — our grow towers — hasn’t changed,” he adds.
Other opportunities include providing nutraceuticals, he says.
Nutraceuticals are products derived from food sources that provide both nutritional and medicinal benefits. Nutraceuticals are also known as functional foods, medical foods, designer foods, phytochemicals and nutritional supplements.
The term nutraceutical was coined in 1989 by Stephen DeFelice, who was the founder and chairperson of the Foundation for Innovation in Medicine located in Cranford, New Jersey. DeFelice defined a nutraceutical as a “food, or parts of a food, that provide medical or health benefits, including the prevention and treatment of disease.”
Badrina says because of the crops CEA traditionally grows, the industry has always played a role in proactive wellness, but there’s still room for expansion.
“Proactive wellness is a huge multi-billion-dollar industry, made up of products that require more natural derivatives, especially when it comes to fruit and herbs. We believe there is a need for produce like ours, because one of the current drawbacks regarding nutraceuticals is consumers don’t know where the base ingredients are coming from. It could be from overseas or China, so there’s this lack of quality,” he says. “If we can provide a competitive, price-conscious product that can go in a base ingredient to some of these nutraceuticals, we feel like that’s a huge win for us — for the industry. It’s a huge win for the consumer in terms of safety and knowledge. And then it localizes and decentralizes the reliance on foreign plants and herbs to the U.S. market.”
Affordable processes
Besides products, the industry must look at processes.
“The industry will realize more stability when more CEA producers can make processes more affordable,” Badrina says. “In any business, there are two ways you make it more affordable — you either lower your OpEx costs, or you somehow gain economies of scale that allow you to gain lower margins but a higher volume. From the scale perspective, you’re going to see a lot more consolidation, and we’re already seeing it on the flat-tray or greenhouse side, but you’ll see more consolidation on the remaining vertical indoor farms.
“I think you’ll see a cross-pollination of some of the bigger produce providers to be technology-agnostic and for a conventional farm to buy a flat-tray greenhouse company or a greenhouse to invest in an indoor farm. And with that cross pollination comes more volume. And with more volume and more SKU expansion becomes more opportunity for overall revenue growth.”
Lowering OpEx costs will require more automation. And one thing that’s often overlooked with automation is the need for energy savings, he explains.
“I think industry-wide, you’ll see a lot more lobbying for utility costs, grants, subsidies and regulations,” Badrina says. “Electricity consumption and the price of electricity is going to be huge. Often, at least in our experience, the most expensive line item in your OpEx is actually utility consumption and costs, then it’s labor. To automate, you need energy. So, it all goes back to your energy cost.”
A look ahead
Changes in access to capital have been dizzying. But venture capital is not totally disappearing, Badrina says.
“It will always play a part in our industry. I think private equity and specifically infrastructure funds and energy transition funds are the ones that are, at least in my experience, the most keen on the market.
“And when you think about the investment mandate of an infrastructure fund or an energy transition fund, they’re really sacrificing unlimited upside for the reliability of cashflow. And in our industry, the reliability of cashflow is directly correlated to the consistency and reliability of the plants,” he adds. “Unless you’ve got a good team of growers, none of the engineering in the world will be able to help you maintain that consistency without someone who knows how to pull the levers from a plants perspective. You need to look heavily at your growers and your operational staff — less so than your engineers and your Ph.D. scientists. They’re all useful; they’re all needed. But when it comes down to consistent product at scale, that comes down to operations and growing. There will be fewer investment from venture capital, only because their investment mandates require huge returns.”
The industry needs to concentrate on the value proposition of produce as well.
“Some of the things that take away from the credibility of our product, that value proposition, is when people buy lettuce with their hard-earned dollars — with inflation rising — or they buy herbs, and they have to buy more herbs than they ever wanted to in one sitting. They think, ‘I’m only going to use 10 sprigs, and the rest is going to waste. And it cost me $9.’ Or they buy a bag of lettuce that looks sort of decent on the shelf, but they’ve got to eat it within 48 hours,” Badrina says. “When they open it up and it’s already bad, that chips away at the credibility. That chips away at the value proposition of our industry. To gain that back, CEA’s product must be fresh, it must be long-lasting and it must be affordable.”
This article appeared in the January/February 2025 issue of Produce Grower magazine under the headline "Market shifts."
Kelli Rodda is editorial director of Produce Grower magazine. Contact her at krodda@gie.net.
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