Despite growing demand for better food, China isn’t quite ready for indoor farming

Every Monday and Thursday morning, a team of urban farmers go to a high-end restaurant in eastern Beijing. They deliver radish, wheatgrass, and bean sprouts seedlings and place them inside four glass cabinets. The cabinets are automated indoor farms with LED lighting, fresh water and nutrients. About 2 meters tall and have four tiers on which the vegetable seedlings grow, chefs at the hotel will harvest the vegetables from the cabinets throughout the week and the team will restock the cabinet twice a week. They will spot check if the cabinets are functioning properly.

The seedlings the team deliver are cultivated in a shipping container in central Beijing. The containers are indoor farms operated by Alesca Life, an agriculture start-up based in the same city. The company was co-founded in late 2013 by Stuart Oda with the ambition to make cities nutritionally self-sufficient.

The indoor farms provide everything the plants need to mature, but the seedlings need to be grown in shipping containers first. All the factors affecting the growth of the plants can be monitored and controlled by the company’s self-developed technologies, making the vegetables from unfavorable weather conditions, pollution, and pests.

Alesca’s indoor farms at Beijing Marriott Hotel Northeast (Image credit: Alesca Life)

While moderately successful in Beijing, Oda is also trying to realize his vision in a different city: Dubai. Their business in Beijing has expanded too, though in a different direction. Instead of aiming for mass production and competing on price and volume with local supermarkets, the company has cooperated with several high-end hotels, including Marriott, Westin, and Shangri-La, and has provided them with the indoor farms with fresh vegetables that are highly seasonal or imported in China. They have joined China’s consumption upgrade, targeting the rising middle class who are more and more willing to spend on quality food. One serving of the radish they grow is sold for RMB 70 to 80, nearly ten times of that sold at local diners on the streets.

Alesca Life’s container farm in central Beijing (Image credit: TechNode/Jiefei Liu)

“The cabinets are more for market promotion and making impressions,” Jannelle Liu told TechNode. She is China Food and Beverage Sales Lead at Alesca. Consumers will be able to see the process of how their food is grown and be reassured about the quality – no pesticides, no soil or water pollution, she explained. Plans for producing plants in larger volumes will mainly happen in Dubai.

Cheap vegetables, expensive electricity

Alesca isn’t the only agriculture start-up that adjusted its business strategy facing China’s current agriculture industry.

When Tristan Lim co-founded Hydra Biotech in Shanghai with two of other alumni from China Europe International Business School, he first wanted to take indoor farming to China but ended up doing the business with US companies, taking advantage of China’s cheap manufacturing costs.

“Food production is a big issue in China and urban residents are willing to pay more for clean and safe food,” Lim told TechNode. This gave him the idea to start the business in China.

Hydra Biotech sells farming containers that have independent climate controlled modules and that can be equipped with hydroponics and aquaponics towers. One complete set, climate controlled module and essential hardware included, is sold for $58,000.

Inside Hydra Biotech’s independent climate-controlled module (Image credit: Hydra Biotech)

Lim knew this was too expensive for individual farmers and so he tried to partner with corporates, but they are not interested. “The agriculture companies have income from the government and have different priorities,” Lim said.

Another reason why this is difficult is that compared with the five-digit equipment Lim provides, agriculture is cheap in China. “Fertilizers, labor, and rent are very inexpensive,” Lim said. Lower-end restaurants don’t care that much about the quality of the food as long as they can have them at the lowest costs.

One of the biggest costs of running indoor farms, Lim said, is electricity, which will add to the overall cost of the vegetables. Electricity makes up 60 to 70% of the overall production costs and it’s not cheap in China or other places around the world, Lim said.

“We trade energy for less pollution,” said Lim. Some of the most notorious issues in China’s agriculture are the overuse of fertilizer and pesticide. They ensure the crop yields, but excessive usage has caused serious environmental problems. The residual pesticide on vegetables not only harms human bodie, but also pollutes the air and water when evaporated or washed into the drains and rivers. High application rates of nitrogen-based fertilizers can bring an excessive richness of nutrients in lakes and oceans, suffocating life living in the waters.

Hydro Biotech is now opening an online store that sells indoor farm grown greens. Similar to Alesca, they are targeting at wealthier Chinese customers, though only in Shanghai for now.

Also, Lim said they took a different strategy: making Hydro Biotech recognizable in international markets and then reintroducing it to China. Plenty, a vertical farming startup backed by SoftBank Vision Fund, is one of the companies that Hydro Biotech sells equipment to.

The San Francisco-based startup Plenty announced early this year a plans to enter China and build at least 300 indoor farms. Although the company declined to comment on its recent progress in Chinese markets, Christina Ra, Head of Communications, told TechNode that “the only way to have true impact is to grow in ways that produce volumes comparable to conventional farm fields, and to do so at a scale where the price is comparable to – or better than – what exists in grocery stores today.”  Despite the fact that this isn’t how things are today, Ra added Plenty will continue to work on providing the globe with affordable and clean food.

Importing expectations

“China is a net exporter of vegetables, so it’s not relying on imports,” Oda told TechNode. According to the China’s Ministry of Agriculture and Rural Affairs, the country exported $ 15.5 billion worth of vegetables in 2017, 5.5 percent higher than the amount of the year earlier.

The growing middle-class demand products from other parts of the world, such as some specific basil from Japan or Italy, and Alesca will focus more on providing the variety of types of vegetables rather than the quantity, Oda explained.

For Alesca, which not only sells growing equipment but also a vegetable service, human labor is a significant expense. As for now, one person operates one container, but Oda expects one person to operate 5 to 8 in near future. Oda said he has been hiring people with higher education qualification to show them that there’s a career in urban agriculture.

Limited land supply was another issue that Alesca faces when it tries to expand in Beijing.

Alesca wants to build farms in the city center because it’s closer to their customers and will prevent vegetables from losing their nutrients during transport. However, there is very limited space in the city center. Although their farming containers can stack one on another, weight capacity of the building and fire safety regulations are difficult to comply with.

Bigger markets on the horizon

None of these start-ups have given up on China. They are waiting for the right time: serious environmental pollution, more urgent demand for fresh food, decreasing arable land and people’s increasing incomes.

Apart from being able to control factors that affect the growth of the plants, indoor farming systems in general consume much less water and can farm all year around when growing seasons in traditional agriculture are usually confined to half a year, depending on the latitudes. According to Ra, Plenty’s yields are up to 350 times more than the conventional field, depending on the crop, and use less than 1% of the water of traditional farming.

As to the electricity consumption that made up most of the costs for operation indoor farms, Dickson Despommier, emeritus professor at Columbia University who developed the concept of vertical farming a decade ago, told TechNode that to compare the energy consumption between indoor farming and traditional farming, one has to include the power consumed in the production of fertilizers, operation of tractors and so on. Thus, in general, indoor farming costs less energy.

Also, progress in the energy innovation will eliminate the power costs, such as improving the LED lighting efficiency or advancement in the field of new energy will lower the electricity price in general.

China’s GDP per capita more than doubled in the recent decade, according to the World Bank, and the country’s middle class is growing at a rapid pace. For modern agriculture startup like Hydra Biotech and Alesca, China still represents a promising market. People have already started to care about food and hopefully, with more education, more of them will join the trend and begin to consider the influence the food they are eating is having on the environment, Lim said.

Although the future seems promising when thinking about how fast technologies such as riding hailing services and e-commerce platforms have changed how society functions, Lim said for now they want to stay “small and practical” and build the business step by step.