Developing an Economic Estimation System for Vertical Farms

Developing an Economic Estimation System for Vertical Farms

Yiming Shao, Tim Heath, Yan Zhu
DOI: 10.4018/IJAEIS.2016040102
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The concept of vertical farming is nearly twenty years old, however, there are only a few experimental prototypes despite its many advantages compared to conventional agriculture. Significantly, financial uncertainty has been identified as the largest barrier to the realization of a ‘real' vertical farm. Some specialists have provided ways to calculate costs and return on investment, however, most of them are superficial with calculations based on particular contextual circumstances. To move the concept forwards a reliable and flexible estimating tool, specific to this new building typology, is clearly required. A computational system, software named VFer, has therefore been developed by the authors to provide such a solution. This paper examines this highly flexible, customised system and results from several typical vertical farm configurations in three mega-cities (Shanghai, London and Washington DC) are used to elucidate the potential economic return of vertical farms.
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The ‘vertical farm’, a relatively new concept in the realm of urban agriculture that, proposes high-rise buildings as vehicles to cultivate plants in sealed, artificial indoor conditions with advanced greenhouse technologies such as hydroponics and areoponics (Despommier & Ellingsen, 2008). A number of advantages of such a method can be realized compared with conventional outdoor earth-based agriculture. Significantly, these can include:

  • 1.

    Saving land (stacking up floors and several levels on each floor);

  • 2.

    All-year-round, high yield production;

  • 3.

    Protection from severe weather events enabling secured production;

  • 4.

    No use of pesticides or fertilizers;

  • 5.

    Saving water (using 70%-95% less water);

  • 6.

    Saving financial and environmental logistic costs (local fresh production minimizing transportation);

    • (Despommier, 2011; Heath, Zhu, & Shao, 2012)

As a result, in the past few years, vertical farms have drawn unprecedented attention from academia to business communities. Despite the aforementioned advantages, proposals are generally still at the conceptual stage except for a few experimental small-scale research-based and pilot examples existing in developed countries. Significantly, Heath et al. (2012) identify that the largest barrier to the realization of vertical farming is not the capability or availability of technology, but the uncertainty of its economic feasibility. Since a vertical farm concept integrates multidisciplinary knowledge from architecture and building services to agriculture and other specialist areas, a detailed financial analysis of start-up costs, operation costs, and revenue is difficult to establish. Only a few designers, engineers, economists have made their own approximate calculations either on capital budget or operating costs. Scientist and anti-global warming activist, Monbiot (2010) calculated that the cost of providing enough supplementary light to grow the grain required for a single loaf of bread to be almost $10 in the US. In addition, according to Omafra (2010), the initial cost could easily be over $100 million, for a 60-hectare vertical farm. Also, Graff (2011) estimated the return on investment (ROI) for of a 10-storey vertical farm in Toronto to be approximately 8 per cent which is lower than the minimum acceptable ROI, at 10-12 cent, for most investors. These calculations are based on certain particular circumstances, which are difficult to transplant to other cases or locations. The lack of precedent or pioneering examples therefore creates challenges in justifying the ROI for potential developers or investors. Clearly, developers will require some financial evidence before financially committing to the development of detailed design drawings. As a result, without information on the potential ROI, developers and investors are likely to view vertical farm projects as a too risky investment, therefore, a reliable financial estimation tool is required that can overcome the lack of existing detailed design drawings or historical data from similar projects.

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