Grower and Retailer Perspectives on the Evolving CEA Market

Despite some growing pains, leaders in the Controlled Environment Agriculture (CEA) sector shared their candid views on the past, present, and future of CEA as part of an educational session at the Organic Produce Summit last month.

Philip Karp, Co-founder and President of Soli Organic, said the sector is ready for a methodical and rational approach to scaling the sector and getting CEA items on the shelf. Soli Organic is a relative veteran in the CEA space, with more than 30 years in the organics industry.

“Our commitment is to provide organic at an affordable price point. Promises aren’t enough,” said Karp. “We need to continue to elevate the discussion around food.”

CEA production recreates ideal environments for specific crops grown intensively indoors. Techniques like hydroponics and vertical gardening are often used on CEA farms in an effort to make fresher, more local produce available year-round from decentralized operations with a much smaller footprint.

Karp and fellow panelists Eric Cusimano, global produce principal buyer at Whole Foods Market, and David Vosburg, chief innovation officer at Local Bounti, agreed the CEA sector has experienced growing pains over the last decade when CEA was entering its initial awareness phase.

There was a period of “dot com-like” boom and bust, said the panel. The late 2010s welcomed a wave of big investment in CEA infrastructure paired with record-low interest rates. Because CEA involves high-dollar infrastructure investments, many businesses over-promised and under-delivered in the late 2010s, said Karp.

“We were selling a silver bullet for the woes of the [agriculture] industry,” he said. Now CEA is more “grounded in reality,” Karp said. “This is not a technology play. This is farming and big infrastructure.”

Now CEA is about profits, said Vosburg. The sector has entered the phase where they must prove they can construct and operate facilities, ensure food safety, and bring the product to market.

Because CEA involves high-dollar infrastructure investments, many businesses over-promised and under-delivered in the late 2010s, said Karp.

“We’re finally at that point where reality and investor understanding are converging. We might be close to a common language and understanding,” Vosburg said. “We’re moving from what was promised to what is doable.”

Vosburg followed up by saying he is optimistic about CEA while also noting that the sector as in a “down part in the cycle” for investors.

Part of generating profits with CEA is accepting a small niche and unique differentiator, deeply understanding the customer, and embracing unit economics, said the panel. “You can grow it. That doesn’t mean you can make money at it or scale it. Know what you can do and sharpen focus,” said Karp.

Cusimano reported that he's seen an increased interest in CEA products at retail, especially as younger generations flex their growing purchasing power. Convenience and wellness represent other compelling trends relative to the CEA space and its consumer. Karp described “prescriptive produce” or educating buyers to buy produce based on its health benefits as a way the sector may be adapting to meet consumer interest.

The panel agreed that before consumers can embrace the innovative attributes of this new organics growing model, such as its commitment to zero pesticides or reduced water usage, CEAs must first tackle the basics of quality, freshness, and affordability.

“The consumer is making purchasing decisions—'Does it taste good? Is it crisp? Am I getting value for money?' said Vosburg. “I think [the CEA growers] who are able to hit the [organic market's] price point or below are delivering on that promise. We are still working on scaling and maturity, but we are getting there, and the consumer is enjoying it and switching over [to CEA] for those reasons.”

Millennial and Gen Z consumers demand more transparency about the sustainability practices of growers, said Cusimano, which presents a unique challenge for marketing CEA.

“The Achilles’ heel [of CEA] is its energy usage,” Cusimano said. “Reducing energy inputs should be the focus of the CEA segment for the next 10 to 15 years.”

Both growers on the panel mentioned the sector needed simplified packaging and a common language for this emerging and distinctive form of organic growing.

Karp described the labeling and marketing of CEA items as “a big mess,” saying, “As an industry, we’re not there yet on trust with labeling, and we’re not there with any sort of common, verifiable anything when it comes to what gets put on the package. How do we come up with some common messaging for consumers that is easy to understand and easy to trust? Once the consumer can trust some of the labeling they can start to pick and choose.”

Karp predicted “absolutely” that greenhouse and indoor vertical growing will increase. While CEA presents a compelling agriculture technique for Local Bounti and Soli Organic, both growers agree intensive indoor growing is not the only solution. “All of these are tools. Tools have their uses where they do and don’t perform. Vertical and greenhouse growing is not meant for every application. You have to apply the right technology to the right crop types,” Vosburg said.

“The right crops end up in the right spaces,” said Karp. “We have fields; we have greenhouses. We will keep crops in the fields. They do well; there’s no reason to change it.”

From the retailer perspective, Cusimano sees the organic industry managing a balance between field-grown and CEA. “Both need to work together for the benefit of the consumer,” he said.

The panel ended with an optimistic view of the future of the CEA sector, with reports of dedicated retail space at two national retailers within 18 months.

“The opportunity is there. I think the prize is there,” Vosbug said. “It’s about who is going to execute now, getting it done, and doing it well.”