The vertical farming industry has faced turbulence as the soaring expectations of its early days have levelled with growing consciousness of unit economics and scalability setbacks bringing a sense of realism instead – much like other advanced food-tech industries. While some growers took a significant hit, with a series of bankruptcies making headlines in recent years, those that remain cautiously optimistic believe the path ahead is clearer, more focused and displaying signs of maturity. In this feature, included in FoodBev magazine's September issue, we explore how the industry is rising to the challenge.

According to the Gartner Hype Cycle framework, which tracks how emerging technologies mature over time, the ‘Trough of Disillusionment’ is a necessary – albeit challenging – stage that promising, emerging technologies must move through before reaching a more productive plateau in which mainstream appeal and widespread adoption await.

For the vertical farming industry, these stages have been clear to observe, and the disillusionment phase has hit some harder than others.

Hiroki Koga, co-founder and CEO of vertical farming company Oishii, told FoodBev: “Drawing a parallel to the Gartner Hype Cycle, the sector – similar to electric vehicles and other clean-tech industries – experienced an initial wave of excitement and high expectations, followed by a necessary market correction as companies worked to prove the long-term viability of their business models. Over the past few years, optimism has become more grounded and pragmatic.”

Indoor vertical farms, where crops are grown vertically in controlled conditions using hydroponics and other soilless technologies, provide clear environmental benefits in reducing water use, land use and waste – in addition to being independent of climate and seasonal limitations and removing the need for pesticides.

This ability to address the growing need for more planet-friendly farming methods fuelled early optimism and the boom in investment that came with it – a pattern seen with many cutting-edge technologies. In F&B, this pattern has played out across other food-tech categories such as plant-based and cultivated meat, and precision fermentation-made ingredients.

Martin Davalos, partner at investment firm McWin Capital Partners, said: “Several years ago, vertical farming was sometimes presented as a universal solution capable of replacing large parts of conventional agriculture. Significant capital was invested on the assumption that scale, automation and technological improvement would rapidly drive down costs.”

However, he emphasised, what came next showed that growing crops successfully in a controlled environment and operating a profitable agriculture business are two different challenges.

“A number of companies expanded infrastructure before fully validating unit economics, crop market fit and operational reliability,” he explained. “Rising energy prices and a more difficult fundraising environment then exposed the fragility of those models.”

The last few years have seen a string of companies – some regarded as leaders within the sector – file for bankruptcy and enter liquidation, despite promising beginnings, significant achievements and notable funding raises.

UK-based Jones Food Company, operator of the largest vertical farm in the country, closed in May last year after failing to secure new investment. More recently, in the US, major player 80 Acres Farms announced in August 2026 that it would wind down operations.

In a statement, 80 Acres said that despite “an exhaustive effort to find a way forward,” it was unable to secure the capital required. The news came just a year after it announced a major merger with Soli Organic, and 18 months after it raised $115 million in capital alongside an acquisition of biotech firm Plantae Biosciences.

AeroFarms, a microgreens grower also based in the US, also said it would cease operations in December 2025 – though the company received emergency funding just a week later and now continues to operate with the backing of VC firm Palm Ventures, which announced its acquisition of the company in June 2026.

Lessons learned

Increasingly sophisticated technologies such as artificial intelligence (AI) and Internet of Things (IoT)-enabled monitoring tools, smart sensor solutions and optimised LED lighting are all delivering efficiency,cost reduction and crop quality gains.

However, smart use of these technologies – alongside a solid business model and the right operational expertise – are where the real impact lies.

Dave Scott, chief technology officer at UK vertical farming tech manufacturer Intelligent Growth Solutions, emphasised this: “It might sound counterintuitive coming from someone with ‘technology’ in their job title, but I don’t believe the greatest advances have come from the technology itself,” he said. “More often, they come from the scientific understanding that shapes how that technology is applied.“

“Much of the hardware used in controlled environment agriculture is based on proven technologies. The challenge, and ultimately the opportunity, lies in how those systems are integrated and used to generate actionable insights.”

Growers implementing smart technologies must be able to use these solutions to turn data and scientific understanding into better outcomes, leveraging them to better understand how crops respond to their environment, he argued.

McWin’s Davalos echoed this sentiment, telling FoodBev: “Ultimately, commercial success depends less on the sophistication of an individual technology than on the integration of biology, engineering, operations, procurement and sales”.

“Companies are more likely to struggle when they approach the sector primarily as an infrastructure development exercise, underestimate the biological complexity of production or assume consumers will pay a substantial premium solely because a product was grown vertically.”

When investing in a vertical farming start-up, McWin looks for companies with automation designed around a proven production process, in addition to proven unit economics at a relevant scale and crop types with sufficient value to justify controlled environment production.

“We would avoid companies whose economics depend primarily on optimistic assumptions about future electricity prices, unproven yields or large cost reductions that have not been demonstrated,” Davalos pointed out. “We would also be cautious where significant capital expenditure is committed before the company has established product market fit and operational stability.”

Identifying where the value lies and focusing on the appropriate crop type is one of the most fundamental elements of success for businesses in this category, with cost competitiveness against existing, traditionally grown field crops being a key factor in whether products achieve widespread adoption, Oishii’s Koga said.

He highlighted four major ‘waves,’ with crops already grown in greenhouses – such as strawberries, lettuce, tomatoes and bell peppers – being the first to see widespread adoption due to production costs in smart farms soon falling below those of traditional methods.

Fruit trees could come next – while growing them in smart farms is not currently cost-effective or time-efficient, he noted, future developments in plant dwarfing and selective breeding breakthroughs could create varieties of peaches or pears that are suitable for such facilities.

Root vegetables are less compelling due to their low market prices and ability to withstand long-distance transport, while grains also face competition from extremely low-cost alternatives despite being easiest to grow, Koga acknowledged.

A recent analysis in Plant Physiology put the current minimum production cost for dried staple crops, such as wheat, rye and barley, at around $10 per kg of dry plant matter through vertical farming – and less than $1 per kg through conventional field production, highlighting the scale of the price premium.

“Furthermore, their high requirement for sunlight makes electricity costs a major bottleneck,” Koga added. “An energy revolution is required; this is not a problem that can be solved in five or ten years, but rather a challenge spanning 30-50 years.”

Meanwhile, McWin’s Davalos pointed out the challenges associated even with leafy greens, which have been the primary focus for many industry players – the economics can be challenging when vertical farms compete directly against efficient field production or advanced greenhouses.

“The relevant comparison is not whether a crop can be grown vertically, but whether it can be grown competitively against the best available alternative in a specific geography,” he summarised.

For Oishii, which recently raised $150 million in Series C funding, its focused approach on premium strawberries is described by Koga as a key factor behind its success and differentiation in the market.

“We intentionally launched with a premium product to establish credibility and demonstrate the value consumers place on exceptional quality,” Koga enthused. “By concentrating our resources on a single crop…we’ve been able to deepen our expertise, improve product quality and steadily reduce costs. That focus has been central to our strategy from day one.”

Rising to the challenge

The challenge is undeniable, with high energy, capital expenditure, labour and maintenance costs all posing critical hurdles to be tackled. However, technological advancements to reduce costs and accelerate growth are ongoing.

“Lighting and climate management – including cooling, heating, ventilation and dehumidification – represent a major portion of energy demand,” Davalos said. “These costs can be reduced through more efficient LEDs, better airflow design, improved insulation, heat recovery, flexible operation around energy prices and access to renewable or otherwise stranded energy.”

Targeted automation can also bring down costs – however, he warned of being mindful that fully automating an unstable production process can add cost and complexity. Additionally, while robotics can address labour-intensive burdens in areas such as transplanting, crop handling, inspection and handling, Davalos noted, technologies must be able to operate reliably in humid and “biologically complex” environments.

AI systems are frequently cited among the biggest technological opportunities when it comes to unlocking more of the industry’s potential. Intelligent Growth Solutions’ Scott said: “Vertical farms generate vast amounts of information every day, and AI gives us the ability to extract meaningful insights at a scale that simply wasn’t possible before”.

“Over the next five years, this will help drive continuous improvements in crop performance, energy efficiency, automation and overall farm productivity, accelerating the industry’s path to commercial maturity.”

AI-driven “physical intelligence” and crop breeding can improve yields and “dramatically” lower costs, Oishii’s Koga said, while sharing his optimism about the potential of surging productivity and further falling costs if governments and businesses globally do their bit to encourage investment in the sector.

“Applying the principle known as McKinsey’s ‘Cleantech Moore’s Law’ – which states that costs decrease by 70% when the market grows 100-fold – our strawberries, currently priced at $7, could see their cost drop to the $2-$3 range simply through the expansion of industrial scale,” Koga explained.

Additionally, he emphasised the potential of rapid crop variety improvement: “At our Japanese research centre, numerous varieties have already been identified in just one year that offer nearly 40-50% higher yields while maintaining quality; at this pace, it would not be surprising to see yields more than double – and costs cut by nearly half – within five years.”

Greater collaboration across the value chain could facilitate the sector’s much-needed progress, encompassing both private and government-backed funding initiatives, transparent and credible knowledge and data sharing from both growers and technology providers, and long-term purchasing partnerships with retail and manufacturing partners.

“Energy providers and infrastructure partners also have an important role,” said McWin’s Davalos. “Locating facilities near low-cost renewable power, waste heat, industrial carbon dioxide or other underutilised resources could materially improve both economics and environmental performance.”

“Investors, meanwhile, need to finance businesses in stages and require proof of performance before funding successive waves of expansion.”

Overall, from an investor’s perspective, Davalos said McWin expects vertical farming to become a “smaller, but more commercially credible” industry than some earlier forecasts suggested.

“It is unlikely to replace conventional agriculture or advanced greenhouse production across broad crop categories,” he noted. “Instead, it should become an important component of a more diversified agricultural system, particularly for high-value crops, specialist ingredients, propagation, climate-stressed regions and markets that place a high value on local, reliable production.”

Looking ahead, he expects continued consolidation with a greater focus on profitability, standardised facilities and collaboration with retailers, manufacturers, energy providers and agricultural organisations.

“Success would not be measured by the total amount of capital invested or hectares of facilities announced,” he concluded. “It would mean multiple companies operating facilities profitably over several years, expanding primarily from internally validated economics and customer demand, and delivering measurable benefits in supply resilience, quality, resource efficiency and environmental performance.”

“Vertical farming has an important role to play, but its future will be defined by focused applications and operational excellence rather than the claim that it can grow every crop, everywhere.”

Top image: © Oishii