How High Is High Enough? Assessing Financial Risk for Vertical Farms Using Imprecise Probability

Abstract

Vertical farming (VF) is a method of indoor agricultural production, involving stacked layers of crops, utilising technologies to increase yields per unit area. However, this emerging sector has struggled with profitability and a high failure rate. Practitioners and academics call for a comprehensive economic analysis of vertical farming, but efforts have been stifled by a lack of valid and available data as existing studies are unable to address risks and uncertainty that may support risk-empowered business planning. An adaptable economic analysis is necessary that considers imprecise variables and risks. The financial risk analysis presented uses with a first-hitting-time model with probability bounds to evaluate quasi-insolvency for two unique vertical farms. The UK farm results show that capital injection, robust data collection, frequent cleaning, efficient distribution and cheaper packaging are pathways to profitability and have a safer risk profile. For the Japanese farm, diversification of revenue streams like tours or education reduce financial risk associated with yield and sales. This is the first instance of applying risk and uncertainty quantification for VF business models and it can support wider agricultural projects. Enabling this complex sector to compute with uncertainty to estimate financials could improve access to funding and help other nascent industries.