Issue Paper: Controlled Environment Agriculture: Disruption in the California Leafy Greens Industry?

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Case Executives: Marco de Bruin, Vice President, Revol Greens; Nick Houshower, Vice President, Controlled Environment Foods, Equilibrium Capital

Ninety percent of the leafy greens consumed in the United States and Canada are grown outdoors in California and Arizona. In Monterey County, California alone, leafy greens are the highest value agricultural crop representing $830 million in revenue in 2017 (Monterey County Crop Report, 2017). In the same year, leafy greens were planted on more than 60,000 of the county’s 393,315 total acres. This crop alone fulfills about six months of the demand for both food service and retail in the U.S. and Canada.

The California leafy greens industry has faced a number of challenges in recent years. They include availability and cost of farm labor, increased government regulations, rapidly escalating outbound trucking costs, and highly publicized product recalls.

On top of these mounting challenges looms a new competitive threat for the leafy greens industry in California in the form of Controlled Environment Agriculture (CEA) operations that are sprouting up in major metropolitan areas across the United States. Major investments in the space are coming from a number of private equity firms, as well as notable backers like Jeff Bezos, IKEA, and the crown prince of Dubai. The most recent farm bill has an allocation of funds to open the USDA Office of Urban Agricultural and Innovative Production. This is the first time the farm bill has allocated monies dedicated to indoor agriculture. Some analysts are estimating that over 50 facilities are open or under construction across the United States. Many of these operations are located in the Midwest or Eastern United States in close proximity to densely populated areas.

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