Is the latest technology worth the investment for your hydroponic farm?

Photo: Shenandoah Growers, Virginia

Remember: It is possible to operate a successful and profitable hydroponic farm in a hoop house, a greenhouse, vertical farm or even outside in parts of the world.

There are only three primary reasons a grower or a farmer should invest in technology. Yet if you listen to anyone in the industry selling specific technologies, you’ll hear hundreds of reasons.  

The fact is, most growers  should forgo investing in technologies and save their money. As you go through this article, keep in mind that the reasons a commercial greenhouse or vertical farm should invest in technology are no different than other businesses (big or small) making similar investments.

You likely started your business for a variety of reasons. One was probably to make a profit. Make money for yourself and hopefully provide a good living for those who work for you.  If this wasn’t the case, you would have started a different legal entity — maybe a not-for-profit, a charity or a church.  (And even then, I would argue you must still consider profit as part of your plan.)  

It’s becoming more common for farming companies to invest in building new technology specific to their individual needs which might be the “need” to attract investors.  It’s easy to wonder if these businesses are farming companies or technology companies.  We will not tackle this topic in this article, but stay tuned as we hope to figure out how to address it in the near future.

3 Reasons to invest in technology:

1. Technology should be used to increase profits
2. Technology can be used to free up time
3. Technology can be used to grow your business

1. Technology should be used to increase profits

The primary reason you should invest in technology is to help your business make more money by reducing operating costs, increasing productivity speed, or improving consistency or reliability (in the eyes of your customers). New technology investments should be compatible with your current technology and enhance your team’s skills. If you don’t consider these two items, you might find yourself investing in additional resources for integration and educating your staff.

Technology investments should also be somewhat proven and future proof. The latest and greatest gadget isn’t always needed. Instead, focus on tools, equipment or services that make you deliver a product better or faster. For example, let’s look at cameras vs. sensors. Camera vision is a new and exciting technology that many in the commercial horticulture industry are excited about, but its value versus investment cost have yet to be proven. Whereas adding relatively inexpensive sensors in your greenhouse easily provides you with additional data that allows for informed growing decisions proven to increase yield, greatly surpassing the sensor cost itself.

Take your time in making investments too. Calculate your expected return on investment (ROI.)  Do your homework and understand how long it will take to pay off your investment. Do not simply rely on the sales person or supplier to provide you their ROI calculations. Remember the industry and your bank agree that a ROI of 3-5 years is definitely something worth considering. 

In addition, understand the risk associated with your investment (there’s always risk). This alone should not keep you from making the investment. But when you do your homework, you often become more comfortable with the risk. You calculate any potential problems and better understand how the technology works based on how it’s sold or prescribed.

Example:  

2. Technology can be used to free up time

Time is your most valuable resource — protect it. Time is not a commodity (something of low value). Whether you desire more time with your family, to spend more time on your hobby or passion, or to grow your business, they all require your most precious resource. Investments in the right technology should allow you to gain time by helping you and your team do more of what makes your organization money.  This means the technology allows you or your team to perform a task better, to grow a product more consistently or to extend the seasons in which your products can grow.

 “Time is what we want most, but what we use worst.”

– William Penn, English Author

Full disclosure from author:  This is a weak point of mine.  While I keep adding technology to my business, I also keep creating more work for myself!  I think this is common for small business owners and many business managers that love what they do. I have taken the position that if the investment in technology allows me to do more work while growing my business, it is worth it.

Be careful of hidden costs behind services or training that keeps you or your team from using this new technology for as many hours of the work week as possible.

3. Technology can be used to grow your business

“If you are not growing, you are dying.” While there are times that I hate this phrase, it always seems to be true.  As businesses, our costs keep growing. Our shareholders, stakeholders or partners’ desires always increase.  Our employees’ needs and wants always expand.  And customer demands always seem to change (based on our competition’s desire to replace us. The only way to deal with these pressures is by planning for future growth. Technology can help you do this.  

To determine what you need to grow, start by focusing on the weakest parts of your business. This means being honest with yourself. (If you lie to yourself about this, you are only hurting yourself.)  If these weaknesses are an important part of your business, determine how technology could improve your flaws. If you determine that they are not worth investing in, figure out how to eliminate them from your operation, as they will only keep bringing you down.

Author recommendation:  

Run the reports below. Use these to find weaknesses in your business. (If you cannot run these reports, start collecting the data to run these reports to learn more about your business.) 

• General business operations information: annual sales, value of production, gross growing area and net usable growing area, number of full time employee and value of owned and leased capital.
• Income statement: Sales, detailed expenses, gross income, and net income.
• Monthly or Quarterly sales by product by customer
• Cost analysis: costs per-square-foot, costs per-unit sales, and cost per-unit value produced in major expense categories (labor, supplies, facility, inventory, etc.)

Improving your business should enhance the customer’s experience or create more intrinsic value. Investmenting to make “investors” content is a double-edged sword, but taking these steps can help you avoid risks associated with new technology. Remember, failures happen, but your goals are to make a profit, add value to your “community,” protect your “environment” and keep growing the business. 

So back to the original statement, “Remember, it is possible to operate a successful hydroponic farm in a hoop house, a greenhouse or a vertical farm.” All of these types of farms can be successful and profitable. You just need to know how to properly use the appropriate technology that allows each of these types of farms to scale correctly by understanding the relationships between yield and capex and opex per square foot, meter, acre or hectare.

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Chris Higgins is the founder of Urban Ag News, as well as General Manager and co-Owner of Hort Americas, LLC a wholesale supply company focused on all aspects of the horticultural industries. With over 20 years of commercial horticulture industry experience, Chris is dedicated to the horticulture and niche agriculture industries and is inspired by the current opportunities for continued innovation in the field of controlled environment agriculture. Message him here.