The farming sector in the GCC has undergone a massive transition during the last five years.
Megafarms launched by Pure Harvest Smart Farms, Elite Agro LLC, RedSea, AeroFarms, and Bustanica in response to the push toward food security have piqued the interest of investors and companies in hydroponic and vertical farms. As a result, small and medium-sized greenhouses and indoor vertical farms have been and continue to be set up and operated across the region.
While controlled environment agriculture presents an exciting opportunity, farmers will quickly face significant challenges. Countless abandoned farms serve as evidence of failures to deploy the right technology, a lack of strategy, and mismanagement.
It is extremely difficult to operate a poorly set up farm profitably. A farm will fail if water quality, water temperature, growing conditions, and pests cannot be controlled. It takes experience to avoid pitfalls when setting up a new farm, but it also needs funds. This post will focus on improving a farm's competitiveness without spending on Capex.
The most common issues we have observed in our role as farm managers and consultants are a farm owner's ability to:
Attract and retain talent
Achieve economies of scale
Develop competitive crop strategies
Conduct and benefit from R&D
Attracting and retaining talent
A farm manager should be a farm’s most significant asset but finding a dedicated and experienced farm manager is not that easy. The CEA (Controlled Environment Agriculture) sector is growing rapidly, and farms compete for a limited number of farm managers with local/regional growing experience. The hiring process presents another challenge for farm owners. They are unsure what questions to ask and often cannot contact the manager’s current employer for reference due to a conflict of interest.
Qualified candidates may be available abroad, but once in-country, they need time to acclimate, understand and adapt their approach to the growing conditions while also finding their way around the maze of suppliers.
Once a good farm manager is successfully recruited and onboarded, the fight to retain them begins. Competitors are constantly looking out for talent, and salaries across the industry are increasing. However, the most significant threat is boredom.
Experienced farm managers are often underutilized on smaller farms. This lack of stimulation is a big reason they may be hesitant to join a small farm and may eventually start looking for new challenges.
The farm owner should therefore strive to create the right conditions for their farm manager. While the first step should be to provide a fair salary and comfortable living arrangements, the next priority is to create a framework to ensure their mental stimulation.
The farm owner and manager should agree on targets for the farm and set KPIs. This process does not need to be overly complex but should include the following:
A realistic yield goal per plant based on crop type
A budget for growing supplies based on the projected yield, selling price, and cost of labor
A target for electricity and water usage based on current consumption
Maintenance objectives for the farm
Goals to improve growing conditions
Tracking these KPIs will require data and force the farm owner to utilize existing sensors and counters or purchase them. An objective and reasonable set of targets will align with the owner's and manager's expectations. In addition, tracking these targets will encourage the farm manager to be data-driven, allowing them to learn and hone their skills.
Summary: Ensure your farm manager is engaged and stimulating by setting quantifiable targets that keep the farm on track while reducing operating expenses.
Achieving Economies of Scale
Farming, like all production businesses, is a game of scale. This puts small and medium-sized farms at an immediate disadvantage. Recovering the investment cost, amortizing value-added facilities, and justifying additional overheads is significantly more difficult if you cannot spread it over large yields. As a result, many enhancements that would dramatically improve the farm’s performance are not made as the owner tries to manage unit economics. The opposite is also true in many cases; farmers upgrade their farms to boost yields while neglecting the negative impact on their unit economics.
A farm owner that has implemented the KPIs above and targets will be aware of their break-even point and whether they will achieve it with the current setup and under normal circumstances. If that number is unattainable, the crop strategy may have to be revised, or upgrades will have to be made.
Before upgrades are made, a complete farm assessment should be carried out to identify the strengths & weaknesses of the farming operation. At Greener Crop, we carry out monthly drills to assess our seed and fertigation choices, our IPM and hygiene procedures, and our ability to achieve the right growing conditions.
This assessment aims to identify actions that can lead to yield improvements and attempt to quantify the projected gain in yield. Improvements in procurement and farm management procedures may result in yield increases without the need for any additional investment. This assessment may also prevent costly mistakes. We have observed farms that invested heavily in upgrades to allow year-round production – a decision that was not justified by the increase in net yield.
By questioning these aspects of our operation, we can identify opportunities that may result in immediate yield improvements before we consider costly upgrades. By quantifying the potential uplift in yields, farmers can accurately weigh the opportunity costs and plan accordingly.
Summary: Carry out regular farm-assessment tests to identify “low-hanging fruit” before considering hardware upgrades. Managing costs and increasing efficiency needs to be the farm operator’s priority.
Developing competitive crop strategies
Every growing cycle begins by deciding which crops to grow. As CEA farmers, one of our most significant advantages compared to conventional farming is our ability to reset what we grow – without soil constraints. Because predicting the future is impossible, many farmers develop their crop strategy based on historical prices. Which crops saw an increase in demand, how did my crops perform during the last cycle, and which varieties fetch the highest prices?
Deciding what crops to grow requires a farmer to know whether they can grow it, who the buyers will be, what price it will fetch, and how stable demand will be. Smaller farms are at a disadvantage for three reasons:
Most small farm operations do not employ dedicated crop sales experts, and decisions are based on intuition rather than market feedback
Specific distribution channels require volumes that smaller farms cannot produce
Smaller farms are limited to selling loose vegetables without a brand, packaging, and packaging facilities, with limited options to negotiate higher prices.
The first step to developing a profitable crop strategy is to gauge the market dynamics. Which varieties have recently seen an increase in popularity?
One of the significant trends in the last twelve months has been major retailers starting to stock Candy tomatoes, Yoom tomatoes, snack cucumbers, and snack peppers.
What does that trend signal to a farmer?
Firstly, buyers like new varieties. Secondly, buyers like fresh produce that can also be a snack, and thirdly, buyers like small fruits that can be packaged in 250g units for higher profits.
A trend like this will not go unnoticed, and many farms will adapt their crop strategy accordingly. This may result in a decrease in prices and, in the case of premium/niche crops, a saturation of demand. Buyers do not buy on a first come, first served basis but will prioritize farmers with whom they have longstanding relationships.
Should every farm therefore invest in a sales manager, a brand, a processing facility, and go after retailers? Absolutely not. There are two major reasons for this:
Firstly, the cost of doing business with any retailer is high and requires large volumes to be justified. Retailers charge rebates and dictate what quantities need to be provided. Failing to meet this demand will lead to penalties, while the farmer will bear the cost for any unsold produce. Return rates of over 40% are common, and farmers need high margins to cope with these costs.
Secondly, a farmer will have to invest upfront into upgrading their post-harvest processes without guaranteeing that a retailer will stock their produce. If retailers opt not to sell a farm's produce, the only remaining suitable channels for branded, packaged fruits & vegetables are B2C (which is extremely costly and requires a large variety of products) or farmer's markets (which do not provide sufficient demand for a commercial farm).
Smaller farms are often better off prioritizing high-yielding loose vegetables. The metric projected revenue per m2 or bay/span is calculated by multiplying plant density by projected plant yield and projected selling price. At Greener Crop, we use projected revenue/bay as our primary metric when developing the crop strategy while also considering which crops will have to be sold as loose or packaged produce.
The projected revenue per bay needs to allow a healthy operating margin after deducting growing costs and overheads – an exercise that should be done with the farm manager and should dictate the budgets for the next cycle. Without healthy operating margins, a farmer will have little room for negotiation with buyers. Currently, there is no indication that local produce is meeting demand – finding a buyer is hence mostly a matter of agreeing on the right sales price.
Conversations with wholesalers, grocers, sellers at the vegetable markets, seed manufacturers, and other players in the supply chain will generate insights into the upcoming supply of crops, presumed changes in demand, and, therefore, price. These conversations and calculations are the foundation of a good crop strategy.
Summary: Avoid a reactive strategy and develop your crop strategy based on your farm’s capabilities. Your operating margins are your most significant advantage at the negotiating table.
Conducting research & development
Research and development is a topic that the operators of small & medium-sized farms often neglect. The reasons for this are varied, but costs, opportunity costs, and space constraints are among the most common.
Unfortunately, transparency is still a significant problem in the CEA industry. Many manufacturers make bold claims while hiding behind the excuse that “every farm is different, and we can’t guarantee that the results will be the same.”
Another challenge in the GCC is that distributors sell growing supplies instead of manufacturers. A lot of knowledge and information is lost in translation, making it difficult to clearly understand the benefits of new products or the general dynamics in the market.
Farm operators should try to form their own opinion based on the performance of various growing supplies on their farms. Easy experiments to carry out are:
Using 2-3 different seed varieties for every crop grown. Grown in the same conditions, farmers will quickly be able to identify which crops are most resilient and yield the most.
Different irrigation cycles per bay. The impact on humidity, crop health, and yield across a full cycle will allow farmers to conclude how this can improve the growing environment based on the outside climate.
Technology trials. Before investing in technology across the whole farm, individual bays can be used to test the new hardware/growing supplies to compare the impact on plant health and yield.
These experiments will provide valuable data within 6-9 months and should be carried out continuously. The best seed variety gets seeded again, and newer varieties with promising traits replace the others.
Summary: There are easy experiments that can be carried out with each cycle to continuously improve the selection of growing supplies and the growing conditions. Gradual increases in yield will make up for any costs and opportunity costs incurred.
Other measures to increase competitiveness
Most farm operators will acknowledge that they work in silos and rarely share information and learnings with other farmers. It is also uncommon for farm operators to combine resources, and the result is a duplication of underutilized hardware. This includes storage facilities, packaging equipment, chiller vans, and distribution networks. These could be made available to other farmers for a fee, thereby improving everyone’s margins.
The biggest challenge for small and medium-sized farms is their size. Collaboration can improve their negotiating position and result in discounts, savings, and access to technology. This does not mean that sensitive information must be shared, just the contacts and resources they already have.
About Greener Crop
Greener Crop provides farming-as-a-service and operates farms across the U.A.E., Qatar, and Oman. Our team of farm managers handles the entire farm operations and is supported by crop sales, procurement, and horticulture specialists. Our goal is to enhance the competitiveness of any farm by centralizing procurement, sharing resources and sales channels, and applying best practices across all aspects of a farm’s operations.
The Greener Crop team can take over a farm’s entire operations, from seeding to sales. Still, our involvement can also be scaled back to remote management, where we support by improving growing procedures, procuring growing supplies, and developing crop strategies.