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

Francis J. Baumont de Oliveira, Scott Ferson, Ronald A. D. Dyer, Jens M. H. Thomas, Paul D. Myers and Nicholas G. Gray
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Francis J. Baumont de Oliveira: Institute for Risk and Uncertainty, University of Liverpool, Liverpool L69 3BX, UK
Scott Ferson: Institute for Risk and Uncertainty, University of Liverpool, Liverpool L69 3BX, UK
Ronald A. D. Dyer: Management School, University of Sheffield, Sheffield S10 2TN, UK
Jens M. H. Thomas: Farm Urban, Liverpool L1 0AF, UK
Paul D. Myers: Farm Urban, Liverpool L1 0AF, UK
Nicholas G. Gray: Institute for Risk and Uncertainty, University of Liverpool, Liverpool L69 3BX, UK

Sustainability, 2022, vol. 14, issue 9, 1-29

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.

Keywords: financial risk assessment; vertical farming; urban agriculture; probability bounds analysis; economic viability (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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