Determinants and Market Effects of Controlled Environment Agriculture Adoption in U.S. Vegetable Markets

Yoonjung Lee and John Bovay

No 404684, 2026 Annual Meeting, July 26 - 28, 2026, Kansas City, Missouri from Agricultural and Applied Economics Association

Abstract: Controlled environment agriculture (CEA) is a significant component of U.S. vegetable production, yet limited evidence exists on the determinants of adoption or its market effects. This study develops a two-stage empirical framework to address both issues. In the first stage, a random forest model is used to predict state-level adoption in 2024 and to identify the important determinants of CEA adoption. The results reveal spatial heterogeneity, with environmental conditions, particularly average temperature, electricity prices, and financial capacity, including participation in government programs, emerging as the most influential determinants. In the second stage, the predicted adoption rates are incorporated into an equilibrium displacement model to simulate the impacts of higher CEA adoption and electricity price shocks on market outcomes. The simulation outcomes suggest that higher adoption shares modestly reduce prices and increase total quantities, resulting in higher consumer surplus and slightly lower aggregate producer surplus. Welfare effects differ across production systems: CEA producers experience larger welfare losses when CEA adoption expands, even though they contribute to the increase in total market supply. In addition, CEA producers are more sensitive to electricity price shocks due to their energy-intensive cost structure; decreases in electricity prices generate larger gains for CEA producers. Overall, the findings highlight how CEA expansion and electricity price changes shape the relative performance of CEA and conventional open-field systems and the distribution of welfare effects across producers.

Keywords: Production; Economics (search for similar items in EconPapers)
Pages: 73
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea26:404684

DOI: 10.22004/ag.econ.404684

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