Business case for large scale crop production in greenhouse facilities in Iceland for the global market
Iceland has unique conditions and natural resources that potentially allow a very sustainable production of food in greenhouses for export to the world. Wageningen University & Research (WUR) has analyzed the greenhouse technology required, the costs and resource use for the crop production and the potential markets that could benefit from this export. This study shows a methodology to analyse crop choice, technology selection and market assessment for protected cultivation at the example of Iceland. The methodology can be applied at any other region in the world.
How to feed the world population in the 21st century
The largest challenge of agriculture in the 21st century will be to feed a world population that is expected to grow by 2 billion people between 2020 and 2050 (UN,2019a). Urban areas will host 68%of the world population by then (UN, 2019b). The projections show that feeding that amount of people would require raising overall food production by some 70% between 2005/07 and 2050 (FAO, 2009). The threat posed by climate change on open field agriculture is very worrying because we see a clear increase in the episodes of drought, floods, higher incidence of pest and diseases, fires, etc.
This brings more opportunities for controlled environmental crop production, which can increase yield per unit area of land, with very high independence of the external factors in any world location. Controlled Environment Agriculture is considered to be able to provide high-value, fresh, vitamin and mineral-rich products. Next to that, controlled environment agriculture is very efficient in the use of resources (CO2, water, fertilizers, etc.), however more intensive in the use of energy and therefore needs to become even more green and circular.
An opportunity for Iceland?
This may open the opportunity for world territories which, nowadays, play a minor role in production and export of crops to the world, but which have both land and large sustainable resources for a green and circular Controlled Environment Agriculture.
An example of this could be Iceland, which despite of its northern latitude, has some unique characteristics which might make the island a good candidate for the establishment and operation of protected crop production:
- It has abundant (almost) inhabited land.
- It has an unlimited supply of renewable energy (mostly geothermal and hydroelectric).
- Its climate is milder than that in other zones with similar latitude, thanks to the Gulf stream.
Therefore, the questions are:
- Can Iceland host giga scale factories for crop production and export to different world markets?
- Which crops could be produced competitively at a giga scale?
- How can productivity be improved by the technology of the growing system?
- How is resource use affected by climate?
- Which export markets are most suitable?
To answer these questions, a research has been carried out by WUR's Business Unit Greenhouse Horticulture and Wageningen Economic Research in collaboration with Earth 2.0:
- Selection of 8 different crops representing mineral- and vitamin-rich fresh crops and fruits, calorie- and protein-rich tubers and cereals. This task has been accomplished by adapting and applying a crop selection tool earlier proposed by Dueck et al. (2016).
- Different technical greenhouse and indoor factory designs and calculation of their resource use have been considered. For this, the adaptive greenhouse methodology developed by Vanthoor (2011) has been applied. This methodology makes use of a powerful simulation model named Kaspro to obtain accurate predictions of the greenhouse indoor microclimate, the required amount of some key resources (water, energy, CO2, etc.) for production in both greenhouse and indoor factories (de Zwart, 1996) as well as crop growth simulation models such as Intkam for tomato (Marcelis et al., 2006) and lettuce (van Henten et al., 1994) and photosynthesis data from different scientific publications to predict potential crop yields of several other crops. This has been done for 89 different scenarios.
- Cost price for produced food crops has been calculated. Data have been retrieved from different sources (Iceland, The Netherlands, etc.) to make the OPEX and CAPEX analysis and obtain the cost price for each studied scenario using the methodology used in the elaboration of the KWIN (Raaphorst et al., 2019).
- Market selection for food crops and data collection: a market selection tool (Market explorer) has been used by Wageningen Economic Research to select the most interesting 8 export destination markets (as well as the internal market) for export of the 8 selected products, making a total of 64 possible combinations. After selection of the destination markets, for each product-market combination data has been obtained on wholesale and transport prices. Also, import levies have been considered. The internal Icelandic market was also studied.
The main conclusions are:
- There is room for feasible production in giga-scale high tech greenhouse facilities to satisfy the demand of the domestic market in Iceland for most products studied, except for cheap commodities (rice, potato, wheat).
- Greenhouse production (using natural sunlight and artificial light sources) should be preferred to indoor factory production (artificial light sources only). In the case of indoor farms, only lettuce is suitable to ensure a profit. We might assume that perhaps also other leafy greens and/or aromatics and herbs might be suitable.
- The analysis also indicates that there are no major differences in operating giga farms between the South and the North coast of Iceland, since in terms of greenhouse crop production design perspective the outdoor climate is relatively comparable, except that there is more snowfall in the North. Necessary equipment for control of crop growing conditions is comparable.
- To export fruits or staple crops like wheat large volumes are required to fill containers and to export fruits serious additional investments are required in packhouses.
The combined analysis of cost/benefit and market indicates that there are three groups of crop products:
- One group, composed of highly productive mineral and vitamin-rich crops with a large water content (lettuce, tomato, sweet pepper), are close to a profit. However, the main bottleneck in almost all analysed combinations is the high transport prices by airplane since short post-harvest life of the products will not allow boot transport. A rational boost of production and decrease of resource potentially obtained by the use of automated control by e.g. artificial intelligence algorithms in the future could bring these products closer to benefit, but high transport cost would remain a burden to build feasible business cases.
- Another group, represented by calorie- and protein-rich products with low productivity per unit area, which have a large dry matter content (rice, potato, banana, avocado and wheat), do not show any profitable production in a protected environment. The reasons are their low productivity per unit area and the cheap price in the destination markets, given the large supply of these products from open field cultivation worldwide and possibilities for long term storage. There is also steep competition for these products of a few dominant producers (for example in banana trade).
- A final group represents products for which combinations of nearby market and high destination value could lead to clear profit (i.e. raspberries in the USA and to a lesser extent, in the UK). However, the profit margin is still relatively low (about 12%) and this is below the industry standard. In this group, again, lowering transport costs would allow for more positive combinations. The use of automated control by e.g. artificial intelligence algorithms in the future or a decrease in the price of the major operational costs (i.e. electricity) would help in improving the cost/benefit balance.
Methodology can be applied in different countries
The study presented here for Iceland shows a methodology and use of available WUR tools, ready to be used for other regions and markets in the world. Protected cultivation (from low-tech simple tunnels to high-tech controlled environment greenhouses up to indoor factories) is becoming important to produce more fresh, vitamin- and mineral-rich food in the future in the scope of climate change. The use of sustainable resources such as energy (e.g. geothermal and hydro-energy) and the potential for extremely high water efficiency make these systems more and more attractive.
However, the economic viability is largely depending on the target market and product prices and also on the shelf-life of products and transport costs. The methodology shown here helps to quantify different production systems for different crops and markets.
This study was carried out by the Wageningen Research Foundation (WR) business unit Greenhouse Horticulture and was commissioned and financed by Earth 2.0 EHF and David Wallerstein.