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1 Jul 2020

Econ Digest

Urban vegetable farming: a modern agriculture trend that will grow together with the change of customer behavior in the new normal era

      Urban indoor farming is becoming a global trend due to the limited farmable areas available and the need to ensure food safety for urban residents. Frequent occurrence of uncertain events (epidemics/natural disasters) makes consumers pay more attention to food safety and traceability. Business models with an emphasis on short supply chains enable urban vegetable farms to produce fresh and clean vegetables that can be traded immediately at the place of production.

       KResearch believes that in the next 1-2 years, urban vegetable farming business in Thailand is expected to grow, because by using planting technology, the production per unit area and unit time is 10-300 times higher than that of ordinary farms (depending on the types of vegetables, quality and difficulty of planting), and urban-grown agricultural products can be sold at a price 2-3 times higher than that of regular agricultural products. This should be an important marketing opportunity to attract more investment to Thailand from the two major types of investors, namely: 1) Investors who wish to produce high value-added agricultural products; 2) Operators who wish to control the quality of agricultural raw materials, such as healthy food chain restaurants with multiple branches. The locations that are expected to become important investment destinations are urban centers with crowded populations such as shopping malls, subways and any areas of high buildings, to provide products to health-loving people, as well as to fitness and cooking enthusiasts, etc. New customer groups worth paying attention to in the future will be hotels and hospitals, because they need to provide customers with high-quality products and their demand is increasing, stemming from the healthy consumption trend that has already emerged, as well as from concerns about COVID-19. As a result, these industries must adjust themselves to further ensure food safety.
       The increase of urban vegetable farms will inevitably give urban consumers the opportunity to obtain more high-quality vegetables, thereby benefiting consumers. However, it must be admitted that the Thai urban vegetable farming industry is still in its early stages, and the conditions for achieving future success are still present challenges, including choosing or investing in farm locations that are closest to consumers, selecting vegetables that meet the needs of target consumers during certain periods/fashion trends, and culturing vegetable species or tastes that rely on innovative planting techniques. In addition, if industry expansion and additional investments are needed, further fundraising in the same manner as startup businesses will be necessary. This will be in order to find suitable planting areas and personnel, and to develop planting technologies to increase business potential and cooperation. Furthermore, joint investment with planting technology expert groups will be needed, such as indoor vegetable farms, LED growth light innovation groups and seed production groups who supply products to plant factories. All of these will require a considerable amount of investment.

      For example, to invest in a healthy vegetable planting farm with an area of 20-25 square meters, the initial investment cost of greenhouses and the relevant systems is about 2,000,000 baht. If the farm is located in the city center to facilitate logistics, the rent will be very high, and other expenses will include electricity, water, labor, raw materials (seeds / chemicals), marketing costs, etc. totaling about 200,000 baht per month. Preliminary studies have found that it may take 3-5 years for a business to recoup its investment to breakeven. The key factors will depend on customer reaction that affects revenue growth and market competition conditions.

      Therefore, although changes in the consumption patterns of urban consumers have brought marketing opportunities and although the government has provided tax incentives to support investment, it is not easy to enter the market. The prerequisites for success are abundant investment funds, farm location, technical preparation and business management to keep up with the ever-accelerating changes in consumption trends. Therefore, investors must consider every factor carefully.

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