Higher Yield As Compared To Conventional Agriculture Practices Drives Hydroponics Market

by Mit K. SEO

The overall hydroponics market is projected to grow from USD 8.1 billion in 2019 to USD 16.0 billion by 2025, at a CAGR of 12.1%. Hydroponic systems provide higher yield compared to traditional agricultural techniques, owing to the increase in harvest cycles. Furthermore, hydroponic systems eliminate the use of artificial ripening agents and pesticides, which helps in creating nutritionally superior vegetable products.

Higher yield as compared to conventional agriculture practices

According to the FAO, due to the increasing population, food production is expected to rise by 70% before 2050. On the other hand, natural prerequisites of agriculture, viz., arable land and water have been depleting, with rapid urbanization across the globe. To feed the increasing population, the productivity of food crops needs to be increased in the existing arable land, and also alternative farming techniques such as urban farming need to be encouraged.

Hydroponic systems or soil-less agriculture reduce the farmer’s consumption of resources, thereby enabling this farming technique to be adopted by a large number of stakeholders, ranging from home gardeners to professional growers, and supermarkets to restaurants. According to the UN reports on global population, plants grown in hydroponic systems have achieved 20%–25% higher yield than the traditional agriculture system, with its productivity being 2–5 times higher. Also, owing to controlled environmental conditions, the effect of climatic changes can be balanced with the help of these systems, thereby not affecting the annual crop production. CEH techniques directly affect the crop harvest cycle; hence, for hydroponic systems, crop harvest cycles are shorter in comparison to traditional farming techniques, thereby increasing the annual yield. Also, since climatic changes show a minimal effect on such systems, crops can be produced all year round, thereby again increasing the produce.

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Lack of government policy and tax breaks in developing countries

Hydroponic farming is seen as a key factor in improving food security in developing regions; however, while government support through tax cuts is present in developed countries, the same cannot be said for developing countries. The availability of the best equipment is fairly limited and often needs to be imported, which attracts taxes adding to the costs for hydroponic growers. The lack of tax cuts and incentives is also a key factor that hinders the growth of hydroponics in developing regions as the high set-up costs and running costs can often render operations unfeasible. The need for basic training and technical knowledge is necessary for operating hydroponic farms, which although is present in developing countries, does not add significantly to the value of hydroponic farms. The high costs of production often result in high costs of the final product, which in itself can draw consumers away in price-sensitive markets.

Entrance of new players in the market

Due to increased popularity and adoption of hydroponics, many new players are entering the market. For instance, Larry Ellison, founder, chairman, and CTO of Oracle, launched a hydroponic farming start-up, named Sensei in Los Angeles. The company plans to build 10 greenhouses covering 200,000 square feet on the Hawaiian island of Lanai and instead of measuring output by volume, Sensei will measure nutrition per acre.

Various investors are also supporting hydroponics start-ups globally. For instance, in June 2017 a high-tech indoor, vertical farming start-up, Bowery Farming, announced it had raised USD 20 million in a Series A1 co-led by General Catalyst and GGV Capital, and including GV, First Round Capital, and other seed round investors. In July 2017, a San Francisco-based indoor vertical farming start-up, Plenty, raised the largest agtech funding round in history – a USD 200 million Series B led by SoftBank Vision Fund – the USD 93 billion all-stage tech fund headed by a Japanese investor, Masayoshi Son. Other participants in the round include affiliates of Louis M. Bacon, the founder of Moore Capital Management, and existing investors Eric Schmidt’s Innovation Endeavors, Finistere, DCM, Data Collective, and Bezos Expeditions. Plenty has plans to open 500 hydroponics farms in all the major cities of more than 1 million inhabitants, globally.

Europe is projected to account for the largest market size during the forecast period

The European hydroponics market is projected to be the largest between 2019 and 2025, while the Asia Pacific market is projected to grow at the highest CAGR. Europe was the largest producer of hydroponic crops in 2018. It is still the largest market for hydroponically produced crops. Europe has traditionally been at the forefront of implementing advanced techniques in hydroponic smart greenhouse horticulture. Countries such as the Netherlands, Spain, and France have large areas under greenhouse cultivation. However, in the Netherlands, growers mostly cultivate their plants in simple tunnel-like greenhouses without the use of climate control technologies. The advancement in greenhouse farming has supported the growth of hydroponics in Europe.

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Key Market Players

The hydroponics market is divided into two segments-system input providers and hydroponic crop producers. The key players in the hydroponic system input providers market include Signify Holdings (Netherlands), Argus Control Systems (Canada), Heliospectra AB (Sweden), Scotts Miracle Gro (US), American Hydroponics (US), and LumiGrow (US). The key players in the hydroponic crop producer market include Aerofarms (US), Terra Tech Corp (US), Hydroponic Farms (UAE), Triton Foodworks Ltd. (India), Urban cultivator (Canada), Village Farms (Canada), Green Sense Holdings (US), and Iron Ox (US).