Hello everyone! I’m Shohei.
It’s often said that small-scale plant factories can’t turn a profit.
In reality, the size and facility area of a plant factory significantly affect its profitability.
Generally, smaller plant factories are considered difficult to turn profitable because their initial investment and operating costs are high relative to their production volume.
On the other hand, larger plant factories can leverage economies of scale to increase their profitability.
This article will explain in detail the relationship between the size of a plant factory and its profitability.
If you’re wondering what a plant factory is, check out the following article:
Advantages and Disadvantages of Size
Let’s start by summarizing the advantages and disadvantages of scale.
| Advantages | Disadvantages | |
|---|---|---|
| Large-scale | Cost reduction per unit area, improved sales power, advantage in securing human resources, productivity improvement through equipment introduction | Increase in initial investment, increased management risk, complex human resource management |
| Small-scale | Low-cost start-up, management flexibility, specialization in specific customers | High cost per unit area, weak sales power, limitations on equipment investment |
The scale of a plant factory has a significant impact on profitability. Generally, larger scale means lower cost per unit area and improved sales power.
“Economies of scale,” or the principle that larger is better, is common in the business world, not just plant factories.
Cost Differences Due to Size
While initial investment for a small plant factory is around 100 million yen, large-scale plant factories require investment on the order of several billion yen.
However, the construction cost per square meter tends to decrease with larger scale.
Furthermore, running costs such as labor and utilities can also be made more efficient with larger scale.
Actual data reveals that, regardless of whether they’re solar-powered or artificial light-powered, plant factories with a larger cultivation area tend to show less deficit.
The following table shows blue for profit, gray for breakeven, and red for deficit.
The cost structure of an artificial light-powered plant factory is generally said to be 1/3 utilities, 1/3 labor, and 1/3 depreciation, excluding transportation costs.
Light source costs account for 60-70% of utility costs, making energy costs a major challenge. Initial costs related to construction and equipment are also significant, and labor costs are another big issue.
Large-scale plant factories can increase production volume per unit area by introducing automated equipment.
This is because while the cultivation beds increase, the workspace doesn’t necessarily increase proportionally with the scale.
In other words, larger facilities lead to higher productivity per unit area.
However, it’s crucial to also improve field strength.
No matter how large the scale, insufficient field strength will prevent profitability from increasing.
By the way, the following content on our site is powerful for gaining specific know-how to increase plant factory profitability.
Profitability Varies Significantly by Facility Cultivation Type
The relationship between scale and profitability differs between solar-powered and artificial light-powered plant factories.
In solar-powered plant factories, the larger the cultivation area, the higher the tendency for profit and breakeven. However, even with an area exceeding 20,000 square meters, some businesses remain in the red. This is presumed to be affected by the large equipment investment and depreciation cost burden.
On the other hand, in artificial light-powered plant factories, the larger the cultivation area, the higher the tendency for profit and breakeven. However, even with an area exceeding 1,000 square meters, some businesses remain in the red.
The proportion of profit and breakeven is higher in solar-powered plant factories and lower in artificial light-powered plant factories. The proportion by business type is as follows:
- Solar-powered: 64%
- Combined: 69%
- Artificial light-powered: 53%
Annual sales are also higher in solar-powered and combined types, and lower in artificial light-powered type. The average sales by business type are as follows:
- Solar-powered: 4.9 billion yen
- Combined: 2.7 billion yen
- Artificial light-powered: 1.6 billion yen
In other words, because of the intense price competition in the vegetable market, a large-scale plant factory is necessary to achieve profitability.
High equipment investment and running costs (especially utilities) are challenges, and there are also issues with insufficient cultivation know-how for products other than lettuce.
Market development is also a major burden for participating companies.
The differences between each cultivation type are discussed in the following article:
Considerations for Optimal Scale
Investment decisions for plant factories require careful consideration.
While small facilities struggle to turn a profit, large facilities have a higher potential for stable profits. However, large facilities require high initial investment, making financial hurdles higher.
For both solar-powered and artificial light-powered types, the higher the Yield (single yield) per unit area, the higher the tendency for profit and breakeven.
Therefore, in general, larger facilities that leverage economies of scale have a higher likelihood of business stability.
When considering entry into the plant factory business, it’s essential to carefully determine the optimal scale based on factors such as the company’s financial capacity, market channels, and cultivation know-how.
Leveraging the advantages of scale while appropriately managing risks will lead to success in the plant factory business.
Summary
The size of a plant factory and its profitability are closely related, with larger scale offering higher profit potential. However, large facilities require high initial investment, making entry with a large facility a shortcut to success only if sufficient investment capacity is available. Reducing energy costs and labor costs are also important points.
It’s important to recognize that small facilities face high initial costs and running costs, making it difficult to turn a profit.
- Why are plant factories more advantageous with larger scale?
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Large-scale plant factories offer economies of scale that enable cost reduction per square meter for construction, labor, utilities, and other running costs. They can also increase production volume per unit area by introducing automated equipment.
- Why is it difficult for small-scale plant factories to turn a profit?
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Small-scale plant factories face high initial investment and operating costs relative to their production volume. Limited production also affects market development and price competitiveness.
- How is the optimal scale for a plant factory determined?
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The optimal scale for a plant factory must be carefully determined based on factors such as the business owner’s financial capacity, market channels, and cultivation know-how. The key is to find a balance that utilizes the benefits of scale while minimizing initial investment. Solar-powered and artificial light-powered types have different characteristics, so understanding their individual features is crucial.
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