Can plant factories really not be viable as a business?
No, that’s not true. In fact, there are key points for making a profit with plant factories.
That is “large-scale operation.”
The larger the factory, the more dramatically the cost structure changes, and the more profitability improves.
In this article, I will explain the relationship between scale and profitability. If you read it all, you should get a realistic picture of the plant factory business.
If you’re wondering what a plant factory is in the first place, please refer to the following article:
The first thing to understand in the plant factory business is the “cost structure.”
Generally, plant factories are more expensive than open-field cultivation or facility cultivation in terms of both initial investment and operating costs.
Why?
The reason becomes clear when you unravel the cost structure of plant factories.
1. High Running Costs
Compared to open-field cultivation, plant factories have higher utility costs.
Especially in artificial light plant factories, the electricity bill for lighting is just crazy. About 30% of the total cost of the facility is utility costs.
Moreover, since there is a lot of equipment, maintenance is also expensive…
The cultivation of crops and the work done by people have been streamlined, but of course, the equipment for that costs money. As you can see, depreciation, which is the cost of equipment, is also a significant proportion.
In other words, initial costs are also high.
2. High Initial Costs
Basically, the more artificial the environment, the easier it is to grow crops: open-field < facility cultivation < plant factory. It becomes easier to control the growing environment.
The equipment costs a lot, though…
The most expensive equipment is in artificial light plant factories.
Of course, there is the construction cost of the factory. LEDs, air conditioning, hydroponic equipment, and so on. Furthermore, the more you introduce the latest equipment, the higher the cost becomes.
One Way to Reduce Costs… “Large-Scale Operation”
Such a high-cost structure plant factory. However, one way to reduce costs is “large-scale operation.”
Of course, the amount increases as the scale increases, but the production volume can also be increased.
In other words, the cost per production volume decreases. The larger the factory, the more efficient it becomes in various aspects, and as a result, it becomes profitable.
Isn’t that obvious?
You might think, but this economy of scale is important in plant factories. Because, remember the cost structure that we broke down earlier?
Fixed costs were high, right?
That’s why the economy of scale is large.
Small-scale Plant Factories Have a Higher Difficulty of Achieving Profitability
So how much economy of scale can be achieved when the scale increases?
You can see it well by looking at the actual data. In artificial light plant factories, the larger the facility area, the easier it is to make a profit.
In large-scale plant factories, the introduction of automated equipment can increase the production volume per area.
This is because the area for cultivation increases as the area increases, but the work space does not necessarily increase.
In other words, larger facilities have a larger area available for cultivation, so the production volume increases.
Conversely, if the scale is small, the cost of cultivating one vegetable plant becomes high, making it very difficult to monetize.
This story is an extremely important point in order to avoid deficits in plant factories.
I have written related stories in other articles as well. Please read them together if you like.
Don’t Fall into the Pitfalls of Large-Scale Factories!
I thought it was better to have a big factory… What’s the problem?
I will explain the pitfalls of large-scale factories.
It’s obvious, but running costs are also higher for larger factories, right?
What’s especially scary is utility costs. This is because it is necessary to continue using electricity 24 hours a day, 365 days a year.
And labor costs are also terrible. The larger the scale, the more personnel are required.
In other words, the larger the factory, the more likely the operating funds will balloon indefinitely.
If you fail to operate, you will continue to bleed red ink.
And the most important point is here.
The larger the factory, the more necessary it is to reduce running costs, the more important the technical skills and know-how of the staff for on-site improvement become.
Large-scale factories with high-level on-site staff are business-wise strong.
That’s the kind of factory you should aim for.
The know-how to create such an efficient site is written in quite a bit in the following content.
It’s a bit expensive, but considering the improvement effect of using the acquired know-how, I think the cost-effectiveness is high.
As explained so far, large-scale operation is an effective means to make a profit in plant factories.
There is no doubt that pursuing economies of scale will reduce fixed costs and make it easier to generate profits through mass production effects.
However, large-scale operation is only the “entrance.”
Plant factories are not so sweet that the business will go well just by making the factory bigger.
So what is needed?
That is, in a word, the strategy and execution to “utilize” large-scale operation.
For example, if you spend wasteful costs on factory construction, you will continue to suffer from huge depreciation costs. The same is true for reducing running costs.
To avoid this, let’s acquire solid knowledge and know-how.
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