Hello everyone! I’m Shohei.
In recent years, we’ve seen plant factories appear more frequently in the media.
However, the reality is that many plant factories are struggling with financial difficulties and facing a tough situation.
In this article, we’ll delve into the future prospects of plant factories while analyzing actual statistical data.
If you’re interested in my perspective on the advantages and disadvantages of plant factories, please refer to the following article:
Data source: Large-Scale Facility Horticulture and Plant Factory: Actual Condition Survey and Case Studies (Japan Facility Horticulture Association)
Prerequisites for Plant Factory Business Continuity
First and foremost, it is essential for plant factories to operate at low costs to sustain their business. However, in recent times, material costs, electricity bills, and labor costs have been rising, putting immense pressure on many plant factories.
In fact, surveys indicate that approximately 70% of plant factories are operating at a loss or breaking even. Many rely on subsidies to stay afloat.
| Sunlight Type | Combined Type | Artificial Light Type | |
|---|---|---|---|
| Recent Financial Statements (Loss/Break-even) | 55% | 77% | 84% |
| Annual Sales (Average) | 4.9 billion yen | 2.7 billion yen | 1.6 billion yen |
Looking at the data on recent financial statements and annual sales, we can see that the sunlight type has a higher profitability rate and larger annual sales compared to the combined and artificial light types. This suggests that the sunlight type tends to have higher profitability than the other two.
A Harsh Reality Without Subsidies
Examining government subsidies, we see that all types are primarily used for equipment investments.
Especially in the sunlight type, a significant proportion (63%) utilize energy-related subsidies.
On the other hand, a considerable 27% of plant factories are pushing forward without subsidies. In the artificial light type, 48% are striving without any financial support.
These figures underscore the challenging financial situation faced by plant factories. Particularly, the artificial light type is encountering difficulties in securing profits.
As evidenced by this data, plant factories do not necessarily guarantee profitability, and many operators are grappling with a harsh reality.
If you’d like to learn more about the challenges faced by plant factories, the following article provides insights:
Unraveling the Factors Contributing to Plant Factory Losses from Statistical Data
A closer examination of the data reveals several key insights. Let’s delve into the factors that lead to plant factory losses.
1. Higher Yield per Area Correlates with Profitability
Yield per Area
Data analysis suggests a correlation between yield per area and profitability. In essence, higher yield translates to higher profitability, while lower yield corresponds to a higher percentage of losses.
This might seem self-evident, but it’s reflected clearly in the data.
The chart below shows the following: 1. Sunlight Type – Low Yield, 2. Sunlight Type – High Yield, 3. Artificial Light Type – Low Yield, 4. Artificial Light Type – High Yield.
Blue represents profit, gray represents break-even, and red represents losses.
Sunlight type: Yield is considered high when it exceeds 27.3 kg/m2.
Artificial light type: Yield is considered high when it exceeds 59.5 kg/m2.
Increasing yield directly leads to increased sales and has the effect of suppressing cost ratios, making it a crucial key for improving profitability.
Facility Area (Scale)
We now understand that higher yield per area leads to higher profitability. However, profitability is also influenced by the area (scale) itself.
Let’s examine the percentage of profits and losses based on area.
From top to bottom: Sunlight type – Small area, Sunlight type – Large area, Artificial light type – Small area, Artificial light type – Large area.
Both sunlight and artificial light types exhibit a tendency for the ratio of profits and break-even to increase as the cultivation area expands.
This suggests that economies of scale are at play, indicating that scaling up facilities leads to improved profitability.
2. Higher Labor and Utility Costs Correlate with Losses
Next, let’s examine the cost structure of individual operators. There are trends among operators who are incurring losses.
From top to bottom: Sunlight type – Profit, Sunlight type – Loss, Artificial light type – Profit, Artificial light type – Loss.
Black: Labor costs, Gray: Depreciation costs, Yellow: Utility costs, Green: Material costs, Orange: Logistics costs, Blue: Others
Cost management is a critical factor influencing profitability in plant factory operations. The data clearly indicates that labor costs and utility costs constitute a substantial portion of overall costs.
- Labor Costs: In both cultivation methods, this cost category holds the largest share of the overall cost structure. Notably, businesses with a higher proportion of overall labor costs (those unable to reduce labor costs) are more prone to losses.
- Utility Costs: Due to the electricity usage in artificial light types, utility costs are significantly higher compared to the sunlight type. Reducing utility costs appears to be a factor in achieving profitability.
Containing these costs is vital for improving profitability. This is a fundamental prerequisite for business continuity. Given the potential for future cost increases, thorough cost reduction measures are essential for survival.
3. Fewer Trading Partners Correlate with Losses
Data reveals that businesses leveraging contract farming, direct sales/e-commerce, and other methods to diversify their sales channels tend to have more stable earnings.
Let’s examine the ratio of profits and losses based on the number of trading partners.
As illustrated, a higher number of trading partners results in fewer losses. However, it’s worth noting that a larger number of partners could simply indicate that the facility is larger in scale.
4. Stabilizing Operations Requires Time
Data indicates that achieving stable operations for plant factories requires a certain amount of time.
Below is a breakdown of the profit/loss ratio based on the year the business was started.
For businesses established in 2019 and beyond, the loss ratio is a high 72%. This can be attributed to the time needed for production stabilization and market development.
Successful Strategies for Overcoming Plant Factory Losses
The primary challenges faced by plant factories are:
- High Initial Investment and Operating Costs
- Securing Technical Expertise and Human Resources
- Market Development and Adapting to Demand Fluctuations
To address these challenges, it is essential to minimize initial investments while simultaneously enhancing operational capabilities.
Based on the insights gleaned from data analysis, let’s explore strategies for overcoming losses and leading plant factory businesses to success from five perspectives.
1. Thorough Cost Management
- Labor Saving and Automation: Implement crop management systems and automated equipment to reduce labor costs.
- Energy-Saving Equipment: Adopt LED lighting and high-efficiency HVAC systems to curtail utility costs.
- Renewable Energy: Integrate solar power and biomass power generation to achieve both environmental sustainability and cost reduction.
2. Yield and Quality Enhancement
- Optimal Environment Control: Understanding plant physiology, optimize temperature, humidity, light, and carbon dioxide concentration to improve yield and quality.
3. Diversified Sales Strategies
- Contract Farming: Offers benefits such as securing stable income, planned production, and reducing market development efforts.
- Direct Sales/E-commerce: Reduces the distance between consumers and businesses, allowing for brand value enhancement.
- Business-to-Business (B2B) Sales: Secure stable supply channels through direct transactions with restaurants, supermarkets, etc.
4. Brand Strategy
- Emphasis on High Quality and Safety: Conduct residue pesticide testing, for example, to ensure consumer confidence.
- Transparent Communication from Producers: Utilize websites and social media to showcase the production process and the producers’ passion.
- Collaboration with Local Communities: Distribution through local farmers’ markets, etc., contributes to the community and expands sales channels.
5. Upgrading Manager Skills
- Human Resource Development: Secure experienced personnel and implement employee training programs to enhance technical skills and address workforce shortages.
- Information Gathering: Continuously gather information on industry trends and cutting-edge cultivation techniques to build an adaptable structure.
Conclusion: Overcoming Losses Requires Consistent Improvement in On-site Capabilities
The conclusion we draw is that, except for initial equipment investments, there is no solution other than persistently enhancing on-site capabilities.
Even so, how do we learn?
Concrete plant factory know-how is surprisingly scarce in the public domain.
Every plant factory faces difficulties in training, but my website offers the know-how I’ve accumulated through years of experience.
If you’re interested, please check it out through the link below.
Towards the Future of Plant Factories
Looking ahead at the future of plant factories, the current outlook is not optimistic. Thorough cost reduction and efficiency improvements are prerequisites for business continuity. Minimizing initial investments and enhancing on-site productivity and quality through persistent improvement efforts are crucial.
While carefully evaluating future possibilities, it’s vital to accumulate efforts step-by-step. Introducing costly new technologies should be approached with caution. Especially when it comes to initial investments, they should be rigorously controlled.
Personally, I have worked in the plant factory industry for many years and genuinely hope to see it thrive.
I aspire for plant factories to become established as sustainable businesses, contributing to food supply and addressing environmental concerns. To achieve this, all stakeholders must come together, brainstorm solutions, and dedicate themselves to tackling challenges.
- Why are plant factories struggling with losses?
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The primary reasons for plant factory losses are high initial investments and operational costs. Specifically, these include significant expenses for equipment investments, as well as high operating costs such as electricity bills and labor. Further challenges include the difficulty of adjusting production to fluctuating demand and market development obstacles, making it difficult to secure stable profits.
- What are the drawbacks of plant factories?
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The main drawbacks of plant factories are high costs and technical challenges. High initial investments and operating costs make profitability a significant hurdle. Moreover, advanced environmental control technology is required, leading to challenges in securing technically skilled personnel. Furthermore, adapting production to demand fluctuations and overcoming market development obstacles are essential for business continuity.
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