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GREENBOX Technology III - Financial Feasibility for Crop Production in Urban Settings
Ankit Kumar Singh1, Boris Bravo-Ureta2, Richard McAvoy3, Xiusheng Yang4,*
Published in Journal of the ASABE 66(6): 1379-1390 (doi: 10.13031/ja.15345). Copyright 2023 American Society of Agricultural and Biological Engineers.
1The Water School, Florida Gulf Coast University, Fort Myers, Florida, USA.
2Department of Agricultural and Resource Economics, University of Connecticut, Storrs, Connecticut, USA.
3Department of Plant Science and Landscape Architecture, University of Connecticut, Storrs, Connecticut, USA.
4Department of Natural Resources, University of Connecticut, Storrs, Connecticut, USA.
*Correspondence: Xiusheng.Yang@uconn.edu
The authors have paid for open access for this article. This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License https://creative commons.org/licenses/by-nc-nd/4.0/
Submitted for review on 6 September 2022 as manuscript number PAFS 15345; approved for publication as a Research Article by Associate Editor Dr. Erin Cortus and Community Editor Dr. Shafiqur Rahman of the Plant, Animal, & Facility Systems Community of ASABE on 23 August 2023.
Highlights
Abstract. Food security pressure, especially in urban areas, continues to rise due to surging demand for food resulting from a growing population and declining resources. It has been critical to improve crop production and make food readily available to consumers without traveling long distances in an economically sustainable manner. The novel GREENBOX technology uses Controlled Environment Agriculture (CEA) principles for leafy green crop production in urban structures. A GREENBOX is an individual thermally insulated chamber with an artificial lighting source and a soilless cultivation system (hydroponics) in an environment that is controlled at the grower's discretion. This study performed a financial feasibility study of GREENBOX technology for urban crop production in various scenarios to evaluate the system's profitability from an individual business's perspective and used market prices of the goods and services paid for or received by a project. The representative GREENBOX unit in the base case scenario had dimensions of a standard shipping pallet (1.0 x 1.2 x 0.9 m, or 40 x 48 x 36 in) and included thermally insulated walls, an LED artificial lighting source, a camera for monitoring growth, a Nutrient Film Technique (NFT) hydroponic growth platform, and an environmental monitoring and control system. A warehouse can host numerous GREENBOX units for mass production. We carried out a benefit-cost analysis by assessing the Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PP). These parameters were evaluated for a base case scenario from data collected or estimated for a representative GREENBOX unit. We also applied the base case scenario to investigate the financial performance of the GREENBOX setup in selected urban areas in the United States; New York City (New York), Miami (Florida), Los Angeles (California), Dallas (Texas), Atlanta (Georgia), Chicago (Illinois), Boston (Massachusetts), and Philadelphia (Pennsylvania). We then carried out a sensitivity analysis on NPV, IRR, and PP by keeping all the parameters in the base case scenario invariant except for one at a time. We obtained a summary equation to understand the variation of the financial parameters with changing lettuce sale price, electricity cost, rental cost, labor cost, and the number of GREENBOX units. A GREENBOX unit would require an initial investment of $398 to assemble and an annual outflow of $157 to cover operating expenses. GREENBOX cultivation was financially viable in the base case scenario and in all the cities studied, with varying degrees of financial performance. The sensitivity analysis revealed that GREENBOX cultivation was financially viable in all scenarios except when skilled labor costs were beyond $19/hr, and there were fewer than 300 GREENBOX units. A statistically significant regression equation was derived in which rising rental costs, labor costs, and electricity prices negatively impacted the NPV, while the rising lettuce sales price and the number of GREENBOX units positively impacted the NPV. GREENBOX farming may serve as a local source of fresh crops for urban customers, with various benefits including improved food security, greater freshness and nutrition of food, the potential to contribute to the local economy by the creation of jobs and revenues from sales, and educational opportunities through extension programs on food nutrition and production.
Currently, food security is facing various challenges. High density food production using conventional soil-based agriculture has caused natural resource degradation and is resource-intensive (Kloas et al., 2015). Climate change has further exacerbated this alarming trend, as an estimated 10% of arable land is lost with every 1 °C increase in atmospheric temperature (Despommier, 2011). Poor land management has also resulted in the degradation of 20% of the world’s arable land in recent decades (Zareba et al., 2021). The pressure on world agricultural productivity is predicted to increase due to the reduction of arable land and growing demand for produce (Ortiz-Bobea et al., 2021). In addition, rising consumer awareness and improving living standards increase the demand for readily accessible, healthier foods. Demand for high food quality further increases per capita food consumption (US-EIA, 2021). The growing world population also poses a challenge in food security (Tilman et al., 2011). According to the Food and Agriculture Organization (FAO), the annual world agricultural production needs to increase by 70% between 2005 and 2050 to meet the growing demand (Conforti et al., 2011; Corvalan et al., 2005).
Global urbanization is another factor that affects the world food supply. According to the United Nations, in 2007, for the first time, the number of residents in urban areas was greater than in rural areas (Taghizadeh, 2021). More than half of the world’s citizens live in urban areas and are projected to exceed 60% by 2030 (Specht et al., 2014). Additionally, the global population is projected to be around 11.2 billion, nearing 2100 (Pison, 2017), primarily concentrated in urban areas. New technologies for future solutions to feed populations should be replicable, widely applicable, financially feasible, and efficiently utilize space and resources (Verburg et al., 2013; Smith and Stwalley, 2019; Chang et al., 2019). The growing trend of urban population shows no signs of slowing down. Therefore, to fulfill the ever-increasing needs, production intensification and expansion is necessary (Tscharntke et al., 2012; Delzeit et al., 2017).
CEA has emerged as an avenue of sustainable food production in urban areas due to the cultural shift towards healthier lifestyles (Shaik et al., 2022). CEA setups are commonly characterized by closed plant production systems with low interaction with external environments (Armanda et al., 2019; Orsini et al., 2020). The principal components unique to CEA include a thermally insulated structure, an artificial lighting source, an environmental control system (Despommier, 2011; Benke and Tomkins, 2017), and a soilless production media (Kozai, 2013a). CEA setups protect plants from harmful insects and pests (Kikuchi et al., 2018) and external environmental hazards such as storms, droughts, tornadoes, and hurricanes, leading to consistent output and reduced losses (Despommier, 2013).
Through accessibility, food availability, utilization, and stability, CEA is considered a sustainable food production system (Salleh et al., 2020) in urban areas (Jürkenbeck et al., 2019) in both developed and developing economies (Orsini, 2020). Urban areas provide ample opportunities for CEA crop production, including unused underground tunnels, basements, flat unused rooftops, vacant spaces in occupied buildings like atriums, empty, unoccupied spaces within buildings, warehouse spaces, strip malls, and shipping containers. Vacant spaces in urban areas may be considered for crop production that allows for lesser dependence on arable land, cutting back on deforestation and long transportation of foods to feed the growing urban population (McCartney and Lefsrud, 2018; Eigenbrod and Gruda, 2015). There are fiscal advantages to using CEA for urban crop production to feed a metropolitan population. CEA crop production provides an avenue to increased revenues as a reduction in days required to ready the harvest, which will increase the number of cycles per year (Majid et al., 2021; Vaštakaite-Kairiene et al., 2021; Jensen, 2002; Despommier, 2013). Producers can charge a premium on CEA produce for increased revenues, as research has demonstrated that CEA produce has a greater quality of output, nutritional value, and greater desirability of sensory attributes when compared to soil-grown produce (Buchanan and Omaye, 2013; Gichuhi et al., 2009; Selma et al., 2012; Sgherri et al., 2010). Leafy vegetables such as lettuce represent accessible fresh foods with high nutritional content, antioxidants, phytochemicals, vitamins, and minerals (Chen et al., 2020; Colonna et al., 2016) that may be less fresh when imported from distant farms and supplement a healthy diet that consists of nutrient-dense foods including meats and grains.
The CEA industry struggles with near-term profitability despite the CEA productivity potential due to the heavy up-front capital investments for technology and high operational energy costs (Kozai et al., 2015). However, there are many avenues through which one can increase revenue streams, which include targeting niche markets or products to charge a premium (Brumfield and Singer, 2017; Yue and Tong, 2009). Finding low-cost urban land, often abandoned warehouses, and focusing on the high-end markets (Sace and Natividad, 2015), such as high-end restaurants and supermarkets, or adopting a social business model consisting of volunteer labor (Singer & Brumfield, 2017). By utilizing part-time labor without benefits and a minimum wage for employees, labor costs may be reduced (Bailey et al., 1997). Other avenues of profitability come in direct sales to consumers and focus on high value, high margin crops such as lettuce, cherry tomatoes, and specialty crops such as leafy medicinal plants and vegetables. Contracting with energy utility companies or using renewable energy may provide an avenue for cost savings (Avgoustaki & Xydis, 2020). As lighting and other technology improve, the initial setup cost for such CEA setups will decrease (Kozai, 2013b).
Avgoustaki and Xydis (2020) assessed the cash flow for a 675 m2 CEA greenhouse space in Denmark and production economics; when the wholesale price of produce was $7.98/kg, the annual inflow was $134,662, the initial investment was $234,096, and the annual outflow was $165,510. This paper (Avgoustaki and Xydis, 2020) found the payback period was longer than the operational life (20 years), rendering the NPV negative, and was highly dependent on the wholesale price of produce; however, the NPV was positive when the wholesale price had increased to $11.23 $/kg or more. CEA production can have a gross return of $107.6-269.0 $/m2 (Treftz and Omaye, 2016). The Ohio State University developed an economic model to estimate the revenue, expenses, and profitability of CEA crop production and found that a 280 m2 space with an annual output of 5,900 lettuce heads and eight crop cycles per year would require a breakeven price of $0.90 per lettuce head (Treftz and Omaye, 2016).
Conventional soil-based produce is 3-5 times cheaper when compared with greenhouse and CEA; for example, lettuce is $1.08 $/head when soil-based, and CEA is $2.16-3.24 $/head (Tasgal, 2019). According to research conducted by Liaros et al. (2016) and Ucal and Xydis (2020), it is possible to set up a CEA system in a small indoor space of less than 100 m2, such as a container, garage, or room, and these studies found that the profitability of such a set up depends on demand and rearrangement flexibility, which demonstrate that indoor growing spaces can be profitable even in smaller areas.
From a technical perspective, we have seen that CEA is an effective avenue to provide a fresh leafy vegetable crop in urban areas. However, fiscal challenges exist, mainly due to the high technological and labor expenses. To break even, produce must be sold at very high prices. Existing literature has demonstrated that CEA setups have used technologically advanced equipment, rendering them financially unviable investments. Several fiscal challenges must be tackled when dealing with CEA for urban crop production. Oberholtzer et al. (2014) demonstrated that production costs, financing, and profitability are the three largest challenges with CEA setups. Startup costs of CEA are greater due to LED lighting equipment (Eaves and Eaves, 2018; Shamshiri et al., 2018), soilless cultivation (Treftz and Omaye, 2015), electricity costs (Kozai et al., 2015), labor, depreciation of equipment (Kozai, 2019), and real estate prices (Singer and Brumfield, 2017). Obstacles to implementing a new CEA venture appear in high startup costs when compared to field based farming, operating costs, which include lighting, cooling, humidification, and labor, and a limited scope of crops (Kalantari et al., 2018). Previous studies have examined the profitability of CEA setups in urban areas (Shamshiri et al., 2018; Badami and Ramankutty, 2015; Love et al., 2015). The profitability is a direct result of the productivity of these systems, measured in crop heads/m2/year.
The Yang Laboratory at the University of Connecticut has introduced the GREENBOX technology for urban vegetable crop production using Controlled Environmental Agriculture (CEA) (Yang et al., 2017). The GREENBOX uses standard grow boxes in urban structures with optimal environmental controls, LED lighting, and soilless cultivation (Singh and Yang, 2021). GREENBOX technology concept was driven by the ease of mass production of vegetable crops using low-cost modular components in urban warehouse spaces that are readily available. After an extensive review of literature, we determined that a knowledge gap exists in the financial feasibility of such low-cost modular CEA setups; therefore, this financial study of GREENBOX technology uses Benefit-Cost Analysis (BCA) to help fill this knowledge gap.
Research Objective
We want to explore whether the GREENBOX technology can serve as a financially viable avenue to grow fresh vegetable crops in urban settings. This study aimed to answer this question by examining a hypothetical operation of 1000 GREENBOX units in a small-sized warehouse dedicated to lettuce crop production. We carried out a financial feasibility study by implementing the BCA using the financial indicators of Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period (PP).
Methods
Benefit-Cost Analysis
This study conducts a financial analysis of GREENBOX technology using the BCA framework. Financial analysis is conducted solely from the perspective of an individual business and uses market prices of the goods and services paid for or received by a project (Belli, 2001). There is a difference between a financial and an economic analysis. In a financial analysis, the entity carrying out the operation was expected to pay for the costs while the market set the prices.
The following three indicators are commonly used in BCA: Net Present Value (NPV); Internal Rate of Return (IRR); and the Payback Period (PP) (Boardman et al., 2006), which can help inform decisions and improve resource allocation (Mackay et al., 2009).
Net Present Value (NPV)
The NPV is the difference between the present value of cash inflows and outflows, which is the present value of net benefits (Boardman et al., 2006). NPV is an indicator of the value of an investment. The decision rule for NPV is as follows: NPV=0, the investment is indifferent, it would neither generate a profit nor a loss after investment; NPV>0 indicates a worthwhile investment, while NPV<0 indicates an investment that was not worth taking up as it will not generate money. If the NPV is negative, the project must be rejected or at least modified. The following equation 1 provides the formula for the NPV:
(1)
where
NBt= Net benefits of the project, which is used to assess the NPV
t = time period over which the project is considered
I0 = initial capital investment
r = interest rate.
Internal Rate of Return (IRR)
The IRR is the return rate when the NPV is zero, which translates to the discount rate at which the present value of benefits and costs are equal. Determined and chosen independently, the reference rate of return (rR) compared to the IRR decides if one should proceed with the project. IRR is an indicator of an investment’s efficiency, quality, or yield. The decision rule for IRR is as follows: when IRR=rR, the investment is indifferent; it would neither generate a profit nor a loss after investment; IRR>rR indicates a worthwhile investment and generates profit and returns for the investor; and IRR<rR indicates an investment that is not worth taking up as it would not generate money. IRR is calculated by equation 2:
(2)
where
Bt = present value of benefits
Ct = present value of costs
t = time period of the project.
The Payback Period (PP)
The PP is defined as the time it would take to recover the initial investment. It is reported in years and is predetermined by the decision-maker (Brown and Matysiak, 2000). Depending on users’ Payback Period Desired (PPD), they can choose to follow through with the project (PP=PPD, indifferent; PP < PPD, invest; PP > PPD, do not invest). The formula for PP is listed in equation 3, where NBt is the net benefits of the project and t represents the time period, greater than or equal to zero years, over which the project is considered.
(3)
Base Case Assumptions
The base case scenario represented the average GREENBOX farm present in the industry if it were implemented for urban crop production. The major attributes are described as follows:
Infrastructure
The proposed representative farm was to be hosted in a small-sized warehouse of 670 m2 with a capacity of 1000 GREENBOX units in operation in the form of ten levels of 100 units. The warehouse was equipped with electricity, water supply, ventilation, and operational facilities. Operations included moving individual boxes for diagnosis, management, harvesting, and packaging. Figure 1 shows a designed layout for GREENBOX production of crops in urban settings.
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| Figure 1. Warehouse Layout for 1000 GREENBOX, ten levels of 100 units. Crop production with warehouse dimensions 36.58 x 18.28 m with an area of 670 m2. There were dedicated water/nutrition supply, ventilation, and operations spaces. |
Land and Values
We assumed that the warehouse was a rental space. According to national warehouse space provider Prologis (Prologis, 2022), the national average base rental cost for warehouse space is $9.1/m2/month or $109.8/m2/year. The rental costs for the necessary configuration would translate to $6,120 per month or $73,440 in annual rental cost.
GREENBOX Assembly and Equipment
A representative layout of a GREENBOX unit is presented in figure 2. Table 1 details the components and the costs of setting it up, accounting for the components required to set up a controlled environment for sustainable crop production. The main components in the representative GREENBOX unit included a lighting element, a thermally insulated chamber, a soilless nutrient supply system using the Nutrient Film Technique of hydroponics, ventilation, and low-cost environmental sensors to provide grower data critical to crop growth such as temperature, light intensity, relative humidity, and carbon dioxide concentration (Singh and Yang, 2021). In this study, we have designed a GREENBOX unit of the standard pallet-sized box (1.0 x 1.2 x 0.9 m, or 48 x 40 x 36 in), which will allow for vertical stacking and easy control. The GREENBOX unit also used a small camera to monitor crop growth. The triple net lease (NNN) is a parameter to account for the additional buildings’ costs. In this study, the NNN was split between the electricity cost, which accounts for electricity costs associated with general electricity, the costs associated with the warehouse building (such as lights and HVAC), and the rental costs associated with other components.
| Table 1. Outlays associated with GREENBOX setup. | |||||
| Item | Details | Quantity | Price | Price Unit | Total Cost |
| Corner fittings | GREENBOX frame | 4 | $3.7 | each | $15.0 |
| PVC pipe for GREENBOX frame (1.0 x 1.2 x 0.9 m or 48 x 40 x 32 in) | GREENBOX frame | 13 | $2.62 | per m | $32.4 |
| Insulated covering for GREENBOX | ‘INSULATION MARKETPLACE SmartSHIELD -3mm 48 inchx100Ft ReflectiveINSULATION roll, Foam Core Radiant Barrier, ThermalINSULATION Shield - Engineered Foil’ | 5.92 | $24.75 | per sq. m. | $146.7 |
| Velcro strips for (0.71 x 1.02 m or 28 x 40 in) opening | To fasten door cover for GREENBOX | 0.31 | $9.6 | per m. | $3.6 |
| NFT channel set (for soilless cultivation) | Farmtek - 4" pro | 4 | $27.1 | each | $108.2 |
| Exhaust Fan | 4.7" 110V AC Standard Square Axial Fan double Electric pressure 22W | 1 | $6.7 | per fan | $6.7 |
| Recirculating pump | Uniclife 80 GPH Submersible Water Pump 4W Quiet Pump with 6ft Power Cord for Fountain Aquarium Fish Tank | 1 | $6.5 | per pump | $6.5 |
| Nutrient Solution reservoir | 5 Gal. Homer Bucket | 1 | $5.0 | per unit | $5.0 |
| Piping for nutrient solution | SharkBite U870W100 PEX Pipe 3/4 Inch, White, Flexible Water Pipe Tubing, Potable Water, Push-to-Connect Plumbing Fittings, 100 Feet Coil of Piping | 1.6 | $1.6 | per m | $2.6 |
| Lighting element | T8 4ft V Shape LED Tube 30W Integrated 6500k Clear, 4 Foot LED Shop Lights, 3900 Lumens | 2 | $15.0 | per light | $30.0 |
| pH/EC meter | pH Meter pH Tester Digital Water Meter TDS Meter Water Test Pen EC Meter Temperature Meter 3 in 1 to monitor pH/EC of nutrient solution | 1 | $8.0 | per unit | $8.0 |
| Silicone sealant | Momentive white TSE382 silicone sealant with a 7-day cure time | 1 | $7.8 | per unit | $7.8 |
| Teflon tape | For plumbing and NFT channel assembly | 3 | $0.5 | per unit | $1.6 |
| Environmental sensor (temperature and humidity) | Govee Hygrometer Thermometer, Wireless Thermometer, Mini Bluetooth Humidity Sensor with Notification Alert, Data Storage and Export, 262 Feet Connecting Range | 1 | $15.0 | per unit | $15.0 |
| Camera | SQ11 mini camera 1080P night vision sport Mini DV security mini wireless camera 960P | 1 | $4.0 | each | $4.0 |
| Multiplug | Go Green Power GG-16000TW – 6 Outlet Wall Tap Adapter, White | 1 | $4.9 | per unit | $4.9 |
Total Cost of one assembled GREENBOX unit | $398 | ||||
Vegetable Crop
The GREENBOX units were designed to grow leafy green vegetable crops such as Brassica rapa var. chinensis ‘Li Ren Choi’, Spinach Spinacia oleracea ‘Auroch’, Arugula Eruca sativa ‘Astro’, and Mizuna Brassica Brassica rapa var. japonica. This study used lettuce Lactuca sativa ‘Rex Butterhead’ as the produce crop.
Crop Prices
The prices of lettuce crops were checked with the United States Department of Agriculture (USDA). However, hydroponically grown crops can command a premium, and we assumed that the lettuce could be sold at $3 per lettuce head year-round. The price of soil-grown crops varied throughout the year due to differing growth periods ranging from 1.5 to 2.5 months, depending on the season. Using CEA, lettuce can be made ready for harvest in 30 days (Avgoustaki and Xydis, 2020). It was also assumed that prices, in real terms, adjusted for inflation, would remain constant over the study period.
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| Figure 2. Illustration of GREENBOX unit setup: The diagram on the right shows the cross-sectional structure of the box seen from the front, and on the left is a view from above the horizontal layout. The GREENBOX unit has the dimensions of a standard pallet-sized box (1.0 x 1.2 x 0.9 m, or 48 x 40 x 36 in). |
Yields
Each GREENBOX unit was designed to produce 24 heads of lettuce over a 30-day growing period. We expected each GREENBOX unit to provide an annual output of 288 heads per year with consistent yearly production. Therefore, a warehouse with 1000 operational GREENBOX units would provide an annual output of 288,000 lettuce. Previous studies have indicated no crop loss during growth in a protected environment provided by the GREENBOX units (Singh and Yang, 2021; Singh et al., 2021a; Singh et al., 2021b). Therefore, this study assumes that 100% of the produce grown is sellable.
Labor Cost
The labor costs were obtained from the Bureau of Labor Statistics for Agricultural Workers. The base case scenario valued the unskilled labor cost at $13/hr. Skilled labor cost in this project was taken at $2/hr greater than unskilled labor cost in all scenarios. To run a GREENBOX operation, we assumed the need for one skilled worker in the manager position to work ten hours a week to manage labor cost and facilities. We also proposed employing one unskilled laborer for every 100 GREENBOX units for manual tasks such as planting, maintenance, harvesting, packaging, and shipping. For the base case scenario of 1000 GREENBOX production, we estimated the need for one skilled worker at 10 hours/week and ten unskilled workers for 8 hours a day.
Fertilizer
The fertilizer costs were based on market prices and our previous experimental studies.
Electricity
The electricity cost for the base case scenario took the national average rate of 12.52 cents per kWh (US-EIA, 2021). The outflows associated with GREENBOX crop production are summarized in table 2. These outlays are recurrent per cycle and include materials such as growing media, seeds, water use, fertilizers, and costs associated with electricity. Table 3 lists the assumptions for the base case scenario analysis.
| Table 2. Annual outflows associated with GREENBOX lettuce crop production, each lettuce crop production cycle lasts 30 days. | ||||||
| Item | Details | Price | Unit | Price Per Head of Lettuce | Price Per Cycle of GREENBOX Output 24 Heads | Annual Cost (12 Cycles of 24 Lettuce Output) |
| Growing media | Oasis Horticube 104 count | $9.2 | per tray | $0.1 | $2.1 | $25.3 |
| pH control kit | General Hydroponics pH Control Kit for a Balanced Nutrient Solution. (100 ml per cycle estimated use) | $23.4 | per quart | $0.1 | $2.4 | $28.2 |
| Rex pelleted Lettuce seeds | Johnny seeds (1,000) | $2,306 | per 100,000 seeds | $0.02 | $0.6 | $6.6 |
| Water use | 2.03 liters of water per head of lettuce calculated using GREENBOX experiments = 584.64 l (154.44 gallons) per year = 48.72 liter per cycle | $1.5 | 1000 gallons (3785.41 liters) | $0.2 | ||
| Fertilizer use (7.5 ml per gallon of water) | Hydroponic Nutrients - Best Buds Hydroponic Plant Food (Pack of 2- 36 oz Bottles) by Beanstalk, Nutrients for Hydroponic Plants, Hydroponic Garden Nutrients, Plant Nutrients | $38.0 | for 946 ml | $46.5 | ||
| Electricity cost | 22W fan + 4W pump + 30W light + Building operational cost = We can assume 100W in total | $0.1252 | Per kWhr | $50.5 | ||
Total running cost annually | $157.4 | |||||
Modeling Different Cities
This study also investigated the financial performance of the GREENBOX setup in selected urban areas in the United States. New York City (New York), Miami (Florida), Los Angeles (California), Dallas (Texas), Atlanta (Georgia), Chicago (Illinois), Boston (Massachusetts), and Philadelphia (Pennsylvania) were selected to study. The base case scenario was applied to all the selected cities. The main variables examined were the price of warehouse rental cost (Newsoffice.net, 2022) and electricity costs, which varied significantly by location.
Sensitivity Analysis
Sensitivity analysis reveals how vital each GREENBOX input is in determining its output for different scenarios (Iooss & Saltelli, 2016; Brown et al., 2001; Merrifield, 1997). We first proposed a base case scenario based on data collected and then conducted a sensitivity analysis on NPV, IRR, and PP by changing one variable at a time while maintaining all others constant at the base case level (i.e., ceteris paribus). We carried out the financial analysis of the base case scenario, where all the inputs are considered at market value. The chosen factors for the sensitivity analysis are the sale price of lettuce heads, electricity cost, rental cost, labor costs, and the number of GREENBOX units. Finally, we conducted a multivariate regression on the financial indicators using Microsoft Excel to evaluate the degree to which the various factors influenced the NPV.
It is important to note that the impact of an investment or project needs to be analyzed by comparing the situation with and without such an investment. In other words, what was analyzed was the incremental cash flows that could be attributed to the GREENBOX investment compared to a status quo case, i.e., without the project. In this analysis, the without project situation assumed that the warehouse (about 670 m2, 7,200 ft2) would be rented out at $73,440 per year.
Results
Table 4 presents the cash flow of the base case scenario for the representative 1000 GREENBOX setup over 670 m2 of warehouse operation. We then discuss the base case scenario when applied to major cities in the United States. We then discussed the sensitivity analysis results on the NPV, IRR, and PP. The sensitivity analysis of the NPV on the lettuce sale price, electricity cost, rental cost, labor cost, and the number of GREENBOX units are graphically depicted in figure 3.
| Table 3. Base-case assumption for a representative GREENBOX farm. | ||
| Item | Assumptions | Comments |
| Sale price | $3.0 | Prices are constant over the project span; $3 per head of lettuce |
| Yields | 288,000 | 24 heads per month over 12 months in 1000 GREENBOX = 288,000 lettuce head output |
| Growing location | 670 m2 | Grown in a medium-sized warehouse |
| Electricity cost | 12.52 Cents per kWh | US average rate |
| Rental cost | $73,440 | Average base rental rate: $10.2 per square foot per year. $73,440 annual rental cost |
| GREENBOX | $398 | Refer to table 1: GREENBOX setup |
| Operating expenses | $157.39 | Refer to table 2: Operating costs annually for each GREENBOX |
| Skilled labor cost | $ 15,600 | 10 hours a week for supervising, operations, etc. @ $15/hr |
| Unskilled labor cost | $ 379,600 | Ten employees at 8 hours a day, 365 days a year for sowing, harvesting, crop management, etc. @$13/hr |
| Desired Rate of Return | 0.08 | (Eubanks et al., 2020; Eubanks and Bravo-Ureta, 2019) |
| Table 4. Detailed cash inflows, outflows, and netflows of the base case scenario. | |||||||
| Year | Inflows | Outflows | Net Flows | Cumulative Flows | |||
| 1000 GREENBOX Expense | Operating 1000 GREENBOX | Warehouse Rental Cost | Labor Cost (Skilled and Unskilled) | ||||
| 0 | $398,017 | $(398,017) | $(398,017) | ||||
| 1 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $(160,049) | |
| 2 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $77,918 | |
| 3 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $315,885 | |
| 4 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $553,853 | |
| 5 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $791,820 | |
| 6 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $1,029,788 | |
| 7 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $1,267,755 | |
| 8 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $1,505,722 | |
| 9 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $1,743,690 | |
| 10 | $864,000 | $157,393 | $73,440 | $395,200 | $237,967 | $1,981,657 | |
| Internal Rate of Return (IRR) | 23% | ||||||
| Net Present Value (NPV) | $220,340 | ||||||
| Payback Period (PP) | 2 | ||||||
The financial analysis of the base case scenario revealed that GREENBOX farming was a financially viable investment. The NPV was $220,340, a positive number indicating an investment yielding positive returns to the investor. The IRR was 23%, 15% greater than the reference IRR of 8% and a PP of two years.
The obtained values of NPV, IRR, and PP for GREENBOX setups in New York City (New York), Miami (Florida), Los Angeles (California), Dallas (Texas), Atlanta (Georgia), Chicago (Illinois), Boston (Massachusetts), and Philadelphia (Pennsylvania) are listed in table 5. The GREENBOX setup was financially viable in all the studied cities, with varying degrees of profitability. In cities such as New York City, where the electricity and rental costs are the highest, the NPV was the lowest and the longest PP of the cities studied. On the other hand, Dallas had the highest NPV owing to the city's lowest energy prices and rental costs of the cities studied.
We carried out a sensitivity analysis on the lettuce sale price ($/head), and we found that as the sale price of lettuce increased, the NPV and the IRR increased, and the PP decreased. When the lettuce head sale price increased to $4/head, the NPV increased to $487,007, the IRR was 51%, and the PP was reduced to one year. When the lettuce head sale price increased to $5/head, the NPV increased to $753,674, the IRR was 79%, and the PP was one year.
On varying the electricity price (c/kWh), we found that as the electricity costs increased, the NPV and the IRR decreased, and the PP remained the same (two years) in the scenarios studied. On varying the electricity costs (c/kWh) between 7.99 and 27.55 c/kWh, the NPV decreased from $237,242 to $164,262, while the PP remained unchanged. The IRR decreased from 25% to 16% over the varying electricity prices across the 50 states in the United States. The IRR was greater than the reference IRR in all scenarios. With the energy costs at 10.06 c/kWh, the NPV was $229,519, the IRR was 25%, and the PP was two years. With the energy costs at 14.87 c/kWh, the NPV was $211,572, the IRR was 22%, and the PP was two years. With the energy costs at 18 c/kWh, the NPV was $199,894, the IRR was 21%, and the PP was two years. On varying the warehouse rental costs ($/m2/yr), we found that as the rental costs increased, the NPV and the IRR decreased, and the PP remained the same (two years) in the scenarios studied. By varying the warehouse rental costs from 53.86 to 204.69 $/m2/yr, the NPV decreased from $255,007 to $161,674. The IRR decreased from 28% to 16% over the warehouse rental costs, greater than the reference IRR in all scenarios, and the PP remained unchanged. With the warehouse rental costs at $86.18 m2/yr, the NPV was $235,007, and the IRR was 25%, with a PP of two years. At $107.73 m2/yr warehouse rental costs, the NPV was $221,674, and the IRR was 23%, with a PP of two years. With the warehouse rental costs at $161.60 m2/yr, the NPV was $188,340, and the IRR was 19%, with a PP of 3 years.
 |
(a) Sensitivity analysis on NPV with lettuce sale price |
 |
| (b) Sensitivity analysis on NPV with electricity cost |
 |
| (c) Sensitivity analysis on rental cost |
 |
| (d) Sensitivity analysis on NPV with skilled labor |
 |
| (e) Sensitivity analysis on NPV with number of GREENBOX units |
| Figure 3. The sensitivity analysis of the NPV by the (a) lettuce sale price, (b) electricity cost, (c) rental cost, (d) skilled labor cost, and (e) the number of GREENBOX units. These graphs show that NPV was negatively impacted by rising electricity, rental, and labor costs. They were positively impacted by the rising number of GREENBOX units and lettuce head sale price. |
| Table 5. NPV, IRR, and PP of scenarios based on different cities across the United States. Cities with lower rates of warehouse rental costs and electricity costs performed better financially. | |||||
| City | Average Warehouse Price ($/m2/yr) | Average Electricity Price (c/KWh) | NPV ($) | IRR (%) | PP (years) |
| Atlanta | 53.86 | 10.43 | $264,670 | 29 | 2 |
| Boston | 107.73 | 19.06 | $200,518 | 21 | 2 |
| Chicago | 64.64 | 10.14 | $258,675 | 28 | 2 |
| Dallas | 53.86 | 9.14 | $270,528 | 30 | 2 |
| Los Angeles | 118.5 | 19.65 | $194,560 | 20 | 2 |
| Miami | 86.18 | 10.67 | $244,185 | 26 | 2 |
| NYC | 204.69 | 16.11 | $152,905 | 15 | 3 |
| Philadelphia | 64.64 | 9.97 | $258,862 | 28 | 2 |
When carrying out a sensitivity analysis on the labor costs, skilled and unskilled ($/hr), we found that as the labor costs increased, the NPV and the IRR decreased, and the PP increased. In this analysis, we considered skilled labor costs to be $2/hr more consistently than unskilled labor costs. When the skilled labor cost was increased to $16/hr ($14/hr, unskilled) from the base case scenario, the NPV decreased to $192,340, and the IRR reduced to 20%, greater than the reference IRR of 8%, and the PP was two years. When the skilled labor cost was increased to $20/hr ($18/hr, unskilled), the NPV decreased to $80,340, and the IRR reduced to 7%,
which was lower than the reference IRR of 8%, and the PP increased to five years. When the skilled labor cost was increased to $22/hr ($20/hr, unskilled), the NPV decreased to $24,340, and the IRR reduced to 2%, which was lower than the reference IRR of 8%, and the PP was unobtainable. We noticed that when the skilled labor costs were beyond $19/hr ($17/hr, unskilled), the GREENBOX setup was not financially viable.
The sensitivity analysis was also carried out by varying the number of GREENBOX units between 100 and 1000; we found that as the number of GREENBOX units decreased, the NPV and the IRR decreased, and the PP increased. When the number of GREENBOX units was reduced to 900 from the base case scenario of 1000 units, the NPV reduced to $190,062, the IRR reduced to 22%, and the PP remained the same at two years. When the number of GREENBOX units was reduced to 500, the NPV was reduced to $68,948, the IRR reduced to 13%, and the PP was three years. When the number of GREENBOX units was reduced to 300, the NPV was reduced to $8,391, the IRR was reduced to 2%, and the PP was unobtainable. The IRR obtained was lower than the reference IRR, rendering the scenario of 300 GREENBOX units financially unviable. For scenarios of 300 and 200 GREENBOX units, the NPV was negative ($-21,888 and $-52,166, respectively), the IRR was negative (-9% and -31%, respectively), and the PP was unobtainable.
GREENBOX technology allows for vertical stacking, which positively affects the profitability of these systems. Vertically stacking does not require more space, and increased capacity does not lead to a required increase of space. Figure 3a-e depicts the variation of the NPV graphically with (a) the increasing lettuce sale price in the sensitivity analysis, (b) increasing electricity costs, (c) increasing warehouse rental costs in the sensitivity analysis, (d) the increasing lettuce sale price in the sensitivity analysis, and (e) the increasing number of GREENBOX units in the sensitivity analysis.
The effect of the input variables of lettuce sale price, electricity cost, rent cost, skilled labor cost, and the number of GREENBOX units on NPV was mathematically shown in equation 4:
(4)
where
NPV = Net Present Value of the operation in US dollars
a = lettuce sale price ($/head)
r = rental cost for the warehouse ($/m2/yr)
l = labor cost ($/hr)
e = electricity cost (c/kWh)
n = number of GREENBOX units.
This analysis had a simplistic approach and would have to further account for other factors to allow the analysis to truly reflect the geographic setting it is modeled in. This analysis did not account for different factors that vary locally, such as local labor laws, unions, building codes, permitting costs, and taxes. Further avenues of investigation may include researching the applicability of GREENBOX technology, accounting for the previously listed factors. Further studies could also research the economic benefits of GREENBOX farming by measuring the impact on society through externalities. These externalities may include health benefits, improved quality of life benefits, and increased standards of living, especially for the socioeconomically disadvantaged.
An economic analysis carries out analysis from the perspective of society (Belli, 2001), accounting for the entire assembly process, including key input and outputs valued using economic or shadow prices (Lee et al., 2014). The economic analysis is not limited to monetary considerations, but it may include environmental and social costs/benefits that could be quantified directly/indirectly (Gabrielli & Bottarelli, 2016). Economic and financial values could differ due to various distortions such as taxes, subsidies, tariffs, externalities, and administered prices (Belli, 2001). The GREENBOX project generated several positive externalities by providing fresh vegetables that could help improve vulnerable groups' nutritional status, provide access to fresh crops without traveling long distances, and overall improve the quality of life. While there are potentially various positive externalities associated with the GREENBOX project, quantifying those externalities was outside this paper's purview. Further research may look into quantifying the positive externalities associated with the GREENBOX project. Future studies may account for different water sources, such as bluewater, and assess the savings associated with crops not being impacted by pathogens. Future studies may also assess the economics of different types of crops, including but not limited to different fruiting and vegetable crops.
Summary and Conclusions
This study examined the financial returns on lettuce crop production using GREENBOX technology. The financial analysis of the GREENBOX setup for urban crop production found that it is a financially viable avenue, as demonstrated by the positive values of NPV, IRR, and PP. We found that for the range of sale price of lettuce studied, GREENBOX farming was financially viable in the base case scenario. GREENBOX cultivation was found to be financially viable across major cities in the United States with varying degrees of profitability; it is more profitable in cities with lower warehouse rental and electricity costs. The sensitivity analysis of GREENBOX technology showed it was a financially viable investment over the electricity prices and warehouse rental costs studied, covering prices over all fifty states within the United States, reducing profitability as the price increased. Sensitivity analysis of the labor costs revealed that as the labor costs increased, the NPV and the IRR decreased, and the PP increased. The GREENBOX setup was not financially viable when the skilled labor cost was beyond $19/hr ($17/hr, unskilled). The sensitivity analysis found that as the number of GREENBOX units decreased, the NPV and the IRR decreased, and the PP increased. The scenarios with a number of GREENBOX units lesser than 300 were not financially viable. A summary equation obtained through multivariate regression equation reaffirmed the sensitivity analysis's observed trends. Further studies may look into carrying out the economic analysis and assessing the positive externalities to society for GREENBOX technology for urban crop production with different types of crops and in varied urban settings.
Acknowledgments
The study was partially supported by a Hatch project (Project No. CONS01000) from USDA NIFA.
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