AppHarvest CEO on scaling sustainable agriculture: ‘We don’t have a choice’

AppHarvest CEO Jonathan Webb joins Yahoo Finance Live to discuss scaling controlled environment agriculture infrastructure, keeping produce prices low, and the future of farming as climate change impacts grow.

Video transcript

BRAD SMITH: Welcome back to Yahoo Finance Live, everyone. As consumers shift their focus to healthy eating habits and combating climate change, vertical farming is gaining popularity. The space is expected to reach $9.7 billion worldwide by 2026, according to researchandmarkets.com. Some scientists, however, are warning about the limitations there.

Joining us now to discuss the future of agricultural technology, ag tech AppHarvest CEO Jonathan Webb joins us now. Jonathan, good to have you here with us today. The company also recently reported earnings. When you think about broadly some of the investments that your business is making, to really get a larger share of that market, what steps does that mean? And how many different facilities do you need to bring online?

JONATHAN WEBB: Well, this is a challenge that not only the US will be tackling, but the world will be tackling and for the next few decades. So when you say how much do we need to bring on, well, just to bring tomato production back into the US, which currently, we imported about 4 billion pounds of tomatoes from Mexico to the US last year, you would need to build 20,000 acres of what AppHarvest built in Morehead, Kentucky, our first facility with 60 acres, about $140 million investment. So you can do the math on. We need to build a lot of infrastructure over the next decade, and in order to use less land, use less water, and grow more food in the middle of climate disruption.

JULIE HYMAN: Hey, Jonathan, it's Julie here. We have talked before, of course, and you make a compelling argument about why this type of farming is going to be necessary, particularly as climate change becomes more acute. The question is, how you guys are going to make money while doing it in the meantime before it gains more traction. And so looking at your latest quarter here, you guys did raise prices. Of course, we're seeing prices being raised for lots of stuff all across the board. What is going to continue to happen with your pricing dynamic, as you guys try to maintain and even grow your margins?

JONATHAN WEBB: Yeah, we really don't think we need to be raising prices for the consumer much above kind of where we're at now. It's more about for us, as a company, making sure that we can build and operate facilities at the price point that's available. You look at the average US consumer, 50% or more of people going to the grocery store don't have the luxury to spend more for a premium product. So what we believe, CEA, Controlled Environment Agriculture, our job is, is to displace dirty open field imports, but do it at or around the same price.

But, you know, again, if I'm a buyer of that, whether you're a grocer or a fast food chain, the product we offer, you don't have to worry about climate disruption if there's drought or flooding. You don't have to worry about the food safety issues you have on farms south of the border, labor issues, import issues, transportation, food spoilage. All of this that currently hits agriculture hard today is what CEA solves for. And it's all about scale.

So for us, we'll have four farms open at the end of the year, 8 million-- nearly 8 million square feet of growing area across strawberries, salad greens, and a whole host of variety of tomatoes. And this industry just has to achieve scale in order to hit those price points that the consumers see today.

BRAD SMITH: And at what point in that scale and really broadening out the products that you're bringing to market as well, do you believe that that will actually translate into shareholder value as well?

JONATHAN WEBB: Yeah, it's-- for us, again, our goal is to carve out the grocery space that is currently being supplied by open field, whether it's imports from Mexico or in the US. I mean, look at California. You've got drought. You've got water restrictions from the governor there. You've got Lake Mead drying up, the Colorado River drying up. And where we do grow stuff in the US, it's in the Southwest, where you don't have water. Then you have imports coming in from Mexico, a whole host of challenges there.

So the shareholder value for us is simply build at scale, operate at scale, efficiently run these facilities. And ultimately, we believe CEA is the third wave of sustainable infrastructure, and that in 20, 30 years from now, you're going to be growing most fruits and vegetables at scale globally in a controlled environment. And for us at AppHarvest, we use sunshine and rainwater. And we think-- we run completely on rainwater. We think sustainability is a key driver of price resiliency long-term. But using sunshine with our LED lights, using rainwater, helps keep our costs down to where we can compete with open field imports today.

JULIE HYMAN: Hey, Jonathan, you talked about-- you guys are doing big expansion, right? You're opening four more farms this year. The fifth one I noticed in your release is paused contingent upon financing. And in this environment where rates are going up, are you finding the financing is tougher to get? And do you expect it to continue to be tougher to get for further expansion?

JONATHAN WEBB: Well, I mean, obviously, in this environment today, it's, everybody is questioning where the world's going in the coming months. But food security is something that continues to be an increasing problem. Unfortunately, what we see in Europe now is highlighting the instability of our food supply. COVID highlighted it here in the US and around the world. But then you layer on top of that climate change.

The capital for this industry continues to flood in. We're seeing a lot of non-dilutive ways to finance this business. We've already secured multiple lines of credit for our facilities to finance the construction. But we're constantly monitoring when the right time is to raise that capital. But ultimately, again, CEA globally, not just in the US, you know, it is inevitable. We have to use controlled environment agriculture facilities to grow fruits and vegetables. We use 90% less water and get 30 times a yield per acre and can do that in the middle of climate disruption.

We don't have a choice. In our world, we've been taking inbound calls from the Middle East to Southeast Asia. And all around the world, there's a similar concern of how do we keep consistent food supply on store shelves, no matter what the outside circumstances are? So the capital will be there. There continues to be capital flooding into this sector. And again, for us, we see it as it was renewable energy 20 years ago. It was electric vehicles 10 years ago. And right now, we're in the infancy of CEA. And we'll see hundreds of billions of dollars flood into building infrastructure around the world over the next two decades.

JULIE HYMAN: Jonathan, good to catch up with you. Jonathan Webb is the CEO of AppHarvest. Thanks.