A PRODUCTION CAPACITY INVESTMENT DECISION-MAKING TOOL FOR THE INDOOR VERTICAL FARMING INDUSTRY

Abstract

Indoor vertical farming (VF) systems are a form of controlled environment agriculture, making use of modern technology to improve food availability and security. Commercially, it is a young industry set to disrupt the food supply chain, but is faced with a uncertainty and risk with respect to product demand and production technology efficacy. Currently funded by private investment, VF firms are challenged with properly developing production capacity for long-term profitability. This research presents a method, using two sequential MILP formulations, developed for VF firms to facilitate decision making associated with allocation of capital resources to new production capacity considering demand and production uncertainty. The method is extended to provide the expected value of perfect information associated with reducing this uncertainty and suggests that something equivalent 3% and 4.5% of a new production facility’s capital cost should be spent on research and development associated with production technology efficacy and demand respectively.