Vertical farming was supposed to revolutionise food production. Growing lettuce and herbs in climate-controlled warehouses with LED lighting, no pesticides, minimal water use, and production right in the city near consumers. The pitch made sense, and investors poured hundreds of millions into Australian vertical farming startups.

Five years later, the results are sobering. Several high-profile operations have shut down. Others have scaled back dramatically. The ones still operating are barely breaking even. What went wrong, and is there still a viable future for vertical farming in Australia?

The Economic Problem

Vertical farming’s core challenge is energy cost. Growing plants indoors requires replacing sunlight with artificial lighting, and that’s expensive.

A typical vertical farm uses 30-40 kilowatt-hours of electricity per kilogram of leafy greens produced. At Australian commercial electricity rates of $0.20-0.30 per kWh, that’s $6-12 per kilogram just in energy costs. Add labour, rent, capital depreciation, and operating costs, and you’re at $15-20 per kilogram.

Conventional greenhouse lettuce costs $2-4 per kilogram to produce. Field-grown lettuce is even cheaper, around $1-2 per kilogram. Vertical farming simply can’t compete on cost for commodity vegetables.

The business model only works if consumers will pay a premium for locally grown, pesticide-free produce. Some will, but the premium market isn’t large enough to support the scale of production these facilities were built for.

Who’s Scaled Back or Shut Down

InVerti, a Brisbane-based vertical farm that raised $15 million and opened a large facility in 2022, shut down in late 2025. Their produce was in major supermarkets, but they were losing money on every sale and couldn’t raise additional funding.

Neat Greens in Sydney scaled back from three facilities to one and shifted focus from retail distribution to restaurant supply, where margins are better.

Vertical Farm Systems, which built modular vertical farming units for clients, pivoted to selling controlled-environment agriculture technology to traditional greenhouses instead of operating vertical farms themselves.

These aren’t failures of execution. They’re failures of the underlying economics at current energy prices and technology costs.

What’s Still Working (Sort Of)

The vertical farms that are surviving focus on high-value crops and niche markets.

Fresh Select Farms in Melbourne grows microgreens and specialty herbs for high-end restaurants. These products command prices of $40-80 per kilogram, which makes the economics viable. They’re not trying to compete with conventional lettuce production.

Growy, another Melbourne operation, targets the Japanese and Korean communities with produce varieties that aren’t widely grown in Australia and would otherwise be imported. The import replacement value justifies higher prices.

Freight Farms, which uses converted shipping containers as modular grow units, sells to restaurants and catering companies that value the marketing story of hyper-local production grown on-site or nearby.

None of these are large-scale operations replacing traditional agriculture. They’re niche players serving specific market segments where the premium pricing holds.

The Technology Limitations

Vertical farming advocates often claim that technology improvements will solve the cost problem. LED efficiency is improving, automation is reducing labour costs, and better growing systems are increasing yield per square metre.

This is true, but the pace of improvement is slow and the gap to bridge is large.

LED efficiency has improved about 3% per year over the last decade. At that rate, it’ll take another 15-20 years before lighting costs come down enough to make vertical farming cost-competitive with greenhouses for commodity crops. And even then, you still have higher capital costs and building expenses that greenhouses don’t face.

Automation reduces labour but increases capital costs and maintenance requirements. The vertical farms that have invested heavily in robotics aren’t materially more profitable than those using manual labour.

Where Vertical Farming Makes Sense

There are genuinely useful applications for vertical farming, just not the ones originally hyped.

Extreme climates. In places where outdoor growing is impossible or very difficult — far northern regions, deserts, Arctic communities — vertical farming provides food security that justifies higher costs.

Research and plant breeding. Vertical farms provide controlled environments for plant research, testing new varieties, and breeding programs. This is a smaller market but a viable one.

Pharmaceutical and high-value compounds. Growing plants for pharmaceutical extraction or specialty compounds (cannabinoids, medicinal herbs) can justify the costs because the end product value is much higher than food crops.

Space exploration. NASA and other space agencies are investing in vertical farming technology for long-duration space missions. This is a long-term market but a real one.

The Australian Context

Australia’s high electricity costs and abundant agricultural land make vertical farming a particularly tough sell. Countries with expensive land, limited agricultural space, or cheap renewable energy have better economic conditions for vertical farming.

Singapore, with virtually no agricultural land, has government-supported vertical farming because food security justifies the cost. The Netherlands, with advanced greenhouse technology and district heating systems providing cheap energy, makes controlled-environment agriculture work better.

Australia has neither constraint. We have land, we have water (in some regions), we have suitable climate for conventional agriculture, and we have relatively expensive energy. Vertical farming’s value proposition is weakest here.

What the Industry Learned

The vertical farming experiments of the last five years taught the industry several lessons:

Start small and prove unit economics before scaling. Several failed operations built large facilities based on projected economics that didn’t materialise. The survivors started with small pilot operations and only scaled after proving they could make money.

Focus on crops where you have genuine advantage. Competing with conventional lettuce is a losing game. Growing specialty crops that don’t ship well or aren’t available locally is more viable.

Understand your actual costs. Early projections underestimated electricity costs, labour requirements, and maintenance expenses. Realistic financial modelling kills many vertical farming business plans before money is wasted.

Distribution and marketing matter as much as growing. Several vertical farms grew excellent produce but couldn’t get it into supermarkets or convince consumers to pay premium prices. Growing is only half the challenge.

The Path Forward

Vertical farming will continue to exist in Australia, but as a niche industry serving specific markets, not as a replacement for conventional agriculture.

The most likely future is hybrid facilities that combine conventional greenhouse growing (using natural sunlight) with supplemental LED lighting and environmental controls. This gets most of the benefits of vertical farming — year-round production, minimal pesticides, local supply — at a fraction of the energy cost.

We’ll also see vertical farming technology applied selectively. Growing seedlings in controlled environments before transplanting to fields. Using vertical growing for specific growth stages where control matters most. Integrating vertical farming into food processing facilities where waste heat and CO2 can be captured and reused.

My Take

Vertical farming was overhyped and oversold. Investors wanted to believe technology could overcome basic economic constraints, and they funded ventures that didn’t have viable business models.

But that doesn’t mean the concept is worthless. There are applications where it makes sense. The key is matching the technology to problems where it genuinely provides value rather than trying to force it into markets where conventional agriculture works fine.

The Australian vertical farming companies that will succeed are the ones that picked narrow, defensible niches where they can charge premium prices and build sustainable businesses. The ones that tried to scale commodity production have mostly failed, and the few still trying will likely follow.

The lesson is familiar: new technology doesn’t automatically replace established methods just because it’s newer. It succeeds where it offers genuine advantages that customers are willing to pay for. For vertical farming in Australia, those opportunities exist but they’re much smaller than the initial hype suggested.