Jan 22 2019
The Hydroponic Crop Farming industry has recorded strong, steady growth over the past five years. Unlike traditional agricultural growing methods, industry operators are not reliant on favourable weather conditions to ensure output. Overall, industry revenue is expected to grow at an annualised 5.8% over the five years through 2018-19, to $432.1 million.
“The core benefit to hydroponic farming lies in the controlled growing environment, which allows for predictable output in terms of both quality and quantity. This attribute makes hydroponic farms desirable suppliers, as contracts are more reliably fulfilled compared with outdoor farms, which are subject to extreme weather events and drought. Consistent output and quality have allowed some industry operators to develop links with retailers, which have underpinned the industry’s expansion,” said Senior Industry Analyst Tom Youl.
Hydroponic farming is a method of growing plants without soil, either by using mineral nutrient solutions in water or another medium. These methods pump fertilised water around the crop, with plant roots exposed to liquid instead of soil. Most hydroponic farms are built indoors or in greenhouses, meaning other aspects of growing, such as temperature, can be controlled. Hydroponically grown produce requires approximately one-third of the amount of water used for the same volume of conventional, soil-grown produce. Consequently, annual yields for hydroponically grown produce are typically higher than those for conventionally grown produce.
Hydroponic farming’s consistent output has significantly reduced the revenue volatility associated with conventional farming, attracting many new farmers and significant capital investment to the industry. As a result, hydroponic farms have been growing in size and sophistication. This growth has allowed the industry’s larger players to secure supply contracts with supermarkets. For example, Sundrop Farms won a major 10-year contract in 2016 to supply Coles nationally with tomatoes, reflecting the company’s ability to consistently supply quality produce.
Despite the industry’s strong performance over the past five years, the significant capital investment required to enter the industry has somewhat limited growth in enterprise numbers. For example, Sundop Farms, the industry’s largest player, spent over $200 million developing its farm near Port Augusta, SA. However, industry operators typically benefit from higher profit margins than traditional farmers once a hydroponic farm is established. Profit margins for hydroponic farmers are generally higher due to the comparatively lower volumes of water, fuel and fertilisers required, and lower operational costs. In addition, hydroponically grown produce often attracts higher prices than outdoor grown crops due to its consistently high quality. As a result, many industry farmers service quality produce retailers and food-service firms.
The Hydroponic Crop Farming industry is projected to continue recording strong growth over the next five years. As industry firms become larger, supermarkets and large produce retailers are anticipated to become increasingly important markets for industry farmers. While this trend stands to benefit the industry’s larger players, small-scale operators are also forecast to flourish over the next five years. As hydroponic farming typically uses low volumes of pesticides and chemicals, industry operators may be able to attract price premiums similar to those attracted by organic produce. Additionally, increasing health consciousness among consumers is anticipated to provide a source of slow but steady demand growth. Overall, industry revenue is projected to grow at an annualised 5.8% over the five years through 2023-24, to $573.1 million.
Industries mentioned in this report: