We Pittsburghers are proud of the fact that our fair city has successfully made the transition from its iron and steel reputation a century ago to a “Tech-Med-Ed” economy focused on leading edge technology in robotics, artificial intelligence, and whatever glamorous buzz word shows up next. We are proudly leading the rest of the country into a “Brave New World” with prosperity for all.
In 2015 three young CMU entrepreneurs launched a new business that they called “RoBotany”. Their mission statement was “We believe that solving the world’s most pressing problems requires bold vision and thoughtful action.” Difficult to quarrel with that. They soon changed their name to “Fifth Season” and decided to focus on leafy lettuce production and created “a different kind of world for our greens; our plants grow up in a happy home, made so by robotics and cutting-edge AI to deliver less waste and more freshness.”
They acquired sufficient financing to construct an impressive, highly automated vertical farming facility in Braddock, adjacent to US Steel’s Edgar Thomson Works. There are many positive aspects of this venture – employment of local workers, elimination of the necessity to transport fresh produce long distances, minimum requirement for land and water, superior quality and shelf life for the lettuce, etc.
Sharing an “enthusiasm for collaborative robotics”, the founders felt they had an “opportunity to positively disrupt the food industry by bringing the most advanced tech to farming” by building a team of “dreamers and doers”. Apparently their business plan was built on the assumption that the combination of robotics and artificial intelligence (AI) could reduce the labor cost of producing lettuce to make their process competitive.
I have been aware of their program from its inception and optimistic about its prospects. On the few occasions I found their lettuce available at my local Giant Eagle, I have purchased it without checking its price and concluded that it was at least equivalent to the produce with which it was competing. I certainly would be willing to pay a premium for it, merely to support a local supplier. Giant Eagle frequently features locally grown fruits and vegetables.
In January, 2022, I was pleased to read a press release announcing the expansion of Fifth Season with their plans to build a second, much larger vertical farming facility in Columbus, Ohio, and their hiring of three experienced executives to help them exploit their success. Included in the press release was a link to their website “ www.fifthseasonfresh.com”. Prominent on that site is an impressive video illustrating operation of the Braddock facility. It is worth watching.
Completely “hands-free”, the process begins with empty trays at one end and ends with five-ounce salad packs in plastic containers at the other. Vertical farming has been converted into “smart manufacturing”. The artificial intelligence system collects over 25,000 data points for each tray. The video reports that the facility has a production capacity double that of other vertical farms, and less capital expenditure per square foot. Fifth Season had every claim to be “poster boy” for Pittsburgh’s high-tech revival.
Then, without warning, last October, Fifth Season abruptly announced that it was closing down, laying off about one hundred employees, leaving the facility full of partially grown crops. Today, the facility that originally cost thirty million dollars to build is available for sale for twelve million dollars to anyone interested in automated vertical farming, or for conversion to some other food processing related enterprise. Coming on the heels of the previous failure of AI-Argo, this incident has raised numerous questions about the high-tech portion of Pittsburgh’s New Economy.
This subject is ripe for an investigative journalist to devote a series of articles to the reasons why such a promising enterprise has failed, or perhaps for a Business School student to prepare a case study for his/her dissertation on that topic. Lacking that, we have tried to understand the situation and learned only that it is indeed highly complicated.
At its peak, the Braddock facility produced 500,000 pounds of salad lettuce a year, packaged in five-ounce plastic containers. At this time, similar competitors’ containers sell for $3.99 at Giant Eagle. This equates to a little more six million dollars for 500,000 pounds at the retail end. How much of this was available to the original supplier? If we assume a sixty-seven percent markup between wholesale and retail, the wholesaler will get about $7.20 per pound.
The wholesaler’s costs are in three categories – amortization of capital investment, operating costs, and overhead expenses of the parent company. My cursory analysis of the Fifth Season situation, based on very little credible information, suggests that their amortization costs were about $4.65 per pound of lettuce produced, their operating costs about $7.00 per pound ($5.00 for labor, $1.00 for energy, and $1.00 for everything else), and their overhead costs an additional $7.00, for a total far above the target wholesale price.
Does this mean their business model is flawed? Is it a mistake to automate the process of growing lettuce? Trax Farms is selling fresh, manually picked lettuce for $1.99 per pound; apparently their labor cost is well below $2.00 per pound.
A potential owner, borrowing twelve million dollars to buy the plant, with amortization costs of about $1.86 per pound and a 30% overhead expense ($1.66 per pound), would have to operate it for $3.68 per pound (including $1.00 per pound for energy) to break even. For 500,000 pounds per year that equates to $1,340,000 labor costs (perhaps fifteen full-time employees). It certainly doesn’t appear to be an attractive investment.
My conclusion is that this particular project was conceived as a showplace for high-tech innovations and that one cannot justify that magnitude of investment for a simple process like growing lettuce. Automation/robotics and AI-based process control systems still have great potential, but only where a credible business model justify them.