Part 2: Pharmaceutical Crops
Table of Contents
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- NEXT-GENERATION CROPS THAT MAY FIT INTO A VERTICAL FARMING SYSTEM
- PHARMA CROP MARKET POTENTIAL
- OVERALL TRENDS IN VERTICAL PHARMA CROP FARMING
- DISTRIBUTION CHANNELS
- COMPETITIVE SITUATION
- A prime motivation for pharmaceutical production is that crops are typically grown for a single buyer at a time, and marketing and logistics costs are much lower compared to consumer markets
- One drawback is the possible need for specialized equipment, though margins may make up for these costs
- Indoor cultivation of industrial crops can help mitigate risks of cross contamination and escape of unwanted traits into field agriculture
- Anecdotally, the value of some crops has been estimated at roughly $2 million per acre, though this claim needs to be substantiated
- In addition to pharmaceuticals, plants can be grown for extracts that can be used in food technology applications. There are a number of so-called flavor houses that develop high-value products for food and cosmetic companies.
Role of vertical farming in pharma crop production
- In pharmaceutical crop applications, controlled environment production provides additional control over growing conditions, which may be necessary if product quality is a major concern to industrial buyers
- Perhaps most importantly, indoor culture reduces the risk of unwanted escape of bio-crops into the environment
Next-generation crops that may fit into a vertical farming system
Some crops used in transgenic/molecular farming include the following (and their applications):
|Tobacco (enzyme production)||Barley, rice (immunology)|
|Alfalfa (human growth hormone)||Tomatoes (resins)|
|Safflower (insulin)||Carrots (diabetes research)|
|Potatoes (vaccines)||Duckweed (biofuels)|
|Corn (drug mfg., plastics)||Moss (phytoremediation)|
Kathleen Hefferon (2012) Let Thy Food be Thy Medicine: Plants and Modern Medicine. Oxford University Press.
Pharma Crop Market Potential
Pharma crop market potential is clustered geographically near industry demand. Major users considered here include Contract Manufacturing Organizations (CMOs), flavor houses, and natural/botanical product manufacturers.
Contract Management Organizations
Due to the high-risk nature of pharmaceutical development, we believe it is advisable to look initially to CMOs as a target market for raw industrial ingredients. While major pharmaceutical companies, such as Pfizer, Novartis, and Roche have massive manufacturing capabilities and input requirements, they are likely to rely on aggregators to ensure product quality and consistency. At the other end of the industry spectrum are small-scale firms devoted to R&D. While future high-value uses may arise from work done by these companies, it may be too risky to pursue a sales strategy based on supplying value chains for products that may never reach the market. CMOs occupy an entrepreneurial space between the small research firms and large players and would likely be a better fit with an emerging crop grower.
Plants used in manufacturing pharmaceutical compounds include the following:
- Ginger (gingerol, used in arthritis and cancer treatment)
- Vegetable oils (vitamin E)
- Beets (geosmin, used in perfumes)
- Various herbs, such as thyme (caffeic acid, used in cancer, immune system, and anti-inflammatory treatments)
- Guinea pepper (paradol, an antioxidant)
- Valerian (valerenic acids, used for sleeping disorders)
- Tobacco (deoxystreptamine, used in antibiotics)
- Astralagus root (astragenol, used for cardiac conditions)
Table 6. Canadian Contract Manufacturing Organizations (CMOs)
|Dalton Pharma Services||Toronto, ON||http://www.dalton.com/|
|GFR Pharma||Maple Ridge, BC||http://www.gfrpharma.com /|
|PNP Pharmaceuticals||Burnaby, BC||http://www.pnppharmaceuticals.com/|
|Therapure Biomanufacturing||Mississauga, ON||http://www.therapurebio.com/CDMO/|
|Wellspring Pharmaceuticals||Oakville, ON||http://www.wellspringcmo.com/|
Another avenue for marketing vertically-grown crops is in the food ingredients sector. Some of the major flavor houses in North America are listed below. This industry is concentrated in the U.S., particularly in New Jersey and in the Great Lakes states.
Table 7. North American Flavor Houses
|ADM/Wild Flavors||2 locations in U.S. and Canada||https://www.wildflavors.com/|
|Ajinomoto USA||Portland, OR; Ft Lee NJ; and 4 other locations||http://www.ajinomoto-usa.com/|
|Bell Flavors & Fragrances||Northbrook, IL; Middletown, NY; Montreal, QC||http://www.bellff.com/|
|Firmenich||8 locations in the U.S.||http://www.firmenich.com/en_INT/|
|Frutarom||6 locations in U.S. and Canada||http://www.frutarom.com/|
|Givaudan||10 locations in U.S. and Canada||https://www.givaudan.com/|
|International Flavors & Fragrances||8 mfg/R&D locations in U.S.||http://www.iff.com/|
|Kerry Group||30 locations in U.S. and Canada||http://www.kerrygroup.com/|
|Mane SA||6 mfg/R&D locations in U.S.||http://www.mane.com/|
|McCormick & Company||10 locations in the U.S.||http://www.mccormickcorporation.com/|
|Sensient Technologies||6 locations in U.S. and Canada||http://www.sensient.com/|
|Symrise||14 locations in U.S. & Canada||https://www.symrise.com/|
|Takasago Int’l Corporation||5 locations in U.S.||http://www.takasago.com/en/index.html|
A scan of the Natural Health Products registered with Health Canada provides an instructive look at the range of plant compounds used in different applications, such as personal care products and pet food. A search of the Natural Products Database in late September 2016 revealed the following number of selected products containing specialty plant ingredients:
|Tea||27,210 product entries|
Overall trends in vertical pharma crop farming
Industry observers cite the following major trends in vertical pharmaceutical crop farming:
Market trends (pharma crops)
- Active compounds based on natural products
- Extracts, nutritional supplements
- Natural fragrances
- Flavors and food additives
- Product purity
Business management considerations
- Rapidly decreasing costs and improvements in lighting technology
- Increased use of robotics and automation, enabled through improvements in monitoring and control technology. Note: this partially negates the “local jobs” justification sometimes required for eligibility for community development funding
Existing high-value segments
The most prominent niches in pharma crops are likely to be found in botanical ingredients. Firms such as BDS Natural Products in Los Angeles (http://www.bdsnatural.com/), for example, markets hundreds of products derived from plants to natural product manufacturers, retailers, and food service companies throughout North America. The key niche in this space is the need for product that meets exacting food safety standards, a market well suited for the controlled environment of an indoor farm.
One market just beginning to be explored in indoor agriculture is the botanical ingredients segment, especially in Europe but also in North America. For example, herbal teas are regulated as pharmaceuticals in Germany, the world’s largest market and trend-setter for these products. Products such as peppermint, chamomile, and other ingredients have so-called Maximum Residue Limits (MRLs) in Germany that in some cases are lower than detectable thresholds. Due to the pesticide-free growing conditions afforded by vertical farms, this market could become a promising outlet for indoor growers. While exporting to Europe may be a challenging first step, there are tea companies in the U.S. and Canada, such as the Hain Celestial Group, that are adopting these pesticide-free standards, along with more stringent food safety protocols.
Size and growth of each segment
The estimated size and growth rates of selected market segments are reported in Table 8, below:
Table 8. Estimated North American market and growth rate for vertically-farmed crops, 2016
|Pharma Crops||Raw Value||Annual Growth*|
|Medicinal food-related||$120 million||+10%|
|Total pharma||$120 million||+10.0%|
Source: Calculations by author. *Annual growth rate = annualized average over 5 years
Profitability of market segments
The profitability of the three major market segments in this report are summarized in Table 9, below, along with notes particular to each market.
Table 9. Market outlook for pharmaceutical crops in U.S. and Canada, 2016
|Varies on a company-by-company basis. Focusing on one or two core competencies is more likely to be profitable in the long run.||Slow but steady growth. Medicinal food category growth around 10% per year; other categories unknown.||Key to growth is establishing long-term supply partnerships and delivering high quality, in-spec product.|
Pharma crops produced on a contractual basis with a CMO, flavor house, or botanical ingredients company will be handled directly by the two parties. As such, distribution is a fairly straightforward hiring of transportation services; other parties in this supply chain do not make strategic decisions about the market or play gatekeeper, as they often do on the food sector.
Pharma crop competitors can literally be any grower working in a diversified system. While growers in areas known for specialty crop production, such as coastal California, the Willamette Valley in Oregon, the Skagit and Yakima Valleys in Washington, the Fraser River Valley in British Columbia, and parts of upstate New York, Ohio, and Michigan may be the most likely to grow crops for pharmaceutical and botanical buyers, progressive growers everywhere in North America can be found. Thus, a more appropriate competitive strategy in this case would be to contact buyers directly and grow on a contract basis, rather than enter a market with no guaranteed buyer.
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