Swiss Life Asset Managers has made an early move into vertical farming through its value-add infrastructure strategy. It is betting that controlled environment agriculture is ready to become a stable infrastructure business once the right contracts are in place. Stefano Berra reports.

If you thought growing salad would never be an infrastructure business, you might have to think again.

Swiss Life Asset Managers in April made the largest investment by an infrastructure fund in so-called vertical farms to date, by setting up a joint venture with Milan-based Planet Farms Holding.

A vertical farm is a technology-heavy building where vegetables, particularly salad and herbs, are grown on shelves under artificial light in a temperature- and air-controlled environment, rather than in an open field.

Agriculture at a first glance sits at the opposite end of the spectrum compared to an infrastructure investment. It is notoriously volatile and exposed to commodity prices and cycles. It has virtually no barrier to entry – anyone can grow salad in their back gardens.

But Swiss Life AM thinks it has found a way around this and is betting EUR 125m from its Global Infrastructure Opportunities Growth II value-add fund on it.

Infralogic sat down with the Swiss Life AM team that made the investment to understand why.

Carlo Forattini, senior investment manager in the value-add infrastructure team who worked on the Planet Farms deal, takes a rather philosophical approach to begin with. “With this investment we contribute to the provision of reliable food supply,” he says. “Infrastructure is about providing essential services, and I cannot think of anything more essential than food.”

He quickly moves on to more practical considerations. Climate change is hitting crops and agriculture yield, arable land is shrinking, water is scarcer, and the cost of fertilisers, pesticides and labour is rising. As a result, food prices have historically been on the rise and have doubled in real terms since the 1990s, according to the UN’s Food and Agriculture Organization’s (FAO) food price index.

“You combine all these problems, and you quickly realize that traditional, open field agriculture is at an inflection point,” says Forattini.

Coming out of extremely challenging years plagued by supply chain disruptions – from Covid to today’s trade wars – large-scale food buyers such as supermarkets and industrial food processors are putting a premium on stability and certainty.

Swiss Life AM thinks vertical farming, or controlled environment agriculture, offers exactly that and hence is rapidly developing into a business with strong infrastructure characteristics.

Planet Farms deal

The vertical farming sector is not for the faint-hearted, and is coming out of a long list of high-profile bankruptcies. The biggest was Plenty Unlimited, a US company that raised USD 940m from the likes of Walmart, Amazon founder Jeff Bezos, and Softbank, but filed for Chapter 11 last March. Other early movers in the UK, France and Germany have followed a similar fate.

But Swiss Life AM reckons now is the right time to invest, as energy prices – a key cost – have come down and technology has matured.

In the April deal, Swiss Life AM provided EUR 125m of new capital in return for a controlling stake in a joint venture with Planet Farms, which in turn contributed its existing 20,000 m2 vertical farm in Cirimido near Milan, Italy, and a development pipeline for more facilities.

Planet Farms was set up in 2018 by former food industry executive Luca Travaglini and seasoned investor Daniele Benatoff, who developed the technology and the first plant.

Planet Farms will continue to run agronomic R&D separately, while its stake in the joint venture “incentivizes our industrial partner to continue driving improvements in agronomy and development of new growth recipes, all of which will boost profitability”, says Gianfranco Saladino, head of value-add infrastructure at Swiss Life AM.

The Cirimido plant is expected to reach full production capacity this summer, but already has positive run-rate EBITDA, according to Saladino.

The joint venture plans to build more sites across Europe during Swiss Life AM’s hold period and raise platform-level financing to back the expansion, particularly as the proportion of revenues backed by “take-or-pay” contracts increases. The first new facility is being planned in the UK, to replicate the Cirimido plant.

A vertical farm is strikingly different from a greenhouse. It has no glass roof, but rather uses LED lights that provide uniform lighting to better control growth cycles. Crucially, it operates in a clean room environment with “standards that are comparable with a surgery room”, as Forattini puts it. This means no pesticides are needed and the produce does not need to be washed, which translates into longer shelf life and better quality.

Forattini likens the new vertical farm to a data centre – and from outside it does look like one. It is also highly automated, “so you see only few people and more machines”, he adds.

A “green” data centre

The parallel with data centres does not stop there. In the future, Swiss Life AM foresees having “built-to-suit” facilities dedicated to large customers ready to sign take-or-pay contracts of more than 10 years – the same model of hyperscale data centre operators, except that it is for selling salad rather than storing data.

For now, it is starting smaller and nimbler. Most of the revenue comes from “framework agreements” with supermarkets and food companies – with a fixed price but no minimum volume guarantee. It’s good to attract new customers, but it is exposed to volume risk.

Swiss Life AM wants to “strike the right balance between growth and stability” to meet the value-add fund’s target returns and progressively shift towards longer, more stable contracts, says Saladino.

Once up and running, vertical farms offer “a very high EBITDA margin similar to data centres”, he adds, compared to margins of around 2% to 5% in traditional agriculture.

Stabilising costs

Sourcing these contracts requires the Planet Farms joint venture to be competitive. Typically, vertical farms have significantly higher capex and energy costs than traditional farms or even greenhouses, but have much higher productivity and much lower operating and logistics costs.

In practice, even accounting for the ability to charge a premium for a higher quality product and more security of supply, until now many operators have struggled to make the numbers work – hence the recent raft of bankruptcies.

Six years ago, research by Boston-based agriculture consultant Peter Tasgal showed that salad produced in a US vertical farm was five times more expensive than the same product from an outdoor farm once it reached final consumers.

However, Forattini claims that salad produced in Planet Farms’ vertical farm has now reached price parity with other pesticide-free alternatives from traditional farming.

One reason is that operational costs are going down as scale increases. A vertical farm requires fewer inputs than a traditional farm or a greenhouse – less water, less fertilizer, no pesticides, no nitrogen to keep packed produce fresh. This is why the investment is less exposed to commodity cycles, argues Swiss Life AM.

“If there were a spike in input costs, traditional agriculture would suffer more compared to controlled environment agriculture,” says Forattini.

Capex requirements are also shrinking, similarly to battery storage or solar PV, as the cost of LED lights has tumbled by 90% over the past 15 years.

Tackling energy costs is harder as they are the single biggest operational cost for a vertical farm, particularly as competitors harness the sun for free. Forattini says the joint venture is looking to sign power purchase agreements to mitigate this risk.

Forattini argues that the investment in Planet Farms is not a bet on technology. Vertical farming is not such a new concept after all. The US space agency NASA started experimenting in the 1980s and has been growing vegetables on the International Space Station for more than 10 years (“at a loss”, quips Forattini).

The tricky part is making a profitable business out of it at an industrial scale, which is what doomed the various peers that went bankrupt over the last years, according to Forattini.

“Other companies disappeared because they were too early, they were still betting on agronomic or technological improvements,” he says. “We don’t speculate on agronomic yield improvements.”

Forattini is not worried about obsolescence either. Even if a more efficient vertical farm were to emerge, there would still be plenty of room in the market. The implied market share of the facility in Cirimido is less than 0.5% of the Italian ready-to-eat packaged salad market, which means vertical farms will compete with traditional agriculture before they start competing with each other. “We are gaining market share from the remaining 99.5%,” says Forattini. “We are just getting started.”

Some operational and technical risks still exist. Before its Cirimido site, Planet Farms built an earlier production facility in Cavenago Brianza that caught fire in January 2024 and was shut down.

The company however said the blaze was not linked to its technology or production process. “It’s something that could have happened to an airport or a data centre,” says Forattini. “It was not something specific to controlled environment agriculture.”

Food infrastructure – a new vertical?

While Swiss Life AM’s deal might be the largest investment by an infrastructure fund into a vertical farm, it did not happen in a vacuum.

Gresham House invested GBP 26m in UK-based vertical farm business Fischer Farms in 2021 through its British Strategic Investment Fund (BSIF), which targeted a mix of infrastructure, housing and innovation sectors.

San Francisco-headquartered Generate Capital started backing its peer GrowUp in the same year, and in 2024 injected GBP 38m to expand the company’s vertical farm in Kent, England.

Other infrastructure funds have invested in high-tech greenhouses, which share some of the same characteristics of a vertical farm, such as growing vegetables through hydroponics (in water rather than soil), but not others, such as using controlled environment rooms.

In 2019, New Zealand-based Morrison’s value-add infrastructure fund bought Australia’s Sundrop Farms, which grows tomatoes, from a KKR private equity fund and sold it to investment firm Centuria Capital three years later. Gravis Capital is now also moving into the space.

Greencoat Capital has also invested in greenhouses, although it leased them to growers rather than running operations directly.

More broadly, investment by infrastructure funds in food-related cold chain logistics is growing, with deals such as Apollo Infrastructure’s acquisition of a stake in Spanish refrigerated truck operator Primafrio in 2022.

Fish farming is perhaps the closest parallel, with mainstream infrastructure managers such as Antin and Goldman Sachs Asset Management investing in Norwegian wellboat operators Sølvtrans and Frøy, respectively.

Still, Swiss Life AM’s team thinks that the Planet Farms has an edge. “Aquaculture has more history and more success stories,” Forattini says. “But we encountered stronger infrastructure characteristics in controlled environment agriculture.”

In general, he believes that vertical farming products are essential for more applications than fish, resulting in a deeper market. Additionally, there is more room to stabilize and hedge costs, which results in higher cash flow visibility. “Imagine that you get a contamination in a fish farm,” he says. “It takes two years to grow salmons and go back to market. In the case of salad, it takes us 20 days to reappear on the shelf.”

As the sector matures and more infrastructure funds dip their toes into the market, Swiss Life AM believes that by the time it will exit its Planet Farms joint venture, more peers with lower cost of capitals will consider investing in these assets.

“There is a lot of work ahead of us to demonstrate our ability to scale internationally, but investing in controlled environment agriculture has been demystified,” says Saladino. “At exit, this could be palatable to core-plus or even core investors.”