What is vertical farming? Tobias Peggs of Square Roots explains

Ask what is vertical farming and you usually get a diagram. Tobias Peggs gives you the operating reality: a converted shipping container running the exact climate of northwest Italy at peak basil season, 365 days a year, parked next to a food distribution center so the salad reaches a restaurant within hours of harvest.

Peggs is co-founder and CEO of Square Roots, the indoor urban farming company he started with Kimbal Musk. Before that he was CEO of Aviary, acquired by Adobe, and CEO of OneRiot, acquired by Walmart Labs. He and Michael worked together earlier in Michael's career, which explains the reference to an eighties punk cover band.

Why start a farming company

Peggs answers in two words: climate change.

His argument is worth following because it is about supply chain fragility rather than sentiment. Food eaten on the US east coast in summer largely comes from California and Arizona and is shipped across the country. Layer on droughts, floods, disruption to migrant labor and new pathogens, and the current way of producing food becomes steadily riskier, more expensive and more volatile.

His conclusion is blunt. Ten years from now there is a real chance we cannot do it this way, so alternatives have to exist.

Hence a company that farms near where the customer already is. Put a farm beside a city, grow inside a controlled environment immune to weather, and deliver within hours of harvest instead of shipping across a continent.

The stack, and why it is fatter than software

Michael lays out the scope: permits, upcycled shipping containers, hydroponics, growing, harvesting, packing, distribution, plus a technology layer for precision agriculture.

Peggs laughs at the comparison to a full stack software business, and his answer is a good description of what operating a physical business actually demands.

There is a hardware and software engineering team designing new versions of the technology, aiming at consistent quality yields grown with minimum planetary impact: least possible energy, no pesticides, recirculating water, while driving down cost of goods enough to compete with field-grown commodity crops.

Then a construction team builds the farm. Then farmers are hired and trained. Those farmers work with technology that is half plant science and half data science, following the company's app through their day, logging observations and photographs that feed a cloud analytics layer. Then the food is packed on site and distributed to restaurants and grocery stores. And then people have to like it.

His mental model is a layer cake with an operational lead for each layer, running largely in sequence: engineering hands to construction, construction to the farm team, the farm team to distribution.

Which makes the handoffs the thing operations actually worries about. Getting high quality, food-safe product onto a shelf depends on every step, and the quality is set by the weakest link, so the links get the attention.

His stress relief, he notes, is walking around the farm and eating the salad.

The MVP was a metal box in a Brooklyn parking lot

Asked how you even begin to learn to grow food, Peggs says they took a software approach.

Do not worry about monetizing. Put the scrappiest possible indoor farm together in an empty parking lot in Brooklyn and find out whether you can grow anything.

The long-term vision behind it was already set: feed people with locally grown food, eliminate lengthy supply chains, and remove the waste in them. The number he cites for why that matters is 40% of food grown on farms being wasted, with so many steps between farm and consumer that produce rots, bruises, or is rejected for not looking good enough on arrival.

The first hurdle was deliberately not commercial. Could food grown in a metal box in a parking lot pass a chef's taste test. Because whatever the vision and the technology, nobody cares if the food is not delicious.

Only then came cost competitiveness with field growing, which is iteration on technology and process, and only then commercialization and building a consumer brand.

What a Square Roots farm actually is

Peggs says people tell him it looks like how they imagine we will grow food on Mars.

There are two parts.

The grow zone is where food grows, fabricated from upcycled shipping containers, running a closed-loop hydroponic system. That means no soil and no sunlight. Plants are suspended and fed water and nutrient mix directly to the roots, with energy supplied by LEDs tuned to the light spectrum the plant needs.

The climate control is the part that makes the concept click. Take basil. The best basil in the world comes from the Genoa region in northwest Italy, so Square Roots studied that climate at peak growing season: daytime temperature, night-time temperature, CO2 level, relative humidity. The grow zone reproduces those conditions, and reproduces them every day of the year. Peak season basil, permanently.

The head house is attached, holding the shared infrastructure a commercial food-safe operation requires: automated harvesting and packing machines and a cool room for storage before collection.

His description of standing in the middle watching it run is that it is balletic, with everyone moving in orchestration and a salad coming out the other end.

Distribution as the strategic partnership

Square Roots works with Gordon Food Service, a 125 year old family-owned company with more than 20,000 employees.

Peggs is clear-eyed about why that matters. Transporting food is genuinely hard: wrong temperature and it spoils, and routing from a source to thousands of restaurants or stores is complex. GFS knows how to do it.

The origin of the relationship is the interesting part. Talking to their CEO four or five years earlier, Peggs found someone reaching the same conclusion independently: climate change is not slowing, and the places we source food from today may not work in ten or twenty years, so indoor controlled climate farming needs to be understood now even if it is not ready.

The arrangement that resulted is elegant. Square Roots builds its farms physically on Gordon Food Service distribution centers. Food is grown, packed, moved straight into the distribution center and onto a truck to restaurant customers, removing days or weeks from the supply chain.

At the time of recording they had farms in Michigan, Wisconsin and Ohio, with a Kentucky ribbon-cutting imminent, making five.

His summary of why it works is a good template for any partnership: each side does something that is not in the other's DNA, and both respect that.

The product roadmap, ordered by weight

Michael asks whether they are ready to take on the large produce companies. Peggs reframes it.

Rather than poking a dragon, the Gordon Food Service relationship lets them prove this model commercially today, which signposts a path for everyone else. He notes, without naming them, that two of the large companies mentioned had visited Square Roots farms in the previous month to work out whether it applies to them.

Then he explains the economics, which is the most useful answer in the episode to whether vertical farming is profitable.

Inside the farm, plants convert energy from a light source into biomass. Crops with little biomass, leafy greens, salads and herbs, need relatively little energy, which keeps the energy bill low enough to reach market at a competitive price.

Heavier crops are a different matter. The capability exists to grow pineapples or bananas indoors. The economics do not, because the energy needed to build that much biomass would mean charging fifty dollars for a banana.

Which produces the roadmap. Walk into a supermarket, line up every fruit and vegetable from lightest to heaviest, and that is the sequence Square Roots expects to work through over the next fifty years as technology bends the cost curves.

Measuring the footprint instead of assuming it

Michael puts numbers on the stakes: agriculture contributes roughly 19% of global greenhouse gas emissions, of which about 14 points come from livestock, leaving around 2.5 billion tons a year from produce, excluding deforestation, soil degradation and transport.

Peggs's answer is a model of intellectual honesty.

At the start, the environmental case was intuitive. Eliminate transport, eliminate waste, and it must be better, particularly against a system where 40% of food is wasted and that waste generates methane in landfill.

Then they decided intuition was not enough and worked with a company called Watershed to measure the CO2 emissions of everything they do.

The result was not what they expected. Almost half of emissions came from construction: the steel in the shipping container walls and the concrete pad used for foundations.

So the first response was redesign. The new Kentucky farm uses a carbon-capturing concrete foundation, turning a negative into a positive.

The second bucket was energy, which is unavoidable when your sunlight is LEDs. The solution came through the same partnership. Gordon Food Service is deploying solar with battery storage at every facility hosting a Square Roots farm, taking the farms off the grid and onto on-site renewables, with the first project starting later that year.

The third was distribution, which still exists even after eliminating millions of food miles, and is a systematic program of moving fleets to electric vehicles.

His conclusion is a good description of how to run any sustainability program: assume it is better, then measure to find where the emissions actually are, then work the list. Their projection was a carbon neutral company by 2030.

Dividing the work with a COO

Square Roots' COO is Amanda Lufkin, and Peggs describes them as joined at the hip.

He is careful to say this is how they do it rather than how it should be done, and that the split came from a straightforward conversation about what each of them is good at and enjoys.

Peggs came from business development and likes being out with customers and partners. Amanda comes from finance, and where his eyes glaze over at a P&L, that is her natural material.

So he takes sales and business development, the enabling technology, and the standard CEO responsibilities of strategy, communication and investor relations. She takes the farms.

The three metrics she watches weekly are worth noting for anyone running a physical operation.

Yield against theoretical maximum. Because the environment is so tightly controlled, they know on the day a seed is planted exactly what should be harvested on day 28. The question is how close they got.

Conversion to sales. Are they selling everything they grow, and if not, is the gap a sales problem, an operations problem or a logistics problem.

Farmer happiness. Farming is hard physical work, and you need people who love the plants enough to keep showing up.

The playbook they rewrite twice a year

Asked what operators should know about working with a CEO, Peggs describes a document he and Amanda co-author called the Square Roots Playbook.

It answers six or seven questions in order. What is our mission, meaning how we are trying to make the world better, which should not change across the life of the company. What are our values, meaning what it feels like to work here, how people show up for each other and how work actually gets done. Then what is important right now, expressed as rolling six month objectives, which cascade into department goals and ultimately a budget.

They rewrite it roughly every six months, with the whole executive team rather than just the two of them, so everyone leaves on the same page.

Michael's observation is the right one: revisiting the mission even when it does not change is what keeps everything else in service of it.

Peggs adds the failure mode he is guarding against. You can always construct a business justification for a shortcut. The downstream cost is that people who joined for the mission look at what you are doing and conclude it is not what they signed up for.

The day every customer disappeared

Peggs apologizes in advance for an unoriginal answer to the standing question, and then gives a good one.

At the start of the pandemic, 80 to 90% of Square Roots revenue came from selling food to restaurants. In a single day, they all closed.

Which produced two crises at once. On one side, an operation that cannot go remote, because farms need people in them, requiring every workflow to be re-architected for distancing along with new health and safety procedures. On the other, an entire customer base gone and a new route to market needed immediately.

The detail that makes it vivid is where he was. Peggs was on a ski trip the week the world shut down, deliberately offline, when news of a celebrity diagnosis made the situation suddenly real to America and closures cascaded.

Then Amanda called. She knew he was offline and told him to ski off the hill, get to an airport and come back, because there was an all-day war room the next morning.

Michael's summary is the right one, and worth holding onto as a description of the job: that is exactly what you want in a COO, someone who guards your flank, flags the risk and gets everyone together.

The 5 things I took away from this conversation

1. Replicate the best conditions, permanently. Studying the Genoa climate at peak basil season and reproducing it 365 days a year is the clearest illustration of what controlled environment agriculture actually offers. Not just protection from weather, but the best day of the year, every day.

2. Measure before you optimize, and expect to be surprised. Square Roots assumed their emissions were about energy and transport. Nearly half turned out to be construction materials. Intuition pointed at the wrong bucket, and only measurement caught it.

3. Watch the handoffs. In a business with sequential operational layers, quality is set by the weakest link between them. Naming the handoffs as the primary operational concern is more useful than optimizing any single layer.

4. Yield against theoretical maximum is a great metric. In a controlled environment you know exactly what the output should be, so the gap is pure signal. Most operations do not have that clarity, and it is worth asking where you could manufacture it.

5. Rewrite the mission document even when it does not change. The Square Roots Playbook exists so the executive team re-derives the same answers together every six months. That is what stops a defensible shortcut from quietly contradicting what people joined for.

FAQ

What is vertical farming, in practical terms? Growing food indoors in a tightly controlled environment, without soil or sunlight. At Square Roots, plants sit in a closed-loop hydroponic system inside upcycled shipping containers, fed nutrient solution directly to the roots and lit by LEDs tuned to the spectrum each plant needs, with temperature, humidity and CO2 held at optimal levels year round.

What is controlled environment agriculture? The broader term for growing inside a managed climate rather than relying on outdoor conditions. Its advantage is consistency and immunity to weather. Peggs's example is programming a grow zone to match the climate of the world's best basil-growing region at peak season, and holding it there every day of the year.

Is vertical farming profitable? It depends entirely on the crop, and the variable is biomass. Plants convert light energy into biomass, so low-biomass crops like leafy greens and herbs need relatively little energy and can compete on price with field-grown produce. Heavy crops such as bananas remain technically possible and economically unviable at current energy costs.

Why grow in shipping containers? They are upcycled, modular, and can be deployed close to the customer, which is the whole point. Square Roots builds its farms on distribution center sites so harvested food moves into distribution immediately, removing days or weeks of transport from the supply chain.

Does indoor farming actually reduce emissions? Not automatically, which is why Square Roots measured. Their assessment found construction materials, particularly steel and concrete, accounted for almost half their footprint, ahead of energy and distribution. The response was carbon-capturing foundations, on-site solar with battery storage, and electrifying distribution, targeting carbon neutrality by 2030.

Also mentioned

• Square Roots, its grow zones and head houses, and co-founder Kimbal Musk
• Gordon Food Service, the 125 year old distributor hosting Square Roots farms on its sites
• Watershed, which measured the company's full carbon footprint
• Hydroponics and closed-loop growing systems, the technical basis for soil-free farming
• Aviary, acquired by Adobe, and OneRiot, acquired by Walmart Labs, Peggs's earlier companies
• Square Roots on Instagram at @squarerootsgrow

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Tobias Peggs on Between Two COO's

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