At this point, Gordon Dean isn’t in a position to negotiate on lettuce. It’s so hard to come by that if a few cases show up at his family’s chain of five grocery stores around the Ottawa Valley, the price is the price.

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Canada's lettuce problem: What a $15 bag of romaine says about our food system Back to video

“I don’t even know the price until it shows up,” he said.

In the last few weeks, Dean has considered himself lucky if he gets a quarter of the cases he normally needs, and actually, that’s fine, because at these prices — $6.99 for a head of iceberg, $14.99 for a bag of three romaine hearts — nobody’s buying it anyway.

“The price points are insane,” said Dean, who runs Mike Dean Local Grocer Ltd., named after his dad. “I won’t put a margin on it because we’re already looking ridiculous.”

The reason for the shortage and the ridiculous prices, at least this time around, is Impatiens Necrotic Spot Virus (INSV), a bug-borne disease that has wiped out a massive chunk of the lettuce harvest this fall in California’s Salinas Valley. The region, known as the world’s salad bowl, grows more than half of all lettuce produced in the United States. This season, however, lettuce producers reported losing as much as a third of their crop, according to the Grower-Shipper Association of Central California.

Canada spends roughly half a billion dollars annually on American lettuce imports, by far the most spent of all the vegetables we import, according to the federal department of agriculture. That means when farmers in the Salinas Valley run into trouble, bags of romaine here can cost $14.99 and fast food restaurants post notices in their windows, warning your burger won’t have anything green on it.

“Is it a wake-up call? Yes,” said Ron Lemaire, who leads the Canadian Produce Marketing Association, a lobby group that represents fruit and vegetable growers, shippers, importers and exporters. “We need to shorten our supply chains. We know that.”

This isn’t an isolated incident. Salinas ran into similar problems with INSV in the fall of 2020. One of the suspected factors behind the outbreak is unseasonably high temperatures, which puts stress on the crops and makes them more vulnerable to disease. On top of that, California is in the middle of the driest three-year period ever recorded in the state, going back to 1896. Agriculture scientists are warning that climate change will make extreme drought and pestilence even more frequent, and Governor Gavin Newsom’s latest water strategy is focused on “adapting to a hotter, drier future.”

If Canada wants to continue to have a stable, affordable supply of lettuce through the winter in years to come, supply chain experts believe we’d better start figuring out how to grow more of it ourselves.

“California was just always there. It just always produced this overwhelming supply of cheap product. So it made no sense to really look at alternatives to it,” said Lenore Newman, director of the Food and Agriculture Institute at the University of the Fraser Valley in British Columbia. “It all worked great, as long as climate change wasn’t wrecking the planet.”

Vertical farms to the rescue

Newman argues that the classic farming model, with one layer of crops sprawling across thousands of acres, isn’t going to replace the Californian produce powerhouse. It’s too cold or too hot for too much of the year in most regions in Canada. So the most viable alternative is to grow smaller quantities, indoors, closer to the consumer, in every population centre in the country.

New technologies and advancements in LED lighting have made it easier and cheaper to grow certain types of lettuce and strawberries and a few other crops indoors, through a method known as vertical farming. One benefit of the method is that vertical farmers aren’t forced to grow woody breeds developed to survive long trips from the southern growing regions to markets on the East Coast. The downside, at least for now, is that it’s expensive.

Vertically farmed products are usually priced at a premium, around the same level as organic produce. Plus, the farms themselves can cost millions of dollars, and the optimism among investors to funnel money into building them might be wearing thin after a few recent misfires at buzzy new startups in the U.S.

To wrap your head around how vertical farming works, picture a billiard hall with rows and rows of pool tables. Then imagine that instead of felt, the pool tables are covered with trays of dirt and seeds. And instead of the little lamp hanging over the pool table, it’s a network of highly efficient LEDs, shining a mix of colours calibrated specifically to the needs of the plants growing beneath them. Each pool table has another pool table on top of it, and another one after that, stacked up all the way to the roof. And the billiard hall is actually just a windowless warehouse, cheap and compact enough to build at the suburban edge of every mid-sized city in the country, so that the crop can be delivered to market within a day of being harvested.

GoodLeaf Farms in Guelph, Ont., backed by a $65-million investment from Canadian french fry giant McCain Foods Ltd., is the most significant vertical farm in Canada right now, according to investors who follow the sector. It’s producing hundreds of thousands of pounds of baby greens for major grocery chains in Ontario, including Loblaw Cos. Ltd. stores and Empire Co. Ltd.’s Sobeys, all grown under LED lights in a windowless warehouse at an industrial park. GoodLeaf is typically still more expensive than Californian lettuce, but the selling point is it’s fresher because it hasn’t travelled thousands of kilometres to get to the produce counter. That also means outfits such as GoodLeaf can choose to grow breeds of lettuce based on taste, or crispiness, or how well the leaves stand up to dressing without getting soggy.

Since INSV started destroying lettuce in California this fall, GoodLeaf has been flooded with orders from grocers and restaurants. The grocery store chains provide forecasts for how much product they expect they’ll need from GoodLeaf, and some of those forecasts have jumped by 200 per cent due to the California shortage, said Juanita Moore, vice-president of corporate development at the farm. The facility is trying to tweak the process to increase volumes and fill more orders. “But we’re pretty close to capacity at this point,” she said, adding there’s enough demand for GoodLeaf to open several more plants in Ontario alone.

The company doesn’t have any plans in the works for more Ontario facilities at the moment. Instead, it is focused on expanding its reach to the national level by building plants in Calgary and Montreal, each double the size of the Guelph operation.

The two new farms are expected to be up and running next year, at a capacity of about 770 tonnes a year. Moore said GoodLeaf has the option to expand both plants, to roughly 1,500 tonnes each. Throw in the Guelph facility’s 385 tonnes a year, and that’s a maximum capacity around 3,500 tonnes of locally grown lettuce every year, or about 1.4 per cent of the 246,767 tonnes of lettuce that Canada imported from the U.S. in 2020, the federal department of agriculture.

“We need a couple hundred of these things. Then we’re golden,” said Newman at the University of the Fraser Valley, who consults in the vertical farming industry.

Capital crunch

That sort of expansion will require a lot of capital, and that capital might be harder to come by now, said Jonathan Belair, the former head of McCain’s global strategy and merger and acquisitions. Belair is now managing Power Sustainable Lios, a private equity firm focused on investing in sustainable agriculture across North America, backed by Quebec’s Power Corp. and the Desmarais family.

He said the fund is actively looking to invest in vertical farming and has “met with a lot of players in the space across North America.” A lot of those players are still too early in the development phase to compete at a commercial level. Others have already attracted hundreds of millions of dollars in the last two years after making flashy projections around their growth, but have struggled to follow through, he said.

Earlier this month, for example, one of the most buzzed-about operations in the U.S. indoor farming industry told shareholders in a quarterly update that management has “substantial doubt about the company’s ability to continue as a going concern.”

AppHarvest Inc., the Morehead, Ky.-based fruit and vegetable grower with Martha Stewart on its board, has been attracting a flurry of media attention since launching in 2018, with one CNN profile suggesting it could be the “future of farming,” as the Kentucky Herald-Leader pointed out in a story about the company’s downturn. More recently, AppHarvest has shelved plans to open 12 farms by 2025 and has incurred US$83.3 million in losses in the nine months ended Sept. 30, according to its Nov. 7 financial update. AppHarvest shares were trading around US$1.11 this week, down from a high of about US$35 in February 2021.

“You’ve got a few names that unfortunately have painted the sector with some unfortunate news,” Belair said.

Despite that, there are also more disciplined vertical farming players, who have raised limited capital and been careful about how they spend it, he said.

“Just to be very honest, we’re running into others that are actively looking at controlled environment agriculture. So I wouldn’t make it a blanket statement that from a private capital perspective, folks aren’t looking.”

Moore, at GoodLeaf in Guelph, said her company isn’t struggling to find investment, it’s just being careful in how fast it expands.

“We’ve really been ensuring we have a solid foundation before expanding our footprint, and have really been prudent about our use of capital,” Moore said. “But capital is not a constraint for us.”

Don’t write off California just yet

It’s also worth noting just how formidable a competitor California will be for any Canadian vertical farming startup. The lettuce coming out of that state represents more than a century of innovation, from breakthroughs in breeding that created “workhorse” varieties that don’t wilt or bruise in transit to “space-age” packaging that prolongs shelf life, according to Newman at the University of the Fraser Valley.

“We have enjoyed really cheap produce in North America because the Salinas Valley and a few other locations in California figured out how to mass produce a couple varieties,” she said. “They really did innovate.”

This month’s shortage is expected to subside as early as next week, driving down prices as new crops from Arizona and southern California start hitting the market. At Mike Dean Local Grocer, the chain of five stores in eastern Ontario and western Quebec, the price for a bag of three romaine hearts was already down to $11.99 as of Wednesday, from $14.99 earlier in the week, after his cost on a case dropped 15 per cent.  Going forward, farmers and exporters in the Salinas Valley are confident they’ll be able to start using new breeds that will be more resistant to INSV, preventing any more outbreaks in the future.

“I wouldn’t write us off,” said Mary Zischke, a consultant in the lettuce industry who is currently heading up the INSV task force for the Grower-Shipper Association of Central California. “We have heat waves, but we also have a lot of very perfect weather for lettuce production.”

Perfect weather, for lettuce, means warm temperatures during the day, around 23 C, falling to 7 C at night, which is why it’s hard to grow lettuce outdoors for long stretches in most of Canada. If it’s too cold, the leaves get damaged and the lettuce rots in transit. Too hot, and the lettuce has “poor head formation,” or it gets bitter, or it falls victim to something called “tipburn,” according to a fact sheet from the University of California’s Vegetable Research & Information Center.

That, in part, is why it has made sense to produce much of North America’s lettuce in Salinas, where the conditions are ideal for most of the year, from April through November. That region, and the lettuce bred to grow there, has reshaped our modern understanding of the leafy vegetable — far from the aphrodisiac of Ancient Egypt, which was considered “a phallic symbol that represented the celebrated food of the Egyptian god of fertility, Min,” according to Smithsonian Magazine.

From butter to iceberg to romaine

Before the First World War, when California was only a small player in the lettuce trade, butter lettuce was the most popular breed in the U.S. By the 1920s, California was devoting more and more acres to lettuce. At the same time, iceberg emerged as the new top lettuce, with more than four times the shipments of butter lettuce by the mid-1920s, Daniel Geisseler and William Horwath at University of California Davis wrote.

The main reason for the switch was that lettuce was now making long journeys across the continent by rail, and iceberg was sturdier than butter lettuce. Romaine didn’t grow in popularity until much later in the 20th century. In 1992, 80 per cent of California lettuce was iceberg. By 2011, as demand for romaine and leaf lettuce grew, iceberg only represented 57 per cent of the lettuce production, according to Geisseler and Horwath.

More recently, romaine has become a trickier commodity to bring into Canada, due to concerns around E. coli. For the last three years, the Canadian Food Inspection Agency has been demanding that all romaine coming out of four counties in the Salinas Valley first be subject to sampling and testing. The rule is meant to “protect Canadian consumers,” since those areas have been flagged by food security authorities as a recurring source of yearly E. coli outbreaks in Canada between 2016 and 2019, the agency said in an email.

But when supply is tight and demand is high, California shippers won’t bother jumping through those extra testing hoops in order to send product to Canada, squeezing the supply of romaine even more.

“A number of the U.S. producers and shippers are like, ‘You know what? We don’t need the hassle to do something just for Canada,” said Jeff Hall, food safety specialist with the Canadian Produce Marketing Association.

Romaine has historically been out of reach for indoor farmers in Canada. The breeds that grow in the fields just don’t work in greenhouses or vertical farms. That, however, could be changing as seed houses develop breeds specifically for indoors.

Whole Leaf, an Alberta greenhouse operation that produces 20 million heads of lettuce per year, expects it could start growing romaine at a commercial level in a year.

“We’re trialling all the time, and we’ve had some success now,” said David Karwacki, chief executive of the Star Group Ltd., owner of Whole Leaf. He said he was initially invested in vertical farming, but chose to innovate in the greenhouse business instead because he couldn’t get vertical farming to make economic sense without help from the sun.

“It doesn’t pencil,” he said. “You just cannot replace the sun.”

Indoor romaine would mark a major breakthrough in the world of greenhouses in Canada, which have for years focused on growing a year-round supply of Boston lettuce, with tender leaves curling loosely into itself, encased in a plastic clamshell.

It looks a lot like butter lettuce.

• Email: jedmiston@postmedia.com | Twitter: jakeedmiston

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