What is the future outlook for plant lighting?
Ⅰ. Artificial light sources change the planting mode, and the plant lighting market continues to expand.
(1) Improving light energy utilization rate, lighting promotes efficient and high-quality growth of plants
Plant lighting refers to using an artificial light environment to replace sunlight to ensure the healthy growth of plants. The growth and development of plants cannot do without the role of light. Light acts as an environmental signal to regulate a series of growth and development behaviors of plants, such as seed germination, morphological formation, flowering, and the synthesis of secondary metabolites. At the same time, photosynthesis in plants absorbs sunlight and converts it into chemical energy in the form of sugar, which is then used to carry out growth.
Spectral analysis indicates that among the seven colors of light, plants mainly absorb red and blue light for photosynthesis. While green, yellow-orange, and far-red light, among the minor light components, are involved in other metabolic processes of plant growth. The photosynthetically active radiation available to plants falls within the visible light range. The wavelength range of sunlight covers the entire electromagnetic spectrum from X-rays to radio waves. Compared to the sun, the greatest advantage of plant lighting is its controllability. It does not change intensity depending on day or night, summer or winter, rainy or sunny conditions, and can provide stable and consistent light for plants.
The "recognition" and "preference" of different plants for light provide theoretical guidance for artificial light cultivation of plants. Sunlight is shared by all things and does not favor any particular plant; plants must adapt to it. Plant lighting can precisely design and tailor the light formula for each plant or each developmental stage, more efficiently cultivating plants and providing sufficient "light fertilizer" for plant growth.
Plant lighting has opened up a broad and long-lasting downstream market for the application of lighting in the agricultural field. It can not only promote the utilization of light energy by plants, increase yield, but also improve the shape, color, internal components of plants, etc., and is widely used in grain production, fruit and vegetable cultivation, flower planting, medicinal plant cultivation, edible fungi, algae factories, mosquito repellent and insect control, etc. Appropriate and efficient plant lighting fixtures, equipped with intelligent and optimized light control strategies, enable crop cultivation to no longer be constrained by natural light conditions, and is of great significance for enhancing agricultural output and ensuring the safety of agricultural products.
(2) The field of plant lighting has witnessed rapid development and the market size has been continuously expanding.
Driven by multiple factors such as the legal commercialization of special agricultural crops in North America, the pandemic prompting a global heightened awareness of food security issues, land shortage, and the rise of plant factories, the field of plant lighting has grown rapidly in recent years. According to statistics from Frost & Sullivan, the global market size for plant supplementary lighting equipment increased from 1.76 billion US dollars in 2015 to 3.79 billion US dollars in 2019, with an average annual compound growth rate of 21.1%. Frost & Sullivan predicts that the global market size for plant supplementary lighting equipment will maintain a compound annual growth rate of 25.5% from 2020 to 2024, and will reach 11.50 billion US dollars in 2024.
Currently, there are four main types of plant lighting lamps on the market: LED lamps, fluorescent lamps, high-pressure sodium lamps, incandescent lamps, and halogen lamps. According to the prediction of OFweek Industry Research Institute, by 2021, the market share of LED plant growth lamps worldwide will reach 60%, and it is expected that the penetration rate of LED light sources will further increase, occupying the mainstream position in the field of plant lighting.
At present, the downstream application market of LED plant lighting worldwide is still mainly concentrated in countries such as Japan, the United States, and the Netherlands. According to the data statistics of the High-tech Industry Research Institute of LED, in 2020, the export amount of LED plant lamps from China exceeded 500 million US dollars, an increase of 426.3% compared to the same period of the previous year. The data from Zhiran Consulting indicates that in 2019, the production distribution of LED plant lighting systems and lamps in China was 108,300 sets and 409,000 sets respectively. Domestic demand was only 14,957 sets and 59,846 sets, and the demand from overseas markets accounted for seven-eighths.
The existing demand market for LED plant lighting in China is relatively small, but there is huge growth potential in the future. Compared with 2018, the market demand for LED plant lighting systems and lamps in China grew rapidly in 2019, with growth rates of 21.94% and 22.46% respectively. The Chinese Academy of Agricultural Sciences predicts that based on the current scale of China's agricultural industry, the demand for agricultural LED lighting lamps and control equipment in the next five years will reach several billion yuan.
II. Core Components Drive Innovation, Plant Lighting Advances to Maturity
(1) LED Light Source
Due to the lower cost of traditional plant lights, they are still used in plant lighting. However, as artificial light source technology matures, LED light sources with more advantages are gradually replacing traditional light sources and have become the main light source for plant lighting.
There are fundamental differences in the light emission principle between LED light sources and traditional lamps. Incandescent lamps emit light by heating the filament, which will waste a large amount of electrical energy. High-pressure sodium lamps, metal halide lamps, fluorescent lamps and other gas discharge lamps, their spectral characteristics are mainly determined by the properties of the gas itself. LED is a solid-state light source, and the core is a PN junction made of semiconductors. Through the migration and recombination of electrons and holes in the PN junction, light is emitted. The compounds used to make the PN junction are different, and their light emission characteristics are also different.
LED light sources are more efficient and energy-saving for plants. The usage density of lamps in agricultural lighting is extremely high compared to general lighting. Research by Sanan Zhongke shows that for plants requiring high light, the power consumption per square meter of planting area is as high as 500-1000W, which poses strict requirements for the electrical-to-light conversion efficiency of plant lights. Currently, the electrical-to-light conversion efficiency of LED plant lights is more than 20 times that of incandescent lamps, 3 times that of fluorescent lamps, and nearly 2 times that of high-pressure sodium lamps. LED light sources have strong light intensity and generate less heat, allowing for close contact with plants without burning their leaves or operators, and are suitable for indoor multi-layer planting and other scenarios.
The LED spectral band has a wide coverage range, easily providing monochromatic light and full-spectrum light, and the spectral adjustment is highly flexible. LEDs can cover a wavelength range of 200-950 nm, and there are dozens of single-color LED types. This is beneficial for improving the utilization rate of red and blue light by plants, and it can also achieve customized spectral light for different plants. By exciting the phosphor with single-color LED chips to broaden the half-width of the monochromatic light, full-spectrum white light can be obtained; by separately controlling the current size of different light colors of LEDs, the spectral can also be regulated.
LED has a long lifespan, low light attenuation, strong controllability, and great potential for intelligent control. The theoretical lifespan of LED lights can exceed 100,000 hours. According to the data from Sanan Zhongke, after 36,000 hours of operation, the light attenuation of high-end LED plant lights is still less than 10%, and they can still work normally under the condition of rapid switching at 30,000 times per second.
Unlike traditional light bulbs that emit light in all directions, LED is generally single-sided and emits light in a 180-degree angle after packaging. It is easier to form a spot light that concentrates the light on plants, and it can also be made into panel-type plant lights that can provide uniform illumination at close range.
Domestic enterprises are rapidly setting up plant lighting businesses. In 2020, the number of enterprises engaged in plant lighting in China exceeded 300. Upstream chip manufacturers such as Sanan Optoelectronics, Huachuan Optoelectronics, and Ganzhao Optoelectronics have all entered the plant lighting LED source market segment, while midstream packaging enterprises such as Guoxing Optoelectronics, Hongli Zhijihui, and Yigang Electronics have all focused on plant lighting technology.
(II) Driving Power Supply
The LED driving power supply refers to the power supply that converts external primary electrical energy into the secondary electrical energy required by LED. The input electrical energy of the LED driving power supply includes alternating current and direct current, and the output electrical energy is generally a constant current that can change its voltage according to the forward voltage of the LED.
The LED driving power supply is mainly applied in LED lighting, LED display screens, and LED backlighting fields. Among them, LED lighting has the highest requirements for driving control technology and is currently the main application field of LED driving power supply, with the most promising market prospects.
The requirements for LED plant lighting driving power supply in terms of conversion efficiency, temperature control, precise dimming, and warranty lifespan are more stringent compared to other LED driving power supplies.
In terms of conversion efficiency, the higher the efficiency of LED plant lighting driving power supply, the lower the loss of electrical energy and the loss efficiency in the form of heat will be. For end planting, it can not only save electricity expenses, but also control the temperature in the plant factory, without causing excessively high temperatures that affect the optimal growth of plants.
In terms of precise dimming, the LED plant lighting driving power supply provides functions such as adjustable spectrum and intelligent programming to achieve the plant lighting system to output the light required by the planted plants according to the spectral requirements of different plants.
In terms of warranty lifespan, plant lighting requires a longer warranty lifespan for the power supply, so the reliability and quality requirements for the driving power supply are higher.
According to the power range of the products, LED driving power supplies can be divided into three types: high-power, medium-power, and small-power. Generally, in the overall cost of medium and high-power LED lighting products, they account for a relatively high proportion. The proportion of LED driving power supply in the overall cost of LED lighting products is approximately 20%-30%, and the proportion of LED plant lighting driving power supply in the overall cost is generally 30%.
China's LED driving power supply output value ranks first in the world, and the future market space is vast. According to the statistics cited in the prospectus of Songsheng Co., Ltd., the output value of LED driving power supply in China in 2018 was 28 billion yuan, accounting for 69.5% of the global LED driving power supply output value of 40.3 billion yuan. During the period from 2015 to 2018, the market share of LED driving power supply in China in the global market increased by nearly 9.8 percentage points. In 2020, the market size of LED lighting driving power supply in China reached 38.9 billion yuan, with a year-on-year growth rate of 10.3%.
III. Market demand in the downstream sector has exploded, and plant lighting has entered a rapid development phase.
(1) Legalization of marijuana in North America
The main addictive component of marijuana is tetrahydrocannabinol (THC). THC allows users to experience pleasure while becoming addicted. The THC content is the direct criterion for defining recreational marijuana, medical marijuana, and industrial marijuana. Industrial marijuana has an extremely low THC content, generally defined as less than 0.3%, medical marijuana has a THC content between 0.3% and 0.5%, and recreational marijuana has a THC content higher than 0.5%.
The medical efficacy of marijuana can be effectively used for various diseases. Currently, countries and regions where medical marijuana can be legally used include: some states in the United States, Argentina, Australia, Canada, Germany, Greece, Israel, Italy, the Netherlands, New Zealand, Portugal, Switzerland, and Thailand, etc.
Over the past decade, the recreational marijuana industry has gradually begun to legalize. Most countries prohibit the use of marijuana for recreational purposes. Laws not only prohibit the cultivation, sale, and consumption of marijuana but also impose heavy taxes on enterprises and individuals that legally cultivate and sell marijuana. However, the Netherlands has implemented a semi-official decriminalization policy for marijuana. In 2013, Uruguay became the first country in the world to legalize the sale and cultivation of marijuana; in October 2018, Canada followed suit. Currently, countries where recreational marijuana is legalized include Canada, Georgia, Uruguay, and some states in the United States.
By 2019, nearly 12% of the American population was regularly consuming recreational marijuana. And in recent years, the active efficacy of marijuana products in the United States has significantly increased. According to the survey report by Mehmedic et al.: in Washington State, the THC proportion of the marijuana products sold was as high as over 20%. A higher THC proportion means stronger addiction potential and a higher growth rate of the demand market. It is expected that in the future, marijuana will be widely used as a substitute for alcohol and tobacco.
From a policy perspective, currently 38 states and the District of Columbia in the United States have legalized the medical use of marijuana, and 18 states have legalized recreational marijuana. In May 2018, 30 states achieved the legalization of medical marijuana, and 9 states achieved the legalization of recreational marijuana. Since this year, New York State, New Mexico State, and Virginia State have passed laws to legalize adult-use recreational marijuana. This recreational marijuana legalization bill established a licensing system for marijuana producers and distributors. According to predictions, Alabama is expected to become the 39th state in the United States to legalize medicinal marijuana. In the future, Connecticut, Minnesota, and Hawaii may also legalize recreational marijuana.
When New York State began to legally sell adult-use marijuana, it will become the largest recreational marijuana market in the United States. New York State has significantly expanded the medical coverage of marijuana and will allow medical marijuana companies to enter the recreational market. According to a study by the New York Medical Marijuana Industry Association, the demand for marijuana in New York, supported by residents and tourists aged 21 and above, is approximately $4.6 billion, and is expected to grow to $5.8 billion by 2027. In addition, New Jersey State, New York State, and Connecticut State will cause a domino effect on the East Coast and inland of the United States, creating the largest region in the world for adult marijuana consumption.
Just to meet the needs of marijuana cultivation in New York City, the cultivation area of marijuana needs to expand to 139 square feet. It is predicted that the cultivation area of marijuana will need to increase 42 times from 2022 to 2027, reaching 6 million square feet by 2027. The vast majority of marijuana needs to be grown indoors, and these increased demands will drive the growth of plant factories, thereby driving the demand for plant lighting markets.
The United States is the largest consumer market for cannabis globally. According to data from Solar Botanicals, the total market size of cannabis in the United States in 2020 was approximately 15.7 - 19 billion US dollars. Among this, the market size of medical cannabis was approximately 5.5 - 6.8 billion US dollars, while the market size for recreational use was 10.2 - 12.2 billion US dollars. It is expected that the legal cannabis market in the United States may reach 30.4 billion US dollars by 2023. Among this, the recreational cannabis for adults is expected to reach 22 billion US dollars, while medical cannabis is expected to account for the remaining 8.4 billion US dollars.
The explosive demand for recreational marijuana in the North American market will drive the continuous high growth of the plant lighting market. According to BDSA statistics, the global legal sales market of marijuana was nearly 21.3 billion US dollars in 2020, a year-on-year increase of 48% compared to 14.4 billion US dollars in 2019. It is expected that with the advancement of the legalization process of recreational marijuana in the United States in the future, the global demand market for marijuana will reach 55.9 billion US dollars by 2026.
(II) Vertical Farms
A vertical farm is a form of controlled environment agriculture. It is an agricultural model that operates in a completely enclosed environment, where through technological means, the water, sunlight, and temperature required for crop growth are simulated. It utilizes soilless cultivation combined with biological organic fertilizers, and makes full use of renewable resources and greenhouse technology.
Each acre of a vertical farm can produce 10 to 100 times more products than traditional agriculture, and it can play an important role in a climate-adaptive food system. The indoor cultivation environment that is not dependent on climate enables crops to grow throughout the year and can be harvested almost entirely. According to the World Food and Agriculture Organization, by 2050, to feed the 9 billion people in the world, global food production needs to increase by 70%. The reduction of resources, the limitation of arable land, and the increase in population force humans to adopt more efficient food cultivation methods. 80% of the arable land in the Netherlands, which uses indoor controlled environments for cultivation, only has 1/270 of the land area of the United States, but its agricultural export volume is only second to that of the United States. The leafy vegetable cultivation area of a vertical farm in the Netherlands can produce ten acres of farmland grown outdoors within one year.
Vertical farms can reduce operating costs. According to the ARTEMIS indoor agriculture status survey, using software systems in smart farms can reduce costs by approximately $0.05 - $7 per square foot per year, with less space for cost reduction in flower cultivation and higher cost compression space in marijuana cultivation. Vertical farms can grow agricultural products closer to the consumption point. Growing agricultural products in areas close to the consumer market can not only save transportation costs but also reduce food spoilage during transportation and lower the loss rate.
There are over 40,000 indoor farms growing traditional crops in the United States, and these farms generate approximately $14.8 billion in economic value each year. Due to the shorter growth time of crops in vertical farms, the production of some drugs is also shifting to vertical farms. At the same time, with the advancement of the legalization of marijuana in the United States, more marijuana needs to be grown in vertical farms, and these growing industries will drive the growth of vertical farms.
Vertical farms, with their huge future growth potential, will continue to drive the growth of the plant lighting market. According to Frost & Sullivan's statistics, it is expected that the market size of plant lighting equipment applied in plant factories worldwide will reach $1.47 billion in 2024, with a compound annual growth rate of 44.2% from 20 to 24.
IV. Implementation of Technical Standards, Promoting Orderly Development of the Industry
In February 2019, China established a plant lighting consulting advisory group, initiating the planning work for plant lighting-related IEC standards. To better promote the industrialization application of scientific and technological achievements, under the strong promotion of the National Electro-Optical Light Source Quality Supervision and Inspection Center (Beijing), the International Electrotechnical Commission Lighting Technology Committee (IEC TC34) established the plant lighting consulting advisory group (numbered AG15). The establishment of IEC TC34/AG15 holds significant milestone significance for the global development of plant lighting and marks China's pivotal role in the formulation of international standards for plant lighting.
In November 2020, the "Technical Specifications for Quality Evaluation of Greenhouse Plant Supplementary Lighting Lamps" formulated by the Ministry of Agriculture and Rural Affairs of China was officially implemented. It standardized the performance indicators and testing methods for the quality evaluation of greenhouse plant supplementary lighting lamps. This standard clearly stipulates the terms, basic requirements, quality requirements, and testing methods of greenhouse plant supplementary lighting lamps, and is applicable to the quality assessment of high-pressure sodium lamps and LED lamps used for plant growth. Other types of plant supplementary lighting lamps can also be used as a reference. The standard clearly sets requirements for the three major performance indicators of plant supplementary lighting products - electrical characteristics, optical characteristics, and lifespan. The formulation of this standard is conducive to guiding the healthy and orderly development of the plant supplementary lighting and facility horticulture industries.
In September 2020, the United States DLC released the official version of the plant lamp V2.0 standard and it will be implemented on March 21, 2021. In June 2021, DLC released the updated version 2.1 of the technical requirements for horticultural lighting, which added other qualified product types and will come into effect in September 2021. HORTI-LIGHTING products using LED must comply with the provisions of V2.1 to be eligible for inclusion in the DLC Solid-State HORTICULTURAL Lighting Qualified Product List (QPL).
With the release and implementation of more technical standards, various technical gaps in the global plant lighting market will be filled, allowing more users to have a basis for purchasing plant lighting products, and promoting the more healthy and orderly development of the global plant lighting industry.
V. Analysis of Key Companies
(1) Infineon
Infineon is an international leading enterprise in LED drive power supply, engaged in the research, production, sales, and technical services of LED drive power supply. Currently, it mainly provides medium and large power LED drive power supplies with relatively high technical requirements. The company is currently the first and only Chinese LED drive power supply member of the UL 8800 standard technical team (STP). The company actively enters the plant lighting market. In 2020, the revenue of Infineon's plant lighting-related power supplies was approximately 130 million yuan, with a significant increase compared to previous years, accounting for about 14% of the company's total LED drive power supply business revenue.
Infineon holds a stake in Agrify to enhance industrial synergy. Agrify is a provider of vertical agriculture integrated system solutions and has completed an IPO and listing on the Nasdaq Stock Exchange in the United States. The hardware equipment vertical planting unit (VFU) of Agrify can fully integrate Infineon's LED drive power supply. Agrify has already and will continue to purchase power products from Infineon.
(II) Songsheng Co., Ltd.
Songsheng Co., Ltd. is one of the major suppliers of medium and high-power LED driver power supplies in China. Since its establishment, the company has been dedicated to the research, production and sales of medium and high-power LED driver power supplies. The company's products are mainly supplied to downstream LED lighting manufacturers for the production of medium and high-power LED lighting products. The terminal products are mainly applied to large-scale outdoor LED lighting facilities such as urban roads, highways, tunnels, airports, as well as industrial LED lighting facilities such as industrial factories and warehouses. At the same time, it is expanding into emerging application fields such as plant lighting.
In 2018, Songsheng Co., Ltd. actively laid out the research and development of LED plant lighting driver power supply products and continuously focused on the development of the LED plant lighting market with great efforts. In the first quarter of 2021, the company achieved revenue of 112 million yuan from LED plant lighting driver power supply products, exceeding 33.1888 million yuan in 2020, accounting for a significant increase from 12.30% in 2020 to 46.51% of the company's total operating income, driving the rapid growth of Songsheng Co., Ltd.'s overall business income.
(III) Sanan Optoelectronics
Sanan Optoelectronics is a leading enterprise in LED epitaxial wafers and chips. The company is engaged in the research and application of compound semiconductor materials, with gallium arsenide, gallium nitride, silicon carbide, indium phosphide, aluminum nitride, sapphire and other semiconductor new materials involved in epitaxial wafers and chips as its core business. The products are mainly applied in lighting, display, backlight, agriculture, medical care, microwave radio frequency, laser communication, power devices, optical communication, sensing and other fields and are the leading full-color ultra-bright LED epitaxial wafers and chips manufacturer in China in terms of production and sales scale. Sanan Optoelectronics' large-scale LED chip production capacity accounts for approximately 19.72% of the global chip production capacity and it has 1,400 patents. Its chips cover the 210-850nm wavelength band required for plant growth.
Sanan Group and the Chinese Academy of Sciences jointly initiated the establishment of Zhongke Sanan, a provider of light biological system technology for the global market. It mainly applies LED spectral technology in photobiological applications, indoor agricultural artificial intelligence technology, plant growth lighting and environmental control, etc.
VI. Risk Warning
The legalization of recreational marijuana in the United States is falling short of expectations: The advancement of marijuana legalization in various states of the US is crucial for the short-term explosion of the plant lighting market. If the legalization of marijuana in the US states does not meet expectations, the growth rate of the LED plant lighting industry may fall short of expectations.
Increased industry competition: Currently, the market share of plant lighting in the downstream application of LEDs is still relatively small, and the entire LED industry chain is already quite mature. Global leading LED manufacturers are focusing on the development of plant lighting. Increased competition may have an adverse impact on the profitability of companies within the industry.
Product price decline: Electronic products generally show a trend of year-on-year price reduction for the same model. In the long term, with the intensification of market competition, the influence of supply and demand, the improvement of production efficiency, and the decline in production costs, there is a downward trend in the product prices of LED light sources and drive power supplies. If the company cannot effectively reduce the production costs of its products to offset the risk of price decline, or cannot continuously upgrade the product structure, the decline in product prices will lead to a decrease in product gross profit margin and ultimately affect profitability.
(This article is for reference only and does not represent any investment advice from us. If you need to use the relevant information, please refer to the original report.)
Selected report source: 【Future Think Tank Official Website】.
