Matt McClellan
At Cultivate’22, the Short North Ballroom was packed to capacity for the AmericanHort State of the Industry Address, with attendees standing along the walls to hear the Monday morning keynote speech.
Economic update
Dr. Charlie Hall, AmericanHort’s chief economist and the Ellison Chair of Texas A&M University’s Department of Horticultural Sciences, said that 2022 was mixed performance within a great year.
Growers reported sales up 20% as an across-the-board average. Nearly 40% of the growers Hall surveyed reported increases of between 1 and 10%, small increases compared to previous years. Still, Hall asked growers to consider where they were a few years ago. When comparing 2022 gross sales year-to-date to 2019, 63% of growers are up more than 25%. Growers’ profitability ranged from barely profitable to very profitable, depending on several factors.
Part of this is due to input cost increases. Dr. Hall showed aggregate input costs increased 10.1% in 2021, 8% year-to-date in 2022, and he is forecasting another 3.6% increase in 2023.
He hopes the industry can continue raising prices to compensate. However, in his research, he found that only 40% of green industry companies are passing 100% of their input cost increases on to their customers – which essentially means they are sharing their margins with their customers.
“That’s magnanimous of you,” he says, “but you won’t be in business for long.”
He also discussed a compensation study with data from the Bureau of Labor Statistics. In 2022, 21% of businesses said they increased wages more than 10%, 58% of businesses reported increasing wages between 6-10%, and 21% said they increased wages 1-5%. If green industry businesses want to attract or keep employees, their wages must keep up with the cost of living and inflation, Hall says.
Hall pointed to an Axiom marketing survey showing that 19% of respondents plan to add new shrubs or trees to their landscape, a number that compared favorably to other home improvement projects listed as choices.
Hall is able to chart sales data since 1959, and 2021 was the best year the green industry had, ever. Recessions usually provide a “shot in the arm” to growers and garden centers, because while people spend less money on bigger purchases like vacations, they’re spending more time at home in their yard, which makes them want to invest in making it look better.
Because of this, the green industry has typically been recession-resistant, but the Great Recession proved the industry was not recession-proof. It affected all industries, and it took six years for the green industry to claw its way back to where it was before the crash.
Even though it was the best year ever overall, whether it was for your business might depend on where you are in the country. Local economic conditions often are influenced by local weather conditions, Hall says. In 2022, after two years of very strong sales and profits, spring weather hurt much of the country. The Southwest had a very dry spring. The Pacific Northwest, much of the Southeast and Midwest had very wet springs with flooding issues. New England had a mid-spring cooldown, which negatively impacted sales.
Hall also touched on supply chain and inflationary pressures. He showed a supply chain pressure gauge that revealed hope on the horizon. After more than a year of constricting pressure in various areas, the supply chain pressure began to relax in June and July 2022.
“It’s improving, but it’s improving slowly,” he says.
The inflation the industry is seeing is due to both demand-pull and cost-push inflation, he said. In June, the Consumer Price Index, which tracks the price consumers pay for a variety of goods and services, was up 9.1% year-over-year, the highest mark over the last 40 years. Although it hasn’t reached the highs of the late 1970s and early 1980s, the last time inflation affected Americans so much.
On the retail side, price increases are keeping garden centers in the black. According to research shared from The Garden Center Group, total sales were down 5.5% year-to-date for 2022 and the total number of transactions was down 12.4%. However, the average sale was up 8.3%. Hall believes this is due to price increases the industry put forth because of supply chain disruptions and inflationary pressures.
This is after 29.2% and 19% sales increases and 15.3% and 13.9% transaction increases in 2020 and 2021, respectively.
And finally, although nearly every indicator he showed was positive, Hall says he believes there is a 50% chance of a recession occurring between now and next summer. A correction is coming, he said, so what to do? Establish your value proposition, don’t expect massive sales and don’t overleverage your business, or you may be left holding excess inventory, he says.
Legislative update
AmericanHort’s Executive Vice President of Advocacy, Research and Industry Relations, Craig Regelbrugge, began his part of the address by reviewing the association’s legislative priorities: securing and developing the workforce, plant health, solutions through research, and protecting profitability for its members.
Green industry employers that rely on H-2A should be aware that new wage rules may be coming, Regelbrugge says. Regarding H-2B, AmericanHort staff is lobbying for changes like the Returning Worker Exemption Act. There was some good news for the year, like the fact that the Biden administration released the largest amount of supplemental H-2B visas ever.
Regelbrugge discussed the 2022 midterm elections, as well. He said that there is deep dissatisfaction among Americans with the leadership of both major political parties. This has set up an environment that is ripe for major change, he said. He does not expect any legislation on the topic of immigration reform to happen before the November election. Citing research from Five-Thirty-Eight, he said that Republicans are projected to take control of the House of Representatives in 87 of 100 simulated projections. The Senate races are more of a toss-up, with only 54 of 100 simulations going in the Republicans favor. There are also a few major wildcards that could affect the election outcomes: the ongoing Jan. 6 hearings, the Dobbs decision and its consequences, and global conflict like Russia’s invasion of Ukraine.
Regelbrugge urged attendees not to give up, even when elected officials make no progress toward stated goals.
“No matter how frustrating our political system may be, opting out does not help,” he says. “I believe democracy is precious, but it needs pruning and care, like the plants we grow.”
