The cost of doing business

The cost of doing business

Features - 2021 // STATE OF THE INDUSTRY // Production

Nurseries are adapting to the realities of 2021 as input prices continue to increase.

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September 8, 2021

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The rising cost of agriculture inputs is not a new phenomenon. The 2017 Census of Agriculture reported per-farm expenses at a record $159,821, up from $155,947 five years previous. Income over the period fell slightly, according to the census, from $43,750 in 2012 to $43,053.

While a new census isn’t due until 2022, industry onlookers are not expecting much change on the input side. Burgeoning expenses for seed, fertilizer and plastic containers – combined with a shallow labor pool - has forced owners to raise prices and automate some processes. Experts and growers forecast a longer period of adjustment as inputs level off at the higher end of the pricing scale.

An Index of Prices Paid by Growers study orchestrated by Texas A&M economist Charlie Hall determined the overall cost of producing nursery and greenhouse crops is about 29.6% higher in 2019 than it was in 2007, with labor experiencing the largest uptick at 41.6%

These numbers reflect an overall necessity to harness available resources more efficiently, notes Ariana Torres, associate professor of the department of horticulture and landscape architecture at Purdue University.

“Looking at a typical agricultural product, you plant at the beginning of the growing season and harvest at the end of that season,” says Torres. “With nurseries you have to plant years ahead of time.”

To maximize yield, it’s crucial for nurseries to aid their harvest with agricultural inputs. Inputs are any external source that can assist a grower’s yield – from high-quality seeds and containers to freight and irrigation systems. Nursery labor is another input that has been impacted by a shallow talent pool across industries, observers say.

Torres says today’s mushrooming input costs harken back to the shock recession of 2008, when many nurseries closed, merged or simply went bankrupt. Those that survived decreased inventory, while adjusting to peaks in demand coinciding with the housing bubble of the early teens.

Natural disaster risk has caused additional uncertainty in recent years, even as the advent of the “COVID gardener” supplemented marketplace demand. Prior to this year’s growing season, research from Axiom Marketing found that 86% of homeowners planned to continue gardening well into 2021.

Input costs for containers, soil mixes, agrichemicals, fertilizer and irrigation parts are mitigated depending on exactly who your nursery is selling to, observes Torres.

“Nurseries growing seedlings or transplants are selling young plants to other nursery growers that will then finish those plants,” Torres says. “But prices of young plants have not kept pace with increase in prices for irrigation, containers, fertilizers and chemicals. The growers at the beginning of the value chain are seeing increase in demand way later than finishers selling to end users. The closer you are to the end user, the more the increase in demand will help you.”

A parade of price hikes

Manor View Farm in Monkton, Maryland, is a wholesale producer of trees, shrubs and potted liners sold to growers and wholesalers in the Mid-Atlantic region, including the District of Columbia.

Upon purchasing the business in 2007, co-founder Alan Jones and two partners expanded their supplier network and field propagation production, while diversifying their customer base. Sales dropped during the Great Recession, taking almost a decade to return to 2007 levels.

“We had one good year and then the recession hit,” says Jones. “Understanding our numbers and providing good service to customers helped us survive.”

The last four years have seen strong demand for items like liners, a trend that soared during the pandemic as more homeowners took to gardening. Manor View also requires the inputs of a regular nursery, undergoing a 20%-25% increase in costs for plastic and pots.

Labor continues to be a problem in the sector, says Jones. Though Manor View has tapped into the H-2A temporary agriculture guest worker program, government restrictions have stifled efforts to completely curtail an ongoing large-scale employee shortage.

Jones says, “People are not interested in working outside, and there’s not as many people around looking for seasonal work. So we’ve looked at pay rates, and asked ourselves what kind of equipment we can bring in to make the work more efficient. We’ve also hired young people with good computer skills who are able to learn the plant side of the business quickly.”

Labor and transportation, meanwhile, are the largest cost inputs for McCorkle Nurseries, a 820-acre landscaping and growing operation headquartered near Augusta, Georgia. The company, which delivers to customers in the southeast and Mid-Atlantic, has been impacted by driver shortages as well as Texas transport firms idling their trucks during February’s devastating winter storm.

Input costs at McCorkle have risen about 8% to 11% year-over-year, even as profits since 2016 have remained steady. Clients include big box regional garden centers and smaller-scale retailers, two areas that received a boost during the pandemic.

“We experienced a bump of 11% from 2019 to 2020,” says vice president of operations Chris McCorkle. “We had perfect weather for the entire year. COVID extended the season for several months.”

Responding to an uncertain future

Steady revenues aside, transportation issues challenged McCorkle to meet peak season demand. The nursery dealt with supply chain slowdowns by ordering pots and other vital materials months rather than weeks in advance.

Similar to many of its industry brethren, the company raised prices about 10% in response to the escalation of input costs. Regarding transportation, McCorkle ships products in trucks packed as close to capacity as possible.

“Most customers see the handwriting on the wall and know that in some of our input categories there’s been price increases,” McCorkle says. “They recognize the need for us raising prices where appropriate. Material costs are being felt throughout the supply chain.”

Manor View has elevated prices while keeping close watch on profits that have dropped slightly in recent years. Co-founder Jones projects an industry-wide jump in costs next spring, reacting to plant material shortages and recent extreme weather events. He also wonders how long the current COVID gardener phase will be able to sustain the marketplace.

“There’s been a huge increase in homeowners growing vegetables, but how long is that going to continue?” says Jones. “How do we maintain that interest moving forward?”

Torres of Purdue University believes efficiency will be the watchword for growers planning ahead. Automated processes that produce maximum yield at reduced cost is one option for forward-thinking growers, as is introduction of vigorous plant stalks able to withstand environmental stress.

Rather than relying on expensive labor, successful owners are also utilizing technology to mix container substrates.

“Mixing substrates or managing irrigation are easily automated tasks that will save nurseries money,” Torres says. “If your operation is labor-intensive, technology is a big gain for you.”

All is not gloom as the industry ascertains its new normal, observes Barry Sturdivant, vice president of TS Ag Finance. For starters, most retailers have been cooperative in integrating the higher price points nurseries need. Nor does Sturdivant feel the market requires as much diversification in plant varieties and species as it had previously.

“We’ll see fewer SKUs going ahead,” Sturdivant says. “That’s one way to reduce costs and become more efficient.”

Inflationary pressures surrounding labor and other inputs will likely keep those prices at a high level. However, Sturdivant believes nurseries are in better shape to withstand the storm than during previous economic down periods.

“After the last recession, I was worried about the industry coming back with too rapid growth,” says Sturdivant. “But the growth was slow and responsible, where owners increased inventory by a conservative margin each year instead of planning fence row to fence row. The industry as a whole is in a much better position now.”