August 2003

How can you make your greenhouse greener? By Robin G. Brumfield

All of you know whether or not your business is makingmoney. But do you know which individual crops are making money and which onesare losing money? Or more optimistically, if you are making money oneverything, do you know which crops make the most? Once you know this, you canlook at ways to increase sales of profitable crops and find ways to cut costson less profitable ones. You can even decide to drop unprofitable crops andconsider new, more profitable ones.

To answer these questions, we need a little moreinformation:

1. What is the selling price of each crop?

2. How many square-feet of space does each crop take on thebench?

3. How many pots or flats of each crop do you produce?

4. What percentage of each crop is sold?

5. What are the production costs for each crop?

Even if you don’t know the answer to question number five,you can still get a rough idea of production costs for each crop by knowing thefirst four items. You can then calculate costs for each crop based on a squarefeet per week allocation of all costs to each crop. Throughout the article areexamples of possible calculations using the five values above; these areprobably the most important part of the article because they show you how toactually work with your numbers to determine more valuable and less valuablecrops. Below is some discussion of the calculations, tables, how I arrive atthe numbers and what they mean.

Profitable Crops

In the April 2003 issue of GPN, I discussed a simpleGreenhouse Cost Accounting program developed in Microsoft Excel and distributedby Rutgers University that lets you determine the costs and returns of eachcrop you produce. We looked at a hypothetical 20,000 sq.ft. greenhouse with asimple production schedule of only five crops: petunia flats, marigold flats,geraniums flats, geraniums in 4-inch pots and poinsettias in 6-inch pots (SeeFigure 1, above). We found that the most profitable crop was not always themost profitable crop per square foot. In this example, marigold flats are themost profitable crop per pot (per unit), but geraniums in 4-inch pots are themost profitable per square-foot, an important distinction to evaluate in yourover-all profit analysis.

Geraniums in 4-inch pots are sold at the lowest price perunit of any of the crops in the example, but they take up far less space than aflat, and are the most efficient user of space. Geranium flats get the highestprice per unit of any of the crops in the example but take twice as long toproduce as marigold flats, so they make only one third of the profit thatmarigold flats do. Poinsettias in 6-inch pots made the least amount of profit.Each pot lost $0.18, and the net loss on the poinsettia crop was $2,605. Ofcourse, all of these figures will change for each individual business, but lookhow much data you can get from taking information from your tax form Schedule F(or Schedule C if you are a corporation) and some simple cost per cropinformation.

To review what we did to get these figures: We entered allof the costs for a year for the entire greenhouse; then we entered the totalsquare-feet area, the percentage of that area used for production and the weeksin production (See Figure 3, page 84).

Production Costs

We had some estimates of production costs for the costs inour example; they are entered in Figure 2, page 83. A look at the resultsshowed geraniums in 4-inch pots making the most profit, and poinsettias makingthe least profit, actually losing $0.18 per pot or $0.01 per square-foot. But,before making any rash decisions about crops, you have to ask yourself if it isa smart move to drop an unprofitable crop? Let’s see what happens when we droppoinsettias.

Without poinsettias, income drops by $73,855 (See Figure 3,above). We drop the variable costs listed in Figure 2, page 83 from the cropsection and the income statement. We reduce the weeks in production Áfrom 29 to 15 weeks. We have just eliminated the only unprofitable crop, so weshould be making more money, right? Think again. Poinsettias may have beenlosing money, but each pot was carrying $4.01 of overhead costs. In addition,they were carrying all but $0.18 of the variable costs during the time theywere on the bench.

When they are no longer in the picture, the other crops mustcarry the overhead costs, and then, every crop becomes unprofitable except forgeraniums in 4-inch pots. The entire business is losing more than $45,000instead of making money as it did when we grew poinsettias. Instead of simplydropping a crop that is not profitable, you might look at other, more soundoptions, such as possibly raising the price of poinsettias (A $0.20 priceincrease would make them a slightly profitable crop instead of one that losesmoney.) or substituting part or all of the poinsettia crop for a new, moreprofitable crop such as cyclamen, gerberas or another of the up-and-coming poinsettiaalternatives. You might also consider growing your poinsettias in a moreprofitable size (3-inch or 8-inch) or growing novelty varieties that can fetcha higher price.

Looking for more sales of geraniums in 4-inch pots shouldalso be considered, in which case, you would leave the greenhouse empty duringnormal poinsettia production. A closer look at the overhead and variable coststo find ways to be more efficient should also be done. This example shows thatknowledge of profitability of each crop helps managers make production andmarketing decisions to improve their businesses. It lets you do some “whatif” planning on paper instead of making bigger mistakes in the greenhouse.

You can find an interactive greenhouse crop budget at

http://aesop.rutgers.edu/~farmmgmt/greenhouse/greenhouseinteractiveform.htlm.