September 2010 Big Grower

USDA Numbers Indicate Decline and Growth By Jim Barrett

The wholesale value of U.S. floriculture products decreased 4 percent from 2006 to 2009. While the decrease is not good, some may feel surprised the loss hasn't been more dramatic. Most are probably now convinced that we are not a recession-proof industry.

The U.S. economy has been a challenge for many in the greenhouse industry for the past couple of years. For most of the main agricultural commodities, there is very good data to track production and to evaluate factors affecting the industries. We do not have that. The USDA recently released their report on the wholesale results for the 2009 production year, but it covers only the largest 15 states. Prior to 2006, the USDA collected data for 36 states. I estimate that the current 15-state program represents about 70-75 percent of total U.S. production.

From 2000 to 2005, the industry grew at an average rate of about 3 percent per year. Now, the numbers show a net decline of about 1 percent per year over the past four years. The details are widely varied on how various regions of the country have fared and how different crop segments have performed.

Table 1 shows the relative size of the seven crop segments that make up floriculture production. The numbers reflect the significant losses in the production of foliage plants, cut flowers and cut foliage, a continuing trend for the past several years. Perennials have been thestrongest-growing segment of floriculture and reported production grew by about 10 percent per year between 2000 and 2005. Much of this growth was real, but some was due to better reporting by producers. However, it appears perennial production has reached a plateau, and its value has declined slightly in the past four years.

While the total value of floriculture production has declined, the wholesale values of flowering potted plants, annuals and bedding plants have seen modest net gains. Table 2 has a breakout of the three container categories within the annuals and bedding segment. The data show a clear shift in production away from flats to hanging baskets and potted annuals. The renewed interest in vegetables by consumers is well recognized and vegetables are included in the annuals and bedding segment. While total production value of bedding plant flats is off more than 7 percent, vegetable flats are up 8.7 percent. Vegetables in containers are up 25 percent over past four years.

The Big Players
The largest 10 states based on wholesale value of floriculture crops are listed in Table 3, and the data reveal the differences in what is occurring at the state level. Total production value has gone up in four states and has decreased considerably more than the industry average in five of them. California always stands out, both because of the amount and diversity of its production. In the past four years, there has been an increase in the number of reporting companies but a decline in production value — across all crop segments — at twice the national average.

Florida is the second-largest state in terms of wholesale production value, and it has seen the greatest decline in the value of its floriculture crops. A significant portion of this is due to the remarkable decline in the foliage segment (down 15 percent in Florida). An interesting observation is that in a shrinking total market, a few producers have significantly grown their market share. Many foliage growers are moving away from standard foliage species and trying to specialize in higher-value niche items. Production numbers for the flowering potted plant segment is actually increasing in Florida because foliage growers are moving to tropical flowering crops.

However, the 13 percent loss in total floriculture production in Florida is not just foliage. Florida's annuals and bedding segment is off by 25 percent, and those growers have had a couple of difficult years. This decline is probably all due to the economy and housing market situation in Florida.

Total production in Michigan has grown, but the annual and bedding segment that the state is known for is down 6 percent. The growth in Michigan is due to a 50 percent increase in the value of perennial production. Compare that to the perennial segment being flat across all states. For Pennsylvania and New York, the declines in total production are caused by 8 to 18 percent declines in the bedding and perennials segments. Incontrast, Ohio has seen good growth in both bedding and perennial values.

North Carolina is interesting in that total sales have increased 25 percent while the number of production operations has seen a 9 percent decline in the past four years. In North Carolina, perennial numbers are flat, and the flowering potted plant segment is down 16 percent. The telling number in North Carolina 50: the percentage the value of bedding production is up.

A New Trend?
A general industry trend over many years has been a reduction in the number of operations and an increase in total production, which results in an increase in average company size. That trend has changed with the current situation. In the past four years, the percentage decrease in total production is greater than the percentage decline in number of companies; numbers indicate that the size of the average company is declining. In 2006, the value of wholesale products for the average company was $610,000; in 2009, it was $570,000, a decrease of 6.6 percent.

Table 4 illustrates where much of the greatest pressure exists in the current tight market. The USDA reports production based on several size categories; however, the largest category is companies with greater than $500,000 in sales. The 1,119 operations in the largest size group make up 17 percent of the total number. Generally less than 17 percent of the companies are larger than the average. Also, less than 17 percent of the growers produce 50 percent of the total wholesale production. Note that the number of companies in this size range has decreased by 10 percent during the past four years, while the number of smaller operations increased. These numbers suggest that the loss in growers in the above-average size group is due to companies either closing or downsizing.

The USDA report clearly reflects an industry under stress and undergoing rapid changes. There are production operations in the major segments of the industry finding ways to gain market share. This is putting significant pressure on the competition. The situation is causing all companies to evaluate their operations, and everyone is having to establish how they will diversify. For many, that means downsizing and becoming more efficient. Many companies also are finding ways to produce higher-value products and work in stronger markets.