How can you make your greenhouse greener?

August 8, 2003 - 08:20

Growing the highest margin crops can add a lot of profit to your pocket, but only if you can identify those crops that bring good margins.

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

To answer these questions, we need a little more
information:

1. What is the selling price of each crop?

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

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 the
first four items. You can then calculate costs for each crop based on a square
feet per week allocation of all costs to each crop. Throughout the article are
examples of possible calculations using the five values above; these are
probably the most important part of the article because they show you how to
actually work with your numbers to determine more valuable and less valuable
crops. Below is some discussion of the calculations, tables, how I arrive at
the numbers and what they mean.

Profitable Crops

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

Geraniums in 4-inch pots are sold at the lowest price per
unit of any of the crops in the example, but they take up far less space than a
flat, and are the most efficient user of space. Geranium flats get the highest
price per unit of any of the crops in the example but take twice as long to
produce as marigold flats, so they make only one third of the profit that
marigold 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. Of
course, all of these figures will change for each individual business, but look
how 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 crop
information.

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

Production Costs

We had some estimates of production costs for the costs in
our example; they are entered in Figure 2, page 83. A look at the results
showed geraniums in 4-inch pots making the most profit, and poinsettias making
the 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 is
a smart move to drop an unprofitable crop? Let's see what happens when we drop
poinsettias.

Without poinsettias, income drops by $73,855 (See Figure 3,
above). We drop the variable costs listed in Figure 2, page 83 from the crop
section and the income statement. We reduce the weeks in production Á
from 29 to 15 weeks. We have just eliminated the only unprofitable crop, so we
should be making more money, right? Think again. Poinsettias may have been
losing 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 they
were on the bench.

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

Looking for more sales of geraniums in 4-inch pots should
also be considered, in which case, you would leave the greenhouse empty during
normal poinsettia production. A closer look at the overhead and variable costs
to find ways to be more efficient should also be done. This example shows that
knowledge of profitability of each crop helps managers make production and
marketing decisions to improve their businesses. It lets you do some "what
if" 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.

About The Author

Robin Brumfield is an extension specialist in farm management at Rutgers University. She may be reached by phone at (732) 932-9171 ext. 253 or E-mail at Brumfield@aesop.rutgers.edu.

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