The Sixth Annual State of the Industry Report

December 31, 2002 - 13:17

What are the hottest greenhouse trends? How well did growers do this year? All of that and more are in the GPN/Summit Plastics Sixth Annual State of the Industry Report.

Year after year, the Annual GPN/Summit Plastics State of the
Industry Report provides the most comprehensive data available about the past
year in floriculture. The big question is, what has changed so much in one
year? New trends, higher sales, valuable growing information ? basically,
how everyone in the floriculture industry is doing with their businesses and
what valuable information can be shared to better each grower who reads the
report.

With the help of GPN readers and Summit Plastics, which is
now in its fourth year as a co-sponsor for this survey, we are able to bring
this information to the growers to give them what they need to better their
production. We want to thank all of the parties involved in supplying this
information, and we appreciate the support that came along with it. And now
ladies and gentlemen, The Sixth Annual State of the Industry Report.

Methodology

On approximately September 13, 2002, the GPN staff mailed
out 1,900 surveys to growers all over the United States. The growers were
chosen at random from the GPN subscription database of wholesale growers. In
many of the cases, it was also indicated that some of the growers surveyed own
one or more retail outlets and/or landscaping services. Out of the 1,900
surveys, 114 were returned and usable.
They were then recorded and tabulated by the GPN staff.

The numbers tabulated are as accurate as possible, given the
information provided. Since not every answer was usable and since numbers were
averaged to the nearest round number, some of the percentages are slightly more
or less than 100. Also, many of the questions required more than one answer,
also adding to the margin of error.

To our greatest ability, we have tried to provide
year-over-year data. This information gives the readers the ability to track
certain sections of the industry, to spot trends, consumer preferences, etc.
The GPN staff compiled all data from 1997, 2000 and 2002, and Accountability
Information Management (AIM) in Palatine, Ill., tabulated data from 1998 and
1999. The Data from our First Annual State of the Industry does not appear in
the comparison because the methodology used for that survey is not compatible
with that of subsequent surveys.

This year is also a little different. In the past, we have
presented the State of the Industry Report in the May and/or June issues.
Asking the growers to give us numbers for the May/June issue was hard since the
season had ended six months prior to the surveys being sent out in January.
This year, we sent the surveys out as soon as the major selling season was
over, allowing the numbers to be fresh in the grower's minds. Since we waited
until now instead of last May or June, there is no data from 2001. The last
updated data that we have is from 2000.

The data compiled by AIM and GPN are similar in most
respects; however, readers should know that there is a degree of variance with
the data. Basically, there is a margin of error, and all of the information in
this report is accurate to the degree that respondents provided accurate
information on the surveys.

The Respondents

Since there are a number of regions in this country that
have different growing conditions, it is important to include all of them in
the survey. It is important to understand who is responding to the survey to
get a better feel for what is going on with their crops.

For 2002, the West Coast gave the most responses with 24
percent of the surveys. Currently, the Midwest ties for second with the South,
which both share 18 percent of the responses. The Mid-Atlantic has 13 percent,
the West 11 percent, the Northeast 10 percent and the Central part of the
United States comes in last with six percent of the responses. style="mso-spacerun: yes"> These numbers add a change from the 5th
Annual State of the Industry results, which show that the Midwest had the
highest number of responses in 2000 with 22 percent. Thanks again to our
respondents; everyone that returned a survey did indicate where they were from,
making it much easier to determine each question according to the region they
grow in.

The amount of operation space was also a widely answered
question with all but one of the respondents indicating their operation space.
The numbers indicated that 29 percent of the respondents own between
100,001-500,000 sq. ft. in production space. The next size comes in with a
close 26 percent for 50,0001-100,000 sq. ft., which makes each size only one
percent less than the previous State of the Industry Report. However, the
percent of respondents from the 25,000 and under category is up nine percent, giving
the survey a better look at that operation size. The 25,001-50,000 production
size adds up to be 12 percent, while 500,001 and above comes in last with only
11 percent of the responses.

Production Space

Overall, the production space in 2002 averaged out to be
294,722 sq. ft., which is only
16,290 sq. ft. less than the previous survey. Using the margin of error as a
guide, there is not much of a difference in the two years, showing a
consistency in growing production space. However, when the space is divided
into fixed-cover greenhouse space, shade house, retractable-roof greenhouses
and open fields, the number varies a little more than the previous year. The
2002 fixed-cover amount is 76,187 sq. ft, which is down by 81,820 sq. ft.
However, keep in mind that the size of operation does not really lend itself to
a year over year comparison ? since every year a different group of
people with different sizes are chosen to answer the survey ? making the
operation size an incomparable yearly number. Shade houses are averaging 33,778
sq. ft. overall, and open fields are at 175,136 sq. ft., which are both very
different from the years past. The unsurprising statistic is that the
retractable-roof greenhouses represent the least amount of production space,
(an average of 214 sq. ft.) in this survey, as they have in years past. The
survey results show that West Coast growers with production space between
25,001 and 50,000 are the only ones adopting open-roof structures in any
number, with an average of 1,071 sq. ft.

The region with the largest production space is the South
with 707,863 sq. ft.; second place was the West Coast, with 301,177 sq. ft. An
interesting fact is that the West (226,928 sq. ft.), the Midwest (217, 717 sq.
ft.) and the Northeast (197,014 sq. ft.) were all within 30,000 sq. ft. of each
other. That leaves the Central United States with 88,506 sq. ft. and the
Mid-Atlantic with 67,128 sq. ft.

The South also has the largest number of fixed-covered greenhouse
square feet (87,822 sq. ft.), shade houses (148,228 sq. ft.) and open fields
(471,813 sq. ft.). The Mid-Atlantic came in with the least amount of production
in each category. All of the other regions have an even number between the
production categories.

Taking climate into consideration, these numbers are not
surprising. The favorable climates in the South and on the West Coast allow for
"less formal" production space, including outdoor and quonset
production, both of which are substantially less expensive than even poly
gutter-connects.

This year's responses also showed that growers have decided
to increase their indoor production space by 28 percent and their outdoor space
by 21 percent. Growers in the Northwest are the ones that want to increase
production the most, by 66 percent in indoor space and 109 percent in outdoor
space. Also, growers in the 25,000 and under space range want to increase
indoor space by 42 percent and outdoor by 55 percent. Because no explanations
were given, we can only look to the industry trend away from small, 100-percent
wholesale operations as an explanation for these high numbers. Our own grower
visits show price pressures affecting small growers the most.

Source of Plant Material

Now that growers have the production space, where do they
get the materials? The majority, 41 percent, said they grow the materials
themselves, as opposed to getting it from a broker, 30 percent; through a plug
producer, 16 percent; directly from a propagator, 11 percent; or in some other
way, two percent. However, those numbers have been pretty consistent since
1998, showing that most of the material is grown by the growers themselves.

In each region and size operation, the results are almost
the same as the overall, with the exception of the Midwest. The survey shows
that growers getting the materials from a broker (42 percent) is a higher
percentage than growing it themselves (26 percent).

Given the amount of vegetative material currently in
production, we were surprised by the continuing trend of self-sourcing. With
the number of vegetative varieties and patent-restricted products rising, we
expected Á

to see fewer people propagating their own material. We
suspect that growers are simply reallocating resources. If x number of plugs
and liners were bought-in and y produced in-house in years past, the number of
plugs produced in-house (y) would rise to accommodate the increased number of
cuttings and liners that must be purchased (x).

Production Costs

Producing plants is not something that just happens with a
hoe and some water. There is a lot of money and effort put into making a
successful crop. The overall average production cost in 2002 was $7.00 per sq.
ft. This adds an additional $1.17 from the 2000 total, but it is still down $4.26
from 1999 when the average price was up to $11.26 per sq. ft. Each year depends
on the weather, the economy, possible natural disasters and any other
unpredictable situations that may occur, and this year's rise seems very
reasonable given labor shortages and drought.

This year, the South had a high average of $26.18, an
unexplainable anomaly that is only $2.82 less than the previous year. The
Mid-Atlantic is at $6.39 per sq. ft., which is down a large amount from last
year's $23.24 Á per sq. ft. The variance in production costs year over
year is dramatic. At first, it was enough to make us question our data. After
closer examination, we attributed the inconsistency to a fluctuation in the
response pool, and viewed it as an unfortunate side effect of our methodology.
But we can't just write off this data, and we shouldn't. These are the
respondents' best estimates of their production costs. We all know growers
whose input costs are extremely inflated ? newly mortgaged greenhouses,
extra staff and high shrink. When we see production costs like in those from
the South, at $26.18 per sq. ft. in 2002 and $29.00 per sq. ft. in 2000, we
know that some of these high-risk growers were in the survey pool. Instead of
inferring that the average cost of production in the South is three times that
of the Mid-Atlantic, we should see this as an indication that some growers
continue to flout sound business practices.

Trends in Automation

With the advances in greenhouse technology, there is a
greater number of products that can help growers with economical crop
production. The survey showed that growers already owned the following
automated devices: 36 percent own environmental controls; two percent flood
floors; 11 percent sub-irrigation benches; 25 percent root-zone heating; 12
percent floor heating; 35 percent moveable benches; 17 percent automated
seeders; 23 percent automated flat fillers; nine percent automated transport
systems; and five percent automated transplanters. Compared to the last State
of the Industry Report, the amount of automated systems that are currently
owned by growers is down by approximately 10 percent. Because of the economy
being down this past year, automated systems are less popular. Next year's
numbers should show if this is a new trend or the result of sampling.

The region that owns the most automated helpers is the
Northeast. The most commonly owned product is environmental controls, with 55
percent of respondents. Another 45 percent goes to automated flatfillers. The
interesting fact arose that many of the regions bordering Mexico seem to use
less automated systems. The less expensive labor becomes an issue because
Mexicans enter the country through border states looking for work, and many of
the regions in that area hire them instead of purchasing automation. With more
physical labor help, there is less of a need for automated help.

Another fact that came up was that growers owning
100,001-500,000 sq. ft. were the ones to use the most automated labor. In the
previous State of the Industry report, the growers with more than 500,000 sq.
ft. production space held the most automation, which this year is significantly
less. One reason is that the report showed that a majority of the larger
growers are in the West Coast region, which is closer to the Mexican border. It
all depends on the area and the amount of labor that is available.

Types of Crops

The types of crops that are grown every year are what can
make or break a sale. The results showed that 32 percent of the respondents
grow bedding flats, while 62 percent grow container crops. Traditionally,
bedding flats have been considered the industry's major crop; however, the 2002
results show that container crops are growing more and more popular. Since the
last State of the Industry, container crops have gone up from 57 percent and
bedding flats have actually decreased from 39 percent.

When looking at the results according to region, it shows
that the South is growing approximately 77 percent container crops, leaving
only 18 percent for bedding flats; the West Coast is not far behind at 74
percent in container crops and 17 percent in bedding flats. The other regions
are not straggling; they too are strongly growing their container crops market.

The 25,000 and under group is the production size that seems
to be planting the most bedding flats (45 percent). However, they still grow
container plants as 50 percent of their crop. Without a doubt, Wal-Mart's $6
flat and the consumer demand for instant gratification are the causes behind
this container crop shift.

Another aspect we can't overlook is the demand for new, new,
new. In the past few years, consumers have begun looking for a different,
"nontraditional" plant to spruce up their homes. They've grown tired
of impatiens and geraniums, and we're seeing this more and more in the State of
the Industry. Out of the 18 choices of bedding flat crops, the majority of the
sales went to the "other" category, with 24 percent, an 11-percent
jump from the last State of the Industry's totals. Instead of the traditional
impatiens, perennials, mums and marigolds, consumers are more interested in
buying plants such as shrubs and trees, foliage, tropicals, etc., giving
growers something new to consider. The West Coast has the highest number of
people producing in the "other" category, with 41 percent. However,
the South is not far behind with 38 percent. Growers with more than 500,000 sq.
ft. in production have also embraced the "other" category, with 37
percent of their sales in the category. Overall, the "other" category
may soon be the talk of the industry.

The second most popular category is vegetables and herbs, 13
percent of sales. You might be surprised to know that vegetables/herbs have
been slowly gaining production space, and this year the popularity is peaking.
Next in line is the traditional perennial (11 percent) that will always be
close to the top because of its variety and easily recognizable plants. Even
though the trend shows that more consumers want something different, there are
still a lot of consumers out there that enjoy tradition in their plants.

The rest of the 18 choices run in the 0-7 percent range.
Most of the traditional bedding flats are just not as widely grown as the more
exciting, non-traditional crops. Impatiens have risen about three percent since
last year; however, mums have dropped two percent from last year's 4-percent
total, and everything else stayed virtually the same.

Container Crops

Even though perennials might be slipping in bedding flat
production, they are thriving in the container crop department. Perennials
outsell any other container crop by approximately seven percent, at 19 percent
of container production, and are up 11 percent over last year's production.
Other traditional annuals are 12 percent of the growers' sales. Most popular in
the Midwest (30 percent) and in operations over 500,000 sq. ft. (31 percent),
perennials are one trend that seems to Á keep going in all regions and
sizes as each year goes by.

The second trend that seems to be popping up is foliage, with
an overall 11 percent in sales, up two percent from the previous State of the
Industry Report. Growers in the West (21 percent) and the West Coast (20
percent) are neck and neck when it comes to foliage sales. With the growing
trend in bedding flats and now in container crops, the foliage market will be
in full bloom in the coming years.

Poinsettias are up from two percent to eight percent, as are
geraniums. Each year, the trends change and growers must adapt their space
allocations, but with survivors like perennials, poinsettias, geraniums and
other popular traditional plants, no small fluctuation will stop the demand.

Overall, which crops are the growers going to be adding to
their production in 2003? Specialty pot plants are the surprise trend that will
be added to more schedules next year. The 17 percent total is up from only two
percent from the last report, giving the specialty pot plant a 15-percent jump.
Last year's highest increase came from perennials at 10 percent, but this year
the category is down to six percent.
Growers are becoming increasingly comfortable with the variety of
container crop possibilities.

Greenhouse Chemicals

Greenhouse chemicals are what help make the plants grow
stronger, longer, healthier, more colorful and so on. However, since 1998 the
amount spent on greenhouse chemicals has decreased from $24,128 to $10,517 in
2002. Which chemicals have been making a difference? Insecticide prices were at
$5,214 in 2000, and now they have dropped to $3,734. Fungicides are down to $3,046
from $5,495; herbicides are also at $20.25, a $1,221 decrease; and biological
controls are down the most from $1,384 to $335 from last year's totals.

Not surprisingly, the region that is using the highest
amount of greenhouse chemicals is the South, with an average cost of $14,335 on
all greenhouse chemicals. There is a large population of growers in the South,
as well as a warmer climate, and growing seasons tend to last a little longer
in that area. When crops are in warmer climates, diseases, pests and weeds
become more prevalent, which is why more chemicals are purchased in the South
as opposed to anywhere else.

With decreased insecticide and fungicide use, you might
expect to see increased biological use, but this is not the case. Biological use
has, in fact, decreased substantially from last year's numbers, the exception
being the West Coast, which continues to spend twice as much on biologicals as
any other region.

The chemical that is being spent the most on in greenhouses
all across the country is insecticides. There are so many new species of
insects that are being discovered and invading crops that it is no wonder more
money needs to be spent on trying to get rid of them. The regions with the most
insecticide spending are the South with $5,104 and the Northeast with $5,059.

Where the plants go

The plants are grown, look like a million dollars, and it is
time to present them to the consumer. Since last asked in 2000, there has not
been much of a change as to where growers send their crops to be sold. Overall,
growers tend to sell the majority of their crops through their own retail
centers, at an average of 38 percent, which is up from 30 percent in 2000. Cut
that number in half and that slides the garden centers into position with an
average of eleven percent. Eleven percent also goes to wholesalers, which is
down from 15 percent in 2000. Landscapers are down one percent at nine percent
while retail florists are up one percent at seven percent. Grocery stores and
chain stores are only down by one percent at six percent, probably due to the
fact that a number of chain stores decreased their garden centers in the past
year. Plant brokers are down from five percent in 2000 to three percent this
year. The only two categories that have stayed consistent are the mass
merchants, which remained at six percent both years, and the "other"
category, which also stayed the same in 2000 and 2002 at five percent.

Growers in the Midwest were the most successful in their own
retail outlets with 55 percent of their crops. Growers in the 25,000 and under
production size sell 86 percent of their crops in their own retail centers,
blowing away any of the other size categories. Over the year, the amount sold
at a grower's own retail has been the number-one way to sell a crop, and as the
years have gone by, there has not been much change in this area. A lot of
consumers prefer to buy plants from smaller retailers or at least a place that
does not have a national brand name attached to it. The feeling is that a lot of
the growers' own retail centers take better care of the plants and know how to
manage them better; all in all, consumers want to go where the quality and care
are.

Provided Services

Since a lot of consumers do prefer the personal touch of
growers, the survey asked what growers have been doing to ensure that for the
consumer. The results turned out to be unsurprising, but not great news.
Eighty-five percent of the growers do not provide any type of in-store service
to chain stores. Only eight percent do, leaving the rest to unusable answers.
However, the growers that do provide a service provide merchandising for the
chain, and some growers also water the plants. One of the services that is
gaining popularity is for growers to come in and clean up the area for the
chain to make the area look better. Some places provide racks, reset the
benches and even consolidate.

The region that seems to do the most servicing is the West
Coast, with 22 percent of growers saying they do provide service. An even more
interesting fact is that growers with more than 500,000 sq. ft. of production
space have close to the same numbers as the West Coast, showing that not only
is the West Coast providing more service, but a lot of the larger growers are
the ones providing this service. Growers in the Northeast, Mid-Atlantic and the
Central United States do not provide service to chain stores and neither do the
smaller production sizes. However, when the warmer, more populated climates
enter into the mix, more services are done.

Providing Guarantees

The majority of growers may not provide services to chain
stores but a slightly higher percent does guarantee the plants that they sell.
Eighteen percent of growers provide a guarantee on their plants, which is a
4-percent increase from the previous report. Another interesting fact is that
the Central United States is the region that provides more guarantees than any
other region or production size by 43 percent. Also, growers in the 50,001- to
100,000-production range offer the highest amount of guarantees with 29
percent. With moves by some mass merchants to adopt pay-by-scan, we expect
these numbers to change over the next few years, as more large growers across
the country adopt both guarantees and in-store merchandising.

So what do the majority of the growers guarantee? A number
of Á growers said they make sure that the plants are healthy and/or of
good quality, so if something did happen they agreed to replace

them for free. Other places have guarantee limitations. For
example, several growers have a 1-week return policy, others 30 days; it all
depends on what the grower feels is the right time and which plants these
guarantees are for. One grower has even decided that no matter what, the plants
are guaranteed at 20 percent off the original price, giving the consumer a
little extra incentive to buy from that particular grower. A small promise can
take sales a long way.

Sales

We all know that the economy has not been in the best shape
this year. The average amount of sales for the year of 2002 is approximately
$1,070,276, only a slight decrease from last year's $1,127,090. The numbers
show the results of a bad economy; however, they still showed a good profit
margin for growers in the long run. On average, 51 percent of growers reported
that their net profits increased in 2002 (up from last year by 12 percent),
which only showed a decrease of five percent, and 24 percent of growers stayed
the same as the year before. This shows that in bad times people are still
willing to get out there and buy a few plants.

The West Coast had the highest increase in the United
States, with a 9-percent increase in net profits. The Northeast and the South
come in at a close second with a tie of an 8-percent increase in net profits.
Fifty percent of the growers in the 25,001-50,000 category ended up breaking
even over all of the other sizes. Unsurprisingly, the size with the highest
increase is the 500,000 and higher, showing that larger production sizes
consistently make the most in profits. As a matter of fact, the majority of the
profits were sold in the larger production area with an average if $3,660,000
in total sales. This runs head to head with the Northeast as the region with
the highest amount of sales at $1,926,057. Surprisingly, the South came in with
$620,889, a significant decrease in profits from last year's survey. The
Midwest ended up having the least amount of profits with $512,607, but not as
low as the 25,001-50,000 group, which has an average profit of $208,375.

How to Obtain a Copy

Due to the space allotment, we were unable to include all of
the information from our survey in the pages of the magazine. We do offer a way
to obtain that information, though. This publication offers breakdowns by
region and size of operation for all of the categories in this article. There
is also a number of categories that were not discussed in the article about
media, employee information, Internet usage and more that may be of great
interest to growers. There are also a number of questions that compare previous
years to the current data, giving the grower an in-depth idea of how trends
have changed.

The cost of the complete survey is $100.00. Please submit
your order to Bridget White, GPN, 380 E. Northwest Highway, Suite 200, Des Plaines,
IL 60016, or E-mail your request to bwhite@sgcmail.com.

About The Author

Catherine Evans is editorial assistant of GPN. She can be reached by phone at (847) 391-1050 or E-mail at cevans@sgcmail.com

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