EXECUTIVE DIRECTOR'S MESSAGE Ken Fisher, ONLA Executive Director, ken@onla.org
Is this the “new normal”? We were all pleasantly surprised when 2020—the year of the pandemic—turned out to be a strong year for nursery, greenhouse, and landscape companies as consumers were stranded at home and had money to spend. Going into the 2021 season, there was reason for continued market optimism, even though vaccines were rolled out and more parts of our economy opened back up. True to form, consumers keep spending on our industry’s products and services and we’re putting another strong economic year in the books. But has this continued success revealed new potential issues to manage? Dr. Charlie Hall, AmericanHort chief economist and Professor at Texas A&M University, tracks the costs of key inputs our growers are experiencing. In summary, the overall cost of producing nursery and greenhouse crops is almost 32% higher in 2020 than it was in 2007, with labor experiencing the largest increase (46.3% higher in 2020). The good news is most growers and landscapers have been able to raise prices to offset these rising input costs. But some inflationary prices are transitory—reflecting a temporary increase that may fall in the coming economic cycle. Others become “built in” and a permanent cost of doing business. We need to monitor the situation to ensure our price increases can hold ground with our cost increases. The green industry is currently in the mature stage of the industry life cycle and there are numerous pressures that result in a price-cost squeeze (or margin compression). Labor, energy, fertilizer, propagative materials, plastics, and freight are among the most inflationary inputs. In the broader economy, U.S. consumer prices rose sharply in March as the economic recovery gained momentum, marking the start of an expected months long pickup in inflation pressures. The Labor Department reported that its consumer-price index—which measures what consumers pay for everyday items including groceries, clothing, recreational activities, and vehicles— jumped 2.6% in the year ended March, the biggest 12-month increase since August 2018, and rose a seasonally adjusted 0.6% in March from February. One of the key issues we’re seeing that marks a big change from recent years is that for the first time in a decade a wide range of businesses—including most in our industry segments—have pricing power right now. After a year of closures, people are eager to get out and spend, and they have the means to do it. We see an awakening of the consumer economy. Economists widely expect consumer prices to keep climbing in the months ahead after nearly a year of muted overall inflation onla.org
as the Covid-19 pandemic damped consumer spending. Dr. Hall anticipates a similar pattern in our industry and projects a 5.24% increase in the input costs of nursery and greenhouse growers. This will transfer in some manner to landscapers. Our challenge will be understanding those cost increases, managing industry supply, and holding the necessary pricing power to avoid the dreaded “margin squeeze”. This will require a close watch on inflationary trends and careful analysis for SKU rationalization, customer profitability analyses, and determining the need for price increases. Armed with such information, growers and landscapers will be in a much better position to understand the pressures on their relative costs of production and use these data in making more informed pricing decisions. Your ONLA team will continue to monitor the changing business environment, fight for our industry, and keep you informed of changes you need to be aware of. We will provide periodic updates on key costs of inputs and share with you best practices across the industry. We are developing programming to help you navigate these business challenges, develop your team, and grow your business. Watch your email and our website (ONLA.org) for upcoming details. What we do together matters—now more than ever!—when it comes to growing and protecting the future of our industry in Ohio and beyond. Your membership in ONLA will encourage others to join. I appreciate your continued support of ONLA. Help us get the word out: the industry benefits from a growing ONLA membership.B
Ken can be contacted at ken@onla.org
May/June 2021
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