June 15, 2014
Growers fighting to survive perfect storm of costs and weather
Ontario growers are finding economic and environmental conditions are raising their costs to dangerous levels.
A letter to the editor in the May issue of Landscape Ontario magazine, by Ted Sikkema of Maple Leaf Nurseries, underlined the price crunch facing Ontario growers.

Sikkema stated that a serious re-evaluation of grower pricing is overdue. He cited weather, and increased costs for water, electricity, natural gas, petroleum, labour and taxes as all contributing to the problem.

Landscape Ontario magazine conducted an informal survey of growers on the state of the industry. Although the answers were quite varied, it did reveal that growers are feeling the crunch.

“It’s the perfect storm,” said Past President of LO, Tom Intven of Canadale Nurseries in St. Thomas. He cited increasing costs, and noted that the extreme winter increased heating costs to keep plants in polyhouses and greenhouses alive. “The cost of freight has gone up by 15 per cent, and the U.S. dollar to loonie is 10 cents higher than it was last fall. All of these combined to create the perfect storm, putting extreme pressure on growers’ margins.”

John Langendoen, of Willowbrook Nurseries in Fenwick, also agrees that the extreme winter combined with a “terrible, lousy spring” has had a combined negative effect on the sale of plant material. Speaking as a seasoned industry member, he says this was his most difficult winter ever. “We spent so much time and money shoveling and blowing snow away from the polyhouses just to keep the place from collapsing. There was a lot of money spent on labour with no value added.”

Alice Klamer, of Blue Sky Nursery in Beamsville, said, “An extremely cold winter and late spring put everything behind about two weeks. The winter was very harmful plants. Spring shipping was delayed for about two two weeks, creating no cash flow. Growers spent money to secure their position, but with no cash flow coming in. Many had to borrow money to hold themselves through the period.”  
hoophouses full of plantsThe severe winter resulted in increased heating requirements, plant damage and increased labour costs.
Leno Mori, president of Mori Nurseries, first began in the industry in the 1950s.

Mori said, “It has never been this difficult. The late spring is one problem, but the damage to the plants is unbelievable. I don’t know why, but we’ve lost a lot of plants. On one farm, 80 to 90 per cent of our cherries are black. And, what the cold didn’t get, the rabbits did. We’ve had a little bit of damage done by rabbits in the past but again, we’ve never had this much damage before.” Mori explains the rabbits have killed thousands of apples and pears in the fields, and estimates that his Niagara-on-the-Lake farms have lost $1-million worth of plants this spring.

The industry veteran continued, “Conditions are extremely difficult right now, with wages going up, along with heating, fuel and plastic costs. It is a real, real challenge.” Mori estimates the increase in minimum wage will cost the company $200,000 for off-shore worker salary increases alone, adding, “We purchase our small liners from the U.S., so the weakening Canadian dollar has cost us $100,000 so far this year.”

Willowbrook Nurseries grows containerized nursery stock, which was protected in heated polyhouses over the winter. John Langendoen said, “A few of our plants suffered a bit of damage, but we weren’t as hard hit as field growers.” However, he adds that increases in heating costs have taken a toll on the company’s bottom line.

Increases in many grower inputs have put a strain on resources. Langendoen notes fuel, propane and hydro have all gone up. “We are involved in buying groups to try and bring costs down, but some of the contracts are up, so prices are increasing. And any time the price of fuel goes up poly, plastics and fertilizer increase, too. I spend more time than ever in administration. I shop, shop and shop to reduce input costs wherever we can.”

On the issue of higher labour costs, with the minimum wage increase on June 1, most growers said they would be looking at improving production efficiency and possibly fewer employees.

“Minimum wage will raise everyone’s expectations for more income,” said Tom Intven. He explained that all employees will expect to see higher wages if those in the lower income scale receive wage hikes.

Adding to the pressure, on June 1, over half of Willowbrook’s staff will get wage increases. Langendoen explains that his son, as the nursery’s production manager, is looking at production efficiencies to reduce labour costs.

How do you recoup wage hikes?

Alice Klamer spoke on the minimum wage, stating, “I have 14 Mexican workers. At a 75 cent per hour increase, the extra cost this year will amount to $30,000. How am I to recoup that cost? I must either make $30,000 less this year, or raise prices.”

On the issue of raising prices there was a wide variance of opinion on the process, timing and the level of increases.   

Landscape Ontario president Dave Braun of Braun Nursery in Mount Hope said, “We need to be a partner in our customer’s success. We need to demonstrate how excellent quality and livability will actually increase their income. I find that we have the most success when we can talk to the owners themselves to show the overall value. We can then demonstrate reduced replacement costs and increased referral rates by choosing quality,  If the purchasing agent is only interested in the initial purchase price — and not the overall value to the bottom line — we’re probably better off looking for companies who see the big picture.  In the end, those are probably the companies who will be most successful, and will therefore make better partners in the long-term.”

Consumers decide prices

Intven feels that those in niche markets can more easily raise prices, but in the overall market, consumers decide prices. “It’s possible that with the late spring, retailers will panic and start offering discounted prices. In the long-term, growers must raise prices. I would expect to see price jumps, but not until the fall. The question is will the market bear increased costs?”

Langendoen says weather and economic conditions have made the Ontario nursery market unsustainable. “During the recession, we knew prices were under pressure, but costs were manageable. Now, all growers’ inputs costs have gone up, so plant prices will have to increase.”

He feels that growers may have no choice but to come out with smaller product lines, and smaller-sized perennials, shrubs and trees for the retail market if consumers are not willing to pay more for today’s production. “We are sitting on pins and needles,” notes Langendoen, adding the company is putting more effort into analyzing credit risks and tightening its discounting. “We are spending more time than ever on the business side of operations.”

Klamer concludes that everyone agrees a price hike is needed. “It’s a matter of when.” She expects to include rationale for price hikes in her fall catalogue, as well as having a sales rep carry an explanation to talk with customers.

Leno Mori says, “For months people have been asking me how this winter would affect us, but I couldn’t tell until now. We’ll try to get a bit more for our plants, but there is no way we are going to recover by raising prices from this tremendous amount of loss. Making this up is going to be extremely difficult.”

Alice Klamer spoke to the value of plants. “It seems ridiculous that daylilies are being sold for $3.00. You can buy a cup of coffee for that. We have cut costs and staff to the point that it’s impossible to do any more,” she said
The owner of Blue Sky Nursery continued, “I looked at one of my catalogues from ten years ago. I compared back then to now, and there have been very few price hikes. I also looked at my pay information as a teacher from 1976, when my pay was $10,300. We all know teachers are receiving much more than that today.”

Industry has changed

John Langendoen reflected on his recent travels. “I do a lot of travelling across Canada and the U.S., so I see that since the recession in the U.S., the size of the industry has changed. A lot of growers downsized or closed their doors, and there was a lot of product dumped on the market for years. I’ve seen acres of empty gravel fields on the U.S. west coast that used to be in container production, as well as the burn piles of Japanese maples there is no market for. However, now the industry and the amount of inventory south of the border have changed dramatically, and we are starting to see plant shortages in the U.S. Nurseries and re-wholesalers have started to raise their prices. We are seeing reductions in the size of plants but they are selling for the same price. U.S. growers are definitely getting bolder (with pricing).”

Cost of doing business increased

A recent article in American Nurseyman magazine reflects what Langendoen says: “Looking back at our industry’s experience since 2008, we see huge challenges and changes. In the grower and landscape segments, a number of (U.S.) industry members are no longer in business, and those that are still here are most likely operating very differently today than in 2008 or prior. The cost of doing business has certainly increased.”

Langendoen remembers two years ago, when Landscape Ontario brought in Greg Schaan from Imperial Nurseries in Connecticut (purchased by Monrovia Nurseries in 2013), who spoke to growers about the company’s production planning system that looks at price, production costs and ROI. Langendoen says the information provided was ‘phenomenal.’  In response he currently has a junior accountant on staff going through Willowbrook’s production to determine what is profitable to grow and which lines are costing the company money.

“The weather is our economy,” says Langendoen. “When the sun is shining, people will buy. After a winter like this, I believe people will be excited to get out there and buy a plant.”

Since the survey was conducted, the weather has improved, but it’s unknown if that resulted in consumers flocking to garden centres.  

The federal government has a program, AgriStability, which was designed to protect producers from large declines in their farming income caused by production loss, increased costs or market conditions. To access the website go to http://gfl.me/x28r.