When looking ahead at what to expect this year, heed the advice of two of the industry’s longest-tenured advisors. Get out ahead of the hurdles by putting a plan in place today.
When Dr. Charlie Hall speaks, people in the greenhouse industry tend to listen.
Hall was busy in 2021’s fourth quarter giving industry talks centered around what he believes are three of the biggest challenges horticultural businesses will face in the new year, and how growers can overcome them.
“The shape of the economic recovery [from COVID] is inversely correlated to the shape of the COVID curve,” Hall explained recently, noting that as COVID cases decrease, the economic recovery should conceivably speed up.
Challenge #1: Rising inflation
Setting records in professional sports or even in our own workout routines is fun. Setting records for rising inflation in our lifetimes? Yeah, that’s not so much fun.
“Currently we’re at about 5% inflation — we hadn’t been there in a very long time, something like 30 years or more, and this is higher inflation than even during the Great Recession,” Hall explained, noting his belief that the Federal Reserve will start to pull back on securities purchases by early summer to try and tamp down inflation.
Still, a wild card remains: Omicron and its impact. Will the new variant wreak absolute havoc on trade markets — as Delta did this past spring — or will we have learned enough by then to deftly maneuver around its impact?
“Delta blew us right upside the head with a two-by-four, and now we’ve got Omicron. Hopefully that is it, but we’ll see,” Hall added. “Then again, it might be the impetus to getting more people to get vaccinated, socially distance and wear masks.”
The rising cost of production is making a lot of growers look closely at their pricing structures, and for good reason. Hall says input costs are up between 12-14% over pre-pandemic levels. That’s probably a new normal that will stick around for quite some time, so it’s important to make pricing decisions with the long term in mind.
Challenge #2: Supply chain disruption
Hall characterizes the horticultural supply chain today as “obliterated,” but he also expects a relatively quick bounce back. He’s already seeing shipping costs decrease by about 25% from where they were during the worst stretch of the pandemic.
“We are seeing this ironing out of the supply chain issues — it’s probably going to be July or August at the earliest that the wrinkles will start to get ironed out and we’ll see lead times and container availability and things like that move in a positive direction,” Hall said. “We’re seeing improvement, but we’ve still got a way to go.”
Hall advises growers to start planning for what products and technologies they’ll need in 2023 today, or at least as soon as possible. “We’ve got to start planning in longer time frames.”
Adopting technologies that help growers manage the supply chain more efficiently is another piece of advice Hall would offer growers.
“This is where technology adoption — and having a backup supplier, and then a backup for the backup supplier — is really a critical piece of managing the supply chain,” Hall said. “And make sure you’re checking in with your suppliers, and even ask about your suppliers’ suppliers and how they’re doing; there needs to be more communication and coordination in the horticulture supply chain.”
Challenge #3: Labor shortages
The overall labor situation mirrors that of the supply chain currently: things may not be as bad as they were at the start of the pandemic, but they’re still not quite back to normal yet, either.
“Unemployment benefit claims have gone down dramatically, but the labor force is still significantly smaller than it was pre-pandemic,” Hall said, noting a current deficit of about 4 million workers from labor force statistics back in February 2020.
Those shortages are being felt among three significant groups in horticulture: women, retirees and truck drivers. The trucking industry is being squeezed extremely hard by COVID-19. The segment is short 80,000 drivers nationwide, according to Hall.
Although there is no magic bullet that Halls sees fixing the labor pool in the immediate short term, he is optimistic that proposed government initiatives to help make childcare more affordable for working families in President Joe Biden’s “Build Back Better” legislation will be passed and signed into law.
“Yes, we’re still 4 million workers down from where we were,” Hall explained. “But we’ve got 350 million people in this country. We created 5.6 million new jobs and got unemployment down to 2.4% during a global pandemic. We’re not that far off from what we economists would say are normalized levels of unemployment.”
Paying higher wages to green industry workers — Hall says we can’t ignore the fact that many operations paid “poverty level wages” to workers in the past — and sorting out the immigration problem at the border would be immensely helpful in ensuring the greenhouse industry’s workforce into the future.
Challenge #4: What will consumers do?
The other side of the coin in horticulture currently is, after two years of record sales volumes and a veritable groundswell of good PR for the industry, how will the new plant parents evolve and shift their purchasing preferences in the new year? In 2020, an HRI-funded survey revealed that 98.5 million people participated in gardening, 18.3 million of which were doing so for the first time in their lives.
How will these new gardeners react this coming spring, when they’re not stuck at home as much by COVID concerns, and how do we as an industry relate to that new customer base and stay relevant in their future discretionary spending decisions?
Tasked with answering those critical questions is Michigan State University’s Dr. Bridget Behe, who could perhaps be referred to as the Charlie Hall of horticulture consumer behavior. Behe has bylined over 500 articles in industry publications and research journals over a long career in the green industries up in East Lansing, and her words are oft heeded when it comes to plant buying trends.
“Salience is the big word for growers in 2022,” Behe told Greenhouse Management in a recent phone interview. “I’d like to see more partnerships and coordination between growers and their retail customers in terms of marketing and advertising.”
Adding that she “does not expect growers to do all of the marketing,” Behe thinks it would be to the ultimate benefit of all in the industry if growers and retailers joined forces more often in communicating the many health and wellness benefits derived from plants. And when you consider that recent research uncovered by Behe shows that 72% of consumers are willing to pay more for a product with a sustainability message versus those without, she certainly has a point.
“Those [plant] benefit messages are so powerful — did you know that being around plants has been shown to help improve our memory and concentration? And when we can link those claims to real research, it’s even more influential,” she argued.
A fine line exists between being braggadocious and self-confident, however, a fact not lost on Behe or her cohorts at MSU.
“We’re very conservative and humble people in this industry, so I don’t want growers to think it is bragging, but we need to start doing a better job of telling the story of the lower inputs we’re using today to produce these plants — all the less harmful pesticides we’re using and we’re moving away from plastics where we can — those type of things.”
For growers seeking out new ideas on how to market the environmentally friendly aspects of the industry more effectively, Behe says to take a look around at your peers in other industries.
“McDonald’s is doing an overhaul on the toy in the Happy Meal because they know their customers are concerned about plastics, and you’ve got Starbucks clearly showing that they are concerned with the sustainability of their coffee, and how they treat their labor force. And these types of campaigns are really resonating and helping out the bottom line, too.”
Her overarching piece of advice for growers interested in going down this route?
“I’m really hoping [the growers] continue to develop closer partnerships with retail, that it becomes not just about the sale, but there needs to be information flow back and forth — that’s what is going to help this industry maintain financially and environmentally,” Behe said. “Be more transparent and visible in sharing your value system as a grower — again, not just to make the sale, but to make the world a better place.”
Going forward, Hall shared that he is “pretty dang optimistic” for 2022 and beyond.
“If we can just get the materials that we need, the shipping containers and the trucks, and all the workers that we need to grow and ship these beautiful plants, we’re going to be just fine,” Hall stated.
For the first quarter of 2022, as you dive into another year of production schedules, Hall says to keep in mind that it’s a complete waste of time and energy to fret over things you cannot control.
“Inflationary pressures and supply chain disruption — those things do matter in the grand scheme of things, right? But there’s nothing you can do about them as a grower, you can only control what you can control,” he advised. “You can’t adjust interest rates at the Federal Reserve, right? But you do control your pricing structure. There are adjustments that can be made, those are the things I’d focus on in 2022.”