National Situation and Outlook
Last year’s economic recession in the United States was relatively short but very intense. Its impact on sales of green industry products could be significant over the longer term. Some estimates of current impacts are presented in the second section of this article.
A recession is a decline in output of goods and services as measured by the Gross Domestic Product (GDP). This measure changed from negative to a positive value of about 2.8% in the third quarter of 2009 and further increased to 5.7% in the fourth quarter, indicating the recession’s end. Typical growth rates are in the 2% to 3% range, so the fourth quarter number is not expected to be sustained. In addition, it is reported that the fourth quarter 2009 GDP report was fueled by larger private inventories.
There were other specific impacts from the recession. The financial sector, which stumbled substantially in 2008 and 2009, is more stable now because of actions in fiscal and monetary policy. Other particularly important areas are jobs and consumer confidence. Unemployment currently is about 10%, and those who have stopped searching for jobs are estimated to be almost as many as those counted as unemployed. Reduction of unemployment is expected to be slow and costly. Hiring practices in which employers delay hiring and rely on the existing workforce lead to productivity gains and provide revenue for other uses such as investments in new equipment. However, until employers become confident that recovery is assured, new job creation will be slow. Unemployment and reports of its extent also discourage consumer confidence and spending patterns – the kinds and quantities of goods and services purchased. Reduced spending leads to slower growth rates and lower likelihood of a resumption in hiring.
In this situation, both individuals and businesses have incentives to be conservative. Consumer confidence has recovered to an extent. The rates of new home construction and sales of existing homes seem stable but at reduced levels. At the end of 2009, sales of new homes rose to the highest level in more than a year. Southern U.S. markets were relatively higher and offset declines in other sections of the country. At the end of November 2009, sales were up 6.2% from September to a seasonally adjusted rate of 430,000. This is taken this as a sign that "builders will need to start swinging their hammers again soon."
Spending by individuals and households is the major portion of GDP. Households lost large amounts of wealth with the collapse of housing and stock prices. Purchasing power declined. In the latter part of the year, savings has been increasing and is expected to grow gradually. Because of increased savings, spending will grow more slowly than income, in contrast to the past few years when use of credit had allowed spending to exceed income and when consumer confidence was high. Cutbacks in spending suggest that consumers might not have the same attitude toward spending and consumption they had before the recession. This is being called the new normal.
If consumer behavior has changed and spending does not rebound with recovery, there are significant implications for the entire nursery products supply chain. For example, current production and sales levels, or even further-reduced levels, might be the new normal. A contrasting view is that consumers are frugal now, but they have images of consumption and behaviors for themselves and their families that encourage them to move toward the higher consumption levels of the recent past. Consumer confidence has risen to nearly twice its value at the low point of the trough. As a whole, these considerations suggest that the spending patterns of the boom may be moderated, but neither will frugality dominate the consumer psyche. These factors are important. They have direct and indirect impacts for the ornamental plants industry, from wholesale growers to retailers. Cooperation through the supply chain to create value and contain costs may be a strategy that resonates in this economy.
Louisiana Situation and Outlook
Production and sales of nursery-grown ornamentals have significantly declined over the past two years. Farm gate value decreased 27% in 2009 compared with 2008. A significant farm-gate-value production decline also occurred from 2008 to 2007 (10%). These declines are only the third and fourth times in the last 40 years sales have decreased from one year to the next. Wholesale production in Louisiana the last few years has been slightly less than $100 million with an additional $75-$100 million in plant inventory. Plant inventory for future sales has slightly decreased the past few years. Some growers feel these values are under-reported. Nursery crop sales in 2009 continued to suffer because of fewer residential and commercial landscape installation projects.
Woody Ornamentals: Woody ornamentals account for the vast majority of the wholesale farm-gate value of commercial nursery crops in Louisiana. LSU AgCenter estimates place the wholesale value of woody ornamental sales in Louisiana at $60-$70 million annually. A recovery from the sales decline in 2008 was predicted to occur by fall 2009-spring 2010. This reversal of sales decline has not yet occurred, but growers are more optimistic for 2010 than for 2009. Container production acreage has increased significantly in the past five years while acreage in field production has been stagnant or decreased slightly. The major container crops are azaleas, hollies, crape myrtles, Indian hawthorns, groundcovers and shade/flowering tree species. The number of acres in bigger container sizes is up significantly. Several woody-ornamental growers have gone out of business in the past year.
Floriculture/Bedding Plants: Floriculture/bedding plants typically represent about 30 percent of Louisiana’s nursery crop production. At the wholesale level, about 40 percent of bedding plant/floriculture crop sales occur in late winter and early spring. Floricultural-crop and bedding-plant production (includes poinsettias, hibiscus, garden mums, lantana, impatiens, petunias and vinca, begonias) have experienced little growth in Louisiana in the past three to five years. Profit margins in floriculture-crop production are shrinking because of energy price increases, transportation cost, fertilizer expenses and other factors. Floriculture and bedding-plant producers need to take advantage of the new Louisiana Super Plant promotion and marketing program planned for fall 2010.
Foliage Plants: Foliage plant production in Louisiana has slowed. Most foliage sold at the retail level now is imported from Florida or brought in from Florida by wholesale growers and brokers. In some cases, these imports are grown in Louisiana for several months prior to wholesale sale. Interest in wholesale production of tropical plants, however, has increased recently in Louisiana. Although this category could fall into the floriculture/bedding plant category, outdoor tropical plants such as esperanza, gingers, cannas, bird of paradise, etc. have increased sales potential. Many greenhouse growers have profitable markets for these products. Cold weather this past winter damaged many outdoor foliage plants, and replacement plants need to be marketed this spring.
Fruit/Nut Trees: Fruit/nut tree production is stable in Louisiana at the wholesale level. A slight increase has occurred in the last several years. Container citrus production has rebounded from the damage incurred from hurricanes Katrina and Rita in 2005. However, the discovery of the Asian citrus psyllid and citrus greening in Louisiana has caused economic loss in the container-citrus industry. Availability of container-grown, improved pecan cultivars is significantly below market demand, and opportunities to grow these cultivars for wholesale or retail sales are considerable. Also, many new fruit cultivars could be grown to increase market potential. Citrus, figs, pecans, peaches, muscadines, blueberries, apples and pears represented the vast majority of wholesale production of container-grown fruit and nut trees. LSU AgCenter fruit tree releases are popular with consumers and are under-produced in the state.