Prior to the COVID pandemic, the green industry was in the mature stage of its industry life cycle. As such, there was margin compression occurring in the industry, where prices were slow to increase due to real and perceived competitive forces while, at the same time, the costs of the inputs used to produce these products are increasing. Even in situations where industry firms were able to increase prices for their plants, the costs of their production inputs rose more quickly and margins across the entire industry were being “squeezed.”
Then enter COVID, resulting in significant supply chain challenges, while at the same time the industry experienced unprecedented increases in final demand. This has resulted in extraordinarily high inflationary pressures, making it is essential for growers to have full and accurate information about their cost structure to aid in managerial decision-making such as SKU rationalization, customer profitability analyses, and determining the appropriate level of price increases. Armed with such information, growers will be in a much better position to understand the inflationary pressures on their relative costs of production and use these data in making more informed pricing decisions (since total costs represent the price floor and willingness-to-pay on the part of the customer represents the price ceiling).
The Index of Prices Paid by Growers, first developed in 2017 as part of the Your MarketMetrics industry benchmarking program, has documented these inflationary pressures annually on the most important inputs used by green industry growers and each cost-related line item is weighted by its relative share of the total of the typical assortment of goods and services purchased by growers for producing, marketing, and shipping plants. Using this methodology, a weighted average rate of inflation in the prices of these
grower inputs is estimated.
Results from this indexing analysis indicate that the summary weighted Index of Prices Paid by Growers ranges from 100 in 2007 to a high of 145.8 in 2021. This means that the overall cost of producing nursery and greenhouse crops is almost 46% higher in 2021 than it was in 2007, with labor experiencing the largest increase (53.1% higher in 2021) among these inputs. The year-over-year (YOY) increases, reflecting the inflationary pressures of costs over time, are also calculated. The tracked expenses in 2021 increased about 9.6% over what they were in 2020. Based on market research across the industries and conversations with allied trade pundits associated with producing these inputs, a 5.3% increase in input costs is forecast for 2022.
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