Rabobank: Larger greenhouse growers cope with energy pains more easily than ornamental growers

The current high prices of energy and raw materials have prompted greenhouse horticulturalists to draw up various (cultivation) scenarios for the coming winter. The government's (short-term) measures, the uncertain pricing of products, and the shortage of personnel are also contributing factors. All in all, Rabobank predicts in an analysis that there will be a tense winter ahead. The bank states that 'fortunately, the situation so far in 2022 is still manageable for most businesses.

Mood in horticulture remains stable
The Rabo Horticulture Barometer remained virtually unchanged in the third quarter (see Figure 1). Although the sharp decline seen in the second quarter has been confirmed, the mood has not deteriorated further. The level is still around six on a scale of 1 to 10. In general, the sector is quite optimistic in the long term.

Figure 1: results from the horticultural barometer 2018-2022

"Admirably creative with energy management"
Energy is the keyword for greenhouse horticulture. Horticulturalists are admirably creative in optimizing their energy management, the bank observes. They save energy and generate income from extra electricity. This cushions some of the blow. On average, this seems to work better for greenhouse horticulture than for ornamental horticulture. On average, greenhouse horticulture companies are somewhat larger and more often have several options for managing their energy as well as possible. This includes shifting cultivation, switching between a boiler or combined heat and power (CHP), using lighting or not, gas and electricity contracts, and more.

But the individual differences are big. This is also evident in the spread of the Barometer results. In the past two quarters, this is clearly greater than before. The mood in the glasshouse sector is clearly worse than in the open field.

The gas purchase is still covered to a large extent for many, but of course, the variable part is increasing. Because of international competition, the increased costs can only be passed on to customers for part of the products and entrepreneurs.

The government is now working on a plan for next winter to reduce gas consumption and even switch companies off. Glastuinbouw Nederland is in talks on this with the Ministries of Economic Affairs and Climate Change and of Agriculture, Nature, and Food Quality. At the request of these parties, Rabobank is involved in the talks. It is as of yet unclear when a scheme will be ready. The minister wants to inform the Lower House about the plans in early October.

Investments in sustainability are put forward
A variation on the statement "Never waste a good crisis" is attributed to Winston Churchill. Freely translated: What can the crisis give us? What can we learn from the current tense energy market?

The bank analysts point to the "Trias Energetica" as proclaimed in the construction industry:

First of all, reduction of fuel use is of great importance. Entrepreneurs can think about using 'Het Nieuwe Telen,' which varieties they grow, whether they can avoid leaks in equipment and whether other minor maintenance is required. Another question is whether they will be growing with an (additional) fixed film this winter and whether frequency controls will be used on ventilators.

Then switch to a larger share of sustainable energy as much as possible. Are there, for example, possibilities for the use of heat pumps, residual or geothermal heat, the installation of solar panels, different lighting, and different lighting strategies?

Finally, the remaining heat demand that is satisfied by natural gas must be purchased in the most cost-conscious way possible and used as efficiently as possible. What risk coverage is desirable and acceptable now and in the long run so as not to jeopardize business continuity? In any case, make scenarios for several external circumstances: short and long periods of high gas and/or electricity prices, new subsidy schemes, a tender scheme for disconnection, and more.

In practice, the bank notes that some greenhouse farmers already have a clear plan in mind. They now give priority to investments in sustainability - such as solar panels on basins, dehumidifiers, LED instead of HPS lamps, extra screens, and connection to geothermal and residual heat - over investments in the expansion of acreage or robotization/automation.

Availability of some cut flowers could become a problem 
The cut flower sector has many different products. The special flowers, in particular, are often grown on smaller greenhouse farms. These companies are more often equipped with just a boiler and no CHP. In addition, smaller companies use less gas overall and have purchased less in advance. As a result, these growers are more likely to reduce, postpone or even stop production.

And that is where the problem lies for the wholesale trade in flowers and plants. In various places, the availability of a wide range of products will come under pressure next winter. Wholesale parties that have previously secured these products do not regret this now, although growers can still ask to be released from delivery. On the other hand, the reduced supply may cause the price to fall less rapidly if the consumer keeps their hand on their purse more often because they have less to spend.

Open field horticulture less under pressure
The energy situation is urgent for greenhouse horticulture and forces it to act. Of course, increased energy costs also affect the results of outdoor horticulture, if only because of higher prices for artificial fertilizer and diesel for irrigation. Yet other issues are also important there.

In flower bulb cultivation, the spring bulbs have been harvested, and there was a good harvest with good advance sales.

It is estimated that around 70% of the lilies harvested this autumn have already been sold in mid-July at good prices. Nevertheless, after the good start, the market has now become somewhat hesitant. The mood for 2023 is less positive. The war in Ukraine has already lasted six months, and logistics costs have risen sharply. In tulip and lily growing, the main question is whether the increased costs can be passed on sufficiently next year and how the sales - which went to Russia and Ukraine - can be turned around. Decreasing purchasing power can also lead to less sales. In our view, this risk is smaller for tulips - a cheap flower - than for lilies.

The bank also briefly touches upon the fruit and tree sector. Read the entire analysis here (in Dutch).

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