S1051: Sustainable Practices, Economic Contributions, Consumer Behavior, and Labor Management in the U.S. Environmental Horticulture Industry
Statement of Issues and Justification
Project SummaryThis multi-state project will conduct applied research and outreach education in support of improved production, management and marketing practices in the U.S. environmental horticulture or Green industry. The project encompasses four broad objectives:
1. Investigate sustainable practices in ornamental crop production and landscape systems.
2. Evaluate national and regional economic contributions of the U.S. Green industry.
3. Evaluate consumer preferences for environmental plants and related horticultural products, and their contribution to health and well being.
4. Investigate labor management practices and mechanization in the nursery and greenhouse industry.
This project is a continuation of previous multi-state projects active since 1976. A large team of research and extension faculty from numerous public universities will contribute to this project, including both agricultural economists and horticulturists. This group, known as the Green Industry Research Consortium, has a history of interdisciplinary collaboration. Project investigators will utilize various research methods to address these research objectives, such as mail and online surveys, experimental auctions, conjoint analysis procedures, input-output analysis, enterprise budgeting, field trials, energy and water audits, and life-cycle analysis. The project will develop outreach materials for target audiences, including peer-reviewed publications, trade press articles, workshops, presentations at professional conferences, and various electronic media such as websites, weblogs, webinars, DVDs, software, and podcasts.
Statement of Issues and Justification
The environmental horticulture industry, also known as the Green industry, includes nursery and greenhouse producers, landscape service providers, horticultural product wholesalers/retailers, and various allied professionals. Nursery and floriculture (greenhouse) crops include a wide variety of ornamental plants for landscaping purposes such as trees, shrubs, ground covers, turfgrass, bulbs, and propagation stock, as well as plants used for interior or patio decoration such as cut flowers and greens, potted flowering plants, foliage plants, and bedding/garden plants. The wholesale value of nursery and floriculture crops in the U.S. is around $18 billion (Jerardo, 2007). Economic impacts of the U.S. Green Industry in 2002, including indirect and induced impacts in other sectors of the economy, were estimated at $148 billion in output or revenues (in 2004 dollars), 1,964,339 jobs, $95 billion in value added, $64 billion in labor income, and $7 billion in indirect business taxes (Hall, Hodges and Haydu, 2005, 2006, 2007).
During the past two decades, the Green industry has been one of the fastest growing parts of the agricultural economy in the United States, due to robust demand for ornamental's plants and related services from commercial and residential development and increasing affluence. However, current trends and driving forces indicate that consumer demand is maturing. Obviously, the severe economic recession of 2007-09 has placed considerable financial strain on these businesses. In order for Green industry firms to survive in the long run, managerial decision-making must be based on accurate and timely production and marketing information.
In spite of the magnitude and growth in the industry, there is a lack of up-to-date and reliable information on the economic characteristics of the Green Industry. USDA-NASS conducts annual surveys of wholesale growers of floral and nursery crops in selected states, however, recent federal budget cutbacks have forced a drastic reduction in the number of states covered, to only 15. As a consequence, USDA-ERS has discontinued its annual Situation and Outlook reports on the nursery and greenhouse industry, with the result that stakeholders in many states with a significant industry presence are disenfranchised. The Census of Agriculture, conducted every five years, is comprehensive in scope, but lacks meaningful detail on nursery and greenhouse producers. The Census of Horticultural Specialties, conducted approximately every 10 years, as a supplement to the Census of Agriculture, provides considerable detail on specific products and market channels, but is too infrequent to be of use to most industry professionals.
Work under this project will complement ongoing efforts of other organizations to provide current production and marketing research for the U.S. nursery and greenhouse industry, such as the USDA-ARS Floriculture and Nursery Crops Initiative, USDA Federal/State Marketing Improvement Program, the Horticulture Research Institute, American Floral Endowment, Society of American Florists.
The United States Green industry generates 1.9 million jobs and has an annual payroll of over three billion dollars, however, information on labor use, demographics and employment characteristics is very scant for this industry. Labor costs typically represent 20 to 39 percent of gross sales in the industry. Labor shortages, immigration reform and legal status of employees are widely reported as the US Green industry's most critical issues. Innovations with labor in a labor intensive industry could have more profound impacts than any other modernization. Gathering data on the industry workforce is needed to raise appreciation of the industry's diversity, increase political power and public awareness, help stakeholders evaluate policy decisions and plan corrective strategies.
Labor issues are a dominant concern in the labor-intensive nursery industry due to cost, employee turnover, and the largely non-English speaking immigrant workforce. The nursery and greenhouse industry has among the highest worker turnover rates in the United States (52%). With an estimated cost of $4,000-$7,000 to replace an hourly worker, efforts to stabilize the industry workforce are critical to it's economic survival.
Competitive rivalry in the environmental horticulture industry is intensifying, especially at the retail level. One of the impacts of the mass marketing of nursery and floricultural crops has been to bring about an increase in overall size of growing operations. The capital requirements for nursery and greenhouse infrastructure to produce mass quantities of product for a confined marketing window exceed those that this industry has historically managed. Recently, larger growers have started partnering, usually on a contract basis, with smaller growers in order to handle the volumes required to supply large retail chains. In some instances, there may be several dozen growers involved to satisfy a retail chain's product supply needs in one market area. Depending upon the arrangement, this helps to spread the risk among several producers. Still, there are numerous examples of producers who supply 50 to 75 percent of their output to one chain.
The focus on mass markets by large growers has also created opportunities for smaller growers to develop niches serving independent retailers/landscapers or to go into retailing themselves, selling directly to the consumer. In a national survey of growers, it was found that 59 percent of firms were involved in retail selling of some portion of their product mix (Brooker et al. 2005). Some producers have also used their own retail outlets as a diversification tactic for risk management.
Another impact of mass marketers has been consolidation within the production sector. In recent years, grower numbers have appeared to decline, or at best, remain stable. Many would argue that the stresses of either supplying mass marketers or competing with them as an independent grower-retailer are taking their toll. The capitalization requirements, increased input costs (e.g. fuel), reduced margins, increased demands from buyers, and the market power associated with fewer numbers of buyers have all created intense market pressures and heightened competitive rivalry among larger producers. The smaller producers' struggle to remain competitive in a viable niche can be difficult in markets inundated by competing chains.
Mechanization and automation has been one important strategy for reducing labor costs in the nursery industry, however, this has been hampered by a lack of standardization in the industry. For example, a wide variety of nursery container sizes and shapes limits the application of mechanized handling equipment. Mechanization/automation can provide greater mechanical power, speed, safety and a greater potential for consistency and quality control (Giacomelli, 2002; Ling, 1994). Mechanization is normally defined as the replacement of a human task with a machine, but true automation encompasses the entire process, including bringing material to and from the mechanized equipment, and normally involves integrating several operations. Many times, true automation requires reevaluating and changing current processes rather than simply mechanizing them (Porter, 2002).
Rising energy prices have had a particularly significant impact on the greenhouse industry. Greenhouses are designed with the objective of maximum light transmission. Unfortunately, typical greenhouse covering materials are relatively poor insulators, resulting in high heating and cooling costs to maintain optimum growing conditions year-round. In 2003, the average greenhouse in New Jersey spent 5.3% of gross sales revenues on heating fuel (Brumfield, 2007). Since 2003, fuel oil, the typical fuel used to heat greenhouses, prices have more than doubled (US DOE, 2007). In 2007-08, crude oil prices continued to rise and reached over $147 per barrel, up from approximately $20 per barrel just eight years ago. Industry profit margins leave little room for growers to absorb the rising energy prices.
One of the most widely discussed topics in the Green industry today is the issue of environmental sustainability brought about by consumers with a greater degree of environmental awareness. This has lead to a desire for products that not only solve the needs of consumers but are also produced and marketed using sustainable methods. A greater emphasis has also been placed on the environmental dimensions of packaging for plants and floral products. Greenhouse and nursery crops are usually grown in plastic containers, which are strong and can be formed to any size, shape, or color, but represent a significant disposal issue for the horticulture industry. Of the estimated 542 million pounds of plastic used in agriculture annually, 320 million pounds (59%) is attributed to plant containers (Garthe and Kowal, 1993). In addition to the negative environmental impacts of using petroleum for plastic production, plastic disposal represents 20% of the overall waste stream by volume (EPA, 2008). While there are examples of agricultural plastics recycling programs in the U.S (Missouri Botanical Garden, Jordan Plastics Inc.), these are geographically limited and minimally effective. Most large growers have difficulty justifying the costs for labor and chemicals associated with used container cleaning and sterilization, with the result that reuse of pots seldom occurs. Because recycling options for containers are limited and reuse is not always feasible, the industry must reduce plastic use. Numerous attempts have been made to produce biodegradable containers that can be transplanted directly into the soil, thus reducing transplant shock and eliminating the need for disposal. Typically, these have been made of peat, paper, or coir fiber but recently there have been improvements in alternative materials such as rice hulls, straw and biopolymers. The cultural practices associated with producing plants in biodegradable containers have been explored on a limited basis (Evans and Karcher, 2004; Evans and Hensley, 2004), but consumer acceptance of these environmentally-friendly products has not been fully evaluated.
Irrigation is essential for profitable production of container and field-grown ornamental plants. The quantity and quality of water available for irrigation has major consequences on productivity and profitability. Water issues, specifically irrigation scheduling and efficiency, surface and groundwater water management, and water quality are quickly becoming topics of major concern to the ornamental plant industry even in states that have previously had ample water resources. Drought, urban competition for surface and groundwater water reserves, salinity and runoff water quality, and increasing regulation at national, state and county levels are increasing the need for ornamental crop producers to manage water more effectively. For example, implementation of regulations for Total Maximum Daily Loads (TMDL) will impose strict limits on nutrient runoff in natural waterbodies. Water is no longer an issue restricted to certain areas of the country but is a national and global issue. Increased regulation and competition for water resources, therefore, calls for improved water management techniques with respect to application and runoff. Another issue is the cost of compliance with regulations and various certification programs. Frequent irrigation in combination with high fertilizer and pesticide use can lead to significant losses of agricultural chemicals in runoff water that transports these chemicals to containment structures and/or off-site into groundwater or surface water (Cabrera, 2005; Camper et al., 1994). During the growing season, over 80% of water from sprinkler systems may be lost through runoff, drainage, and evaporation (Weatherspoon and Harrell, 1980). Current practices in nurseries have raised concerns over efficient use of water and fertilizer, runoff water, water quality standards, and nutrient residues (Yeager et al., 1993; Fare, 1994; Hong and Moorman, 2005; Owen et al., 2008; Zhu et al., 2007). Irrigation water management is a key consideration for nutrient management in ornamental crop production and reducing the impact of runoff water on local water resources (Tyler et al, 1996; Lea-Cox et al, 2001; Ross et al, 2001; Ullah and Zinati, 2006). Emerging constraints on water use and quality means that the ornamental crop industry needs to find ways to manage water without compromising production schedules and crop quality. It is imperative to quantify how much water a typical container plant requires in order to improve water and fertilizer use efficiency. The project investigators will collaborate to the extent possible with another multistate project (NC1186) focused specifically on nursery plant physiology, water use and irrigation management, and expand upon those findings in terms of their implications for economics and marketing.
Landscape plants in urban areas provide critical environmental services for nutrient cycling, pollution absorption, shade, moderation of temperatures, and noise buffers. Poor survival of landscape plants is an issue not often recognized in the Green Industry. In many areas, trees planted along highways may have survival rates of less than 10 percent. Most municipalities have little or no budget for ongoing tree care. Urban trees reach their maximum potential for environmental benefits at about age 30, but the average lifespan is often less than 10 years, due to very stressful environmental conditions (heat, pollution, etc.), and lack of care and maintenance. Altered production practices, such as use of retractable roof greenhouses, and use of water conserving amendments in growing media, can significantly improve landscape plant establishment success, growth, and long term survival.
Consumers differ widely in their attitudes, preferences, and behavior (Kotler and Keller, 2006). Groups of consumers often have characteristics that can make them both quantifiable and distinguishable as market segments. In recent years, a significant shift has occurred in consumer acceptance of products with characteristics that are broadly construed as environmentally-friendly, including such labels as organic, native, locally-grown, and sustainable. The Green industry has very little research-based information to help professionals understand how consumers view horticultural products, product attributes, and services through this new and important environmental lens. Topics well established in other industries, such as branding and loyalty, are also emerging as critical business concepts for horticultural products. Voluntary certification programs for environmental sustainability of horticultural products are now emerging (e.g. Veriflora, USEPA's WasteSense program, USDA-APHIS Nursery Certification Program, Sustainable Sites Initiative), but their effect on consumer demand are unknown. Complimentary to production research, consumer/market research is needed to enhance the information available to organizations to remain viable. Unlike other highly concentrated industries, the Green industry is comprised of diverse businesses that are highly fragmented. Therefore, few firms have the resources to devote to consumer research. Better information is needed on consumer and market characteristics for firms to evaluate opportunities that provide a good return on investment. The presence of environmentally sensitive consumers has been acknowledged for some time and this segment of consumers is more likely than the general population to take environmental concerns into account when making purchases. The presence of this group of consumers has also been assumed to bring profits to companies with a record of environmentally-friendly practices. However, sustainable alternatives often require a price premium in the marketplace to be economically viable. The willingness of consumers to pay this premium remains an open question. There is a need to evaluate consumer expectations, tastes, and preferences. Recent research has shown that landscaping may contribute a premium of 7 to 12 percent to the value of residential property (Behe et al, 2005). Keeping the consumer interested, informed and motivated is important, and will require collaborative efforts among participants in each sector of the industry-wide value chain
Research is needed to ascertain the potential of the Green Industry to provide jobs and business opportunities to agricultural entrepreneurs displaced by the shrinking number of farms in traditional agriculture. Extensive expansion without regard to regional and national supply and demand for landscape plants could result in instability in the industry and the misallocation of resources. Continued nationwide growth and expansion of this industry will benefit society in general through aesthetic improvement of the environment and by ameliorating pollution in urban areas with living plants. Collaborative research on the production, management and marketing of environmental horticulture products and services will provide insight regarding the proper allocation of resources in the long-run, and permit researchers, extension educators, and consultants to more effectively assist the industry. A multi-state collaborative effort is imperative because these issues are simply too comprehensive for any single researcher to adequately address alone and since state budgets for many land-grant institutions have been cut dramatically in recent years, these collaborative efforts enable the research team to more effectively utilize constrained research dollars in a synergistic fashion. Moreover, since limited granting programs are available to conduct research in this area, the research collaborations (and teams formed) by these multi-state efforts will enable the research teams to more effectively compete for the grant dollars. In short, the days of stand-alone, independent research programs conducted by individual faculty members are long gone.
The results stemming from these collaborative research efforts will also better enable industry firms to better tell their story in regards to sustainability. The value proposition for the green industry in the future must focus on the unique ways in which quality of life is improved for its customer base. Sustainability is an integral part of our value proposition message in the future and the green industry cannot overemphasize the importance of this quality of life message, particularly in focusing its differentiation strategies in the future. That because of whether one are member of the Boomer, Gen X, or Gen Y generation, quality of life is a higher order need that is important to them. For example, although the economic downturn has increased anxiety on the part of Baby Boomers about retirement, they are nevertheless proactive in seeking innovative solutions to dealing with age. They view their new stage of life as one of activity and fulfillment rather than idleness. Gen X is the most time-starved generation, often juggling career and family obligations, but they maintain a strong commitment to work-life balance in their lives. The Gen Y generation is just beginning their adult lives and facing lots of firsts: their first home, first job, and most importantly, first independent income. They are trying to find the right balance between spending for necessities and spending for entertainment. This generation is concerned not just with function and utility but also with style. All of these generational attitudes come down to one thing enhancing the quality of their lives through emotional well-being, ecosystems benefits, and economic paybacks. Research shows that theres no better way to do this than through the daily use and/or enjoyment of flowers, plants, and trees. If the green industry can utilize research-based information to convince consumers of this in a manner that they view their products and services as necessities instead of luxuries, this will, of course, make the industry even more recession resistant in the future.
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