Of the Northwest states, nursery and greenhouse operations are predominantly in Oregon and Washington. Nursery and greenhouse products have ranked among the top two most valuable agriculture goods for the last several years in Oregon. In 2016 they were ranked number one, according to the Oregon Department of Agriculture.
Most nurseries and greenhouses in Oregon are concentrated in the northern end of the Willamette Valley, a fertile landscape supporting diverse agricultural commodities from wine to hazelnuts. This part of the Willamette Valley benefits from being close to the population centers of Portland and Salem. Nurseries in Washington are near or north of Seattle.

Value Chain

Labor is a significant expense for the nursery and greenhouse industry. Many growers pay higher than minimum wage, responding to labor shortages and competition from other industries. To mitigate labor cost and shortages, growers have implemented some mechanization, including mechanized potting machines, pruning mechanization and automatic seeders.

Other expenses, such as fertilizer and plastic pots, are influenced by petroleum markets. Prices for these inputs generally rise, but don't fall, with oil prices.

Growing Methods
The two primary growing methods for the nursery and greenhouse industry are outside (in nurseries) and controlled environments (in greenhouses). The primary planting styles are bare root, ball and burlap, container and pot-in-pot. A nursery will typically grow inventory using more than one method.

The main purpose of a nursery is to upsize the plant to a larger container, which could take multiple years. For example, coniferous evergreen trees grow in a nursery for up to 15 years before being sold. Nursery growers often use greenhouses to minimize winter conditions and control the growing environment for young plants, sometimes growing plants in a greenhouse for three to five years. Nurseries mainly grow:
  • Coniferous evergreen trees and shrubs
  • Deciduous shade trees and shrubs
  • Fruit-bearing trees and shrubs
  • Broad-leaved evergreen trees and shrubs
  • Vines and ground covers
Greenhouses are used for plants that require controlled environments. Unlike nurseries, greenhouses do not hold onto inventory for long periods of time. In a single year, greenhouses will typically turn over inventory one to three times. Greenhouses mainly grow:
  • Bedding plants (annuals and perennials)
  • Hanging baskets
  • Seasonal annuals
  • Specialty items (such as poinsettias)
  • Vegetables
Marketing Infrastructure
The nursery and greenhouse industry sells its products to many end users:
  • Retailers, from large big-box stores to smaller garden centers
  • Direct to consumer
  • Landscaping businesses
  • Wholesale and re-wholesale
  • Orchards
  • Public contracts
Big-box stores offer a generic selection of plants that include dominant varieties and colors. Consumers seeking quick solutions to landscaping challenges are attracted to chain stores that offer an acceptable variety of plants at reasonable prices. However, big-box stores usually look for a one-stop shop when filling their inventory. Therefore, if a grower is to attract a big-box buyer, they must have the diverse mix of products to fill the order. If a grower cannot meet the big-box store's expectations, they may have to source supply from elsewhere, which is difficult in the current tight supply cycle.

Some big-box stores use pay-by-scan inventory management. With this system the grower maintains ownership of inventory until the product is sold, even though the inventory is kept at the store. Therefore, the grower does not get paid for unsold inventory.

Consumers who shop at garden centers often cite educational benefits, helpful service and plant material quality as reasons for buying there. Smaller retailers are often inclined to shop around for quality and educational information to provide their customers. Therefore, growers selling to smaller retailers do not need to fit one specific store's requests. However, this requires many outlets for sales as opposed to getting a large order from a big-box store.

In recent years, some mid-sized nurseries and greenhouses have opened their own retail locations. This has allowed for direct sales to consumers. However, direct-to-consumer markets are a small portion of total industry sales and growers still supply garden centers and other retail locations.

Landscaping businesses are a mixed lot. For a grower, working with a landscaping business can mean working with them directly or indirectly. Some landscaping businesses will hold their own inventories and place large orders. Other times they will order only what they need for a specific project and pick up the plants themselves. Another way landscapers obtain inventory is through plant acquisition companies. These companies will work directly with the nursery or greenhouse and supply the landscapers with the inventory.

Wholesalers work with nurseries and greenhouses as a middleman between retailers or other end users. Re-wholesalers will buy plants to grow them to a bigger size and then sell them. Nurseries often complete the grafting process of tree fruit so that orchards can have successfully started fruit trees. Public contracts are another outlet for nursery and greenhouse products (e.g., for roadways, parks, etc.).

Industry Drivers
The Great Recession triggered a six-year downturn in the nursery and greenhouse industry, resulting in many growers' exit. Those who survived cut costs and marketed aggressively. Some growers taking these steps limited their downside and picked up market share.

The current recovery is supply driven. Reductions in overall plant production, shortages of key varieties and fewer producers supplying the market create sales opportunities for operations that are financially stable and have product to sell. Several nurseries and greenhouses are selling out of inventory, even at higher prices, and have committed orders into the future.

Northwest FCS conducts an annual, informal poll of its nursery and greenhouse customers to gauge industry sales. The annual poll of a sample of Northwest FCS nursery and greenhouse customers taken in June 2017 revealed sales rose nearly 4 percent over the previous year. Sales growth is largely attributed to the elimination of recession-era discount prices.


Constrained Growth
Notwithstanding a positive outlook, nursery and greenhouse operators' growth is constrained by their reluctance to expand and marketplace constraints. After recouping sales lost to the Great Recession, growers are pleased with marketplace demand and higher product prices. However, industry growth is subdued due to concerns surrounding liquidity and labor availability.

Labor shortages are expected to challenge the industry for the foreseeable future. In an informal poll of Oregon nursery and greenhouse producers conducted by Northwest FCS, 74 percent said that access to labor had a negative impact on their operation in 2014; 43 percent noted labor as the greatest threat going forward. A report commissioned by the American Farm Bureau Federation estimates a 15 to 31 percent drop in vegetable production if immigrant labor is unavailable. Growers have also lost employees to the construction industry as the housing market picks up pace.

To overcome these challenges, many growers are offering higher-than-average wages and year-round work. Growers that have been able to keep a core group of employees busy all year experience increased employee retention. Another avenue growers are looking at to ease labor pains is automation. Automated potting machines are among the most popular. Surveying quality and quantity of inventory using drones is a newer technology anticipated to be increasingly adopted.

Nursery Real Estate Values
Rising values of irrigated cropland in the Northwest are a result of high demand and limited supply, and the trend is expected to continue upward. However, recent transactions indicate that nursery-specific improvements are discounted 25 to 100 percent above typical depreciation. Discounts related to depreciation are lower when properties are marketed longer, are part of an ongoing business or have alternative uses. Larger discounts occur when sellers are highly motivated, the property lacks plant inventory, is bank owned or is highly specialized.

The recent legalization of recreational marijuana use in Oregon and Washington has generated significant interest in greenhouse and nursery properties. As this industry is in its infancy, much uncertainty remains in regards to state and federal regulation. Also, legal restrictions limit the size of such operations. The consequent impact on larger commercial agricultural properties has been limited, with buyers instead focusing on smaller, part-time properties with water rights and buildings that would be suitable for marijuana growing.

Macroeconomic Conditions
The nursery and greenhouse industry is largely driven by consumer spending, which is influenced by general economic trends and consumers' financial health. Accordingly, the nursery and greenhouse industry's rate of growth or contraction is driven by changes in the general economy.

Rapid sales growth in the nursery and greenhouse industry throughout the 1990s to 2007 is attributed to the unsustainable rate of consumer spending and housing market growth. The housing market crash coupled with the massive loss of wealth and income during the Great Recession radically shifted consumer spending habits. This precipitated the nursery and greenhouse industry downturn.

The outlook for improved demand in the nursery and greenhouse industry is supported by slow but steady improvement in the housing market, wage growth and more robust consumer spending.

Housing Starts
Single-family housing starts' relationship with nursery and greenhouse sales is illustrated in the graphs below. Home construction continues to recover following its 2009 low. Housing starts remain below the level estimated to meet the needs of a growing population. Many economists believe pent-up housing demand will continue to drive housing starts higher, painting a positive future for the nursery and greenhouse industry.


Consumer Confidence
Continued strength in the Consumer Confidence Index is supported by ongoing improvements in unemployment and wage growth. A strong level of consumer confidence is correlated with increased consumer spending. Additionally, a strengthening labor market should result in additional household formations. All of these factors support the potential for increased nursery and greenhouse industry sales going forward.


Customers and Generational Influences
The nursery and greenhouse growers' marketplace is changing with millennials' increased influence on consumption patterns. For example, different from past generations, millennials want education about products they purchase and desire experiences they can share. Interactive plant tags that connect to websites with the plant's origin, benefits, care, etc., engage millennials and provide them education.
Millennials typically purchase products from companies aligned with their values. Locally sourced and earth-friendly are examples of values important to millennials.

Low-maintenance yard work is preferred by the younger generation. As weather patterns become more volatile, drought-tolerant plants also become more practical. Growers need to meet the challenges of changing preferences and weather.

Financial Performance and Industry Benchmarks
Northwest FCS' peer financial benchmarks illustrate the impact of industry drivers on nursery and greenhouse producers' financial position. Although individual situations vary with business models and strategies, the following highlights provide general insights into industry trends, benchmarks and producers' relative comparison.


Appendix A
Best Practices

Producers willing and able to make tough decisions and commit to strategic long-term planning will position themselves to take advantage of a recovering industry. These best business practices are based on observation of and feedback from industry leaders and include the following.
  • Develop, maintain and execute a business plan tailored to the business.
    • Focus on activities that maximize returns.
    • Position the business to take advantage of a recovering industry by "right sizing" for the future.
      • Identify the correct size and scope for the next several years.
      • Make sure labor and staff levels match business plan and operational needs.
    • Attend financial workshops and seminars sponsored by Northwest FCS.
  • Develop budgets to contain costs.
    • Differentiate needs versus wants.
    • Manage cash reserves.
    • Set liquidity goals that target adequate current assets to cover current liabilities without liquidating inventory.
  • Establish roles and responsibilities for all employees.
    • Define management responsibilities, authorities and chain of command.
    • Make sure the right people are employed in the right positions.
    • Rely on your team to execute day-to-day operations.
Customer Service
  • Provide unwavering commitment to customer service.
    • Consistently provide customers with product on time and in excellent condition.
  • Provide education and information.
    • Educate retailers and the end consumer on caring for plant material to maintain a marketing edge.
      • Garden centers, landscape professionals and retailers prefer doing business with suppliers who provide education for their sales staff and customers.
  • Relationships matter
    • Develop positive relationships with re-wholesalers, garden centers, retailers and mass-market retailers.
    • Commit to quality face time with existing customers to maintain solid business relationships.
    • Communicate openly and honestly with suppliers, creditors and customers, which fosters relationships built on trust.
  • Quality counts.
    • Replace inferior product expeditiously and consistently to maintain relationships.
    • Maintain the quality of plant material for consistency and satisfaction of consumers' needs.
Inventory Management
  • Adopt a consistent methodology for inventory valuation.
    • Valuation methodology should remain consistent year after year although this may be challenging on a multi-year inventory.
    • Value inventory at the lower of cost or market.
  • Maintain high-quality inventory.
  • Maintain a diverse product mix.
    • Producers able to fill orders with a diverse mix of products are best positioned to hold onto market share and to withstand economic downturns.
  • Reduce excess inventory to cover cash needs and limit unnecessary expenses.
    • Be realistic in your assessment of future inventory requirements, pricing and market demand.
Marketing Plan
  • Develop or maintain a marketing plan for the business that matches the business plan.
  • Maintain and build market share.
    • Attend trade shows.
    • Maintain frequent contact with customers.
    • Bundle products and services.
  • Understand market limitations and opportunities.
    • Producers who best adjust production to market demand have the greatest chance of long-term survival.
  • Establish and maintain digital marketing.
    • Attract new consumer bases through the use of social media.
    • Constantly contact marketing brokers to insure growers' product stays at the top of the list.
    • Keep price lists and availability lists up to date.
Appendix B
Ball & burlap (B&B): Plant material is grown in the soil until maturity when it is dug in a root ball (soil is left on the roots) and covered with a burlap cloth or placed in a pot for shipping. B&B material can be grown larger and more cost effectively than can yard or pot in pot, but requires more space per unit and high-quality soils. B&B also has more exposure to weather-related stress. Further, shipping costs are higher as the root ball is heavier than the medium used in pot-grown material.
Bare-root segment: Represents all growers that ship plant material absent any soil medium. Inventories consist primarily of shade trees and fruit trees. Desired species of trees are generally grafted onto a rootstock that is grown out to a 1- to 3-inch-caliper tree. Those trees are dug out of the ground and all soil is shaken from the root ball. They are then shipped to other nurseries, landscapers or retailers.
  • Bare-root material typically has a three- to four-year turnover and does not have the cost in shipping compared to container/B&B growers.
  • Shipping season is focused around January through March.
  • Markets are national.
Can yard: A large graveled area used to grow plants in plastic pots.

Container/B&B segment: Section of the industry that raises perennial plant material in can yards, greenhouses, pot-in-pot and/or field-grown material that is dug (B&B). Most plant material is for use in landscapes, but food-bearing plants are increasing in popularity.
  • Plant material has a two- to seven-year turnover.
  • Primary shipping season is late February through May.
  • Markets are national.
Floriculture plants: Grown primarily for ornamental and decorative purposes and typically live one season. Examples are cut flowers, cut cultivated greens, potted flowering plants, potted foliage plants and bedding and garden plants. Crops are predominantly grown under protective cover such as plastic or glass greenhouses.

Greenhouse segment: Growers that focus on annual/perennial bedding plants, hanging baskets and garden starts. Operations require smaller land masses and frequently comprise controlled greenhouses.
  • Plant material typically has a four- to six-month turnover.
  • Shipping season is focused April through June. Secondary seasons are June through Labor Day and November through December (mostly poinsettias).
  • Market focus is generally regional.
Greenhouse structure: Large hoop structures typically covered with a shade cloth year-round and with plastic in the late fall through early spring. Some are heated, but the primary purpose of the structure is to protect plant material from extreme cold in winter and excess heat and light in the spring and summer. Permanent greenhouse structures are square or rectangular buildings with retractable roofs to allow for natural sunlight and an enhanced growing environment for plants.

Nursery crops: Plants grown for environmental as well as ornamental purposes, generally lasting many seasons. Consist primarily of outdoor landscaping plants including trees, shrubs and ground covers; unfinished plant materials such as seedlings, plugs, cuttings and young plants; bulbs including corms, rhizomes and tubers; sod (turf grass); and plants sold as nursery stock for ornamental, environmental or food-production purposes

Pot in pot: Large permanent pots buried in dirt or gravel yards that hold smaller-diameter pots similar to those used in can yards. Commonly using drip irrigation, this setup can accommodate larger-volume pots than seen in can yards.