Hall examines green industry’s economic state
LINTHICUM, Md. — Dr. Charles Hall, professor in the Department of Horticultural Sciences at Texas A&M University and holder of the Ellison Chair in International Floriculture, was the keynote speaker for the first day of Chesapeake Green 2020, held on Feb. 19 at the Maritime Institute.
“This year will be really good, if Mother Nature cooperates,” he told his audience, but not before explaining why.
His topic was the “Economic State of the Green Industry Going into 2020.”
“What you’re doing right now positions yourself for what’s coming in the next few years,” Hall said.
Economics lessons seem to always include supply and demand.
Determinants of supply are the number of sellers; the prices of inputs, which are higher the less you buy; technology, which affects your ability to produce and the quality of your production; the prices of related products, and the expectations of your suppliers.
What determines demand?
• The size of market;
• The propensity to spend (“We have no problem spending,” Hall said.);
• Tastes and preferences;
• Elasticity — if demand for your product was inelastic you would be able to raise prices and have revenue go up; and
• Consumer expectations — Will the economy continue to grow? Stock market and gas prices indicate consumer confidence.
Hall showed a chart of U.S. population by age which showed the number of baby boomers — the age bracket that built the green industry after World War II — is declining.
Generation X, who are becoming landscapers’ consumers, had fewer numbers to begin with. Millenials, ages 25 to 39, are getting to the point that they are buying houses and starting to landscape.
“It will take eight to 10 years to get to the ‘sweet spot’ (population-wise) for our industry,” Hall said. “Until then, there will be declining populations.”
Another chart, comparing personal consumption expenditure data for flowers, seeds and potted plants to expenditures for pet supplies was enlightening.
The amount spent for plants has had minor ups and downs since 1999 while expenditures for pets has continued to climb.
How do we interpret this? People want things that enhance the quality of their lives — their social, physical, psychological, cognitive, environmental and spiritual well-being.
While Hall had long lists of the benefits of plants, apparently more people feel that pets enhance their lives. “Ferns don’t,” he said.
Bottom line, demographics are working in our favor, for now, he continued. “We have what people need to enhance their quality of life. We have an opportunity to help solve societal issues. But… will the economy mess it up?
“Every business here has the opportunity to continue to make money and positively influence our society. You are quality-of-life enhancers,” he told the audience.
Chesapeake Green occurred two weeks before the stock market erased much of its gains over the last year.
Hall noted, however, that stock market performance does not equal economic performance, nor does consumer confidence.
“The last 128 months has been the longest expansionary period in our country’s history,” Hall said. “Does this mean we are more likely to have a recession? No,” he answered, unless caused by an exogenous event (such as coronavirus) or a bubble burst, that is, an asset correction, for example, in the housing market. “In 2008, we had both. We have recovered.”
Input prices, however, are 129.6 percent higher than before the recession.
“Unless your prices have gone up more than 30 percent since then, your profit margins has been compressed,” Hall said.
Reeling off information on tariffs, the Consumer Price Index, the Housing Market Index and current home prices, Hall asked, “When will the next recession start?”
He predicted, “Not likely this year, maybe 40 percent in 2020 and maybe an 80-percent chance in 2021.”
What could derail this outlook? Something such as monetary policy gone awry; trade war effects; OPEC reneging on its output deal; bubble bursting; recession in China or Europe…
“There’s a bit of risk from coronavirus,” he said.
Don’t get derailed by uncertainties, he urged. You should have a contingency plan, taking into consideration these four factors:
• Don’t be over-leveraged, meaning your bank has more skin in the game than you do.
• Have enough working capital — cash to allow you to carry on business during the next downturn.
• Are you lean and efficient?
• Where’s your value proposition in the mind of your customer? Are you differentiated in the market, meaning are you a necessity, not a luxury? Why should they buy from you — and the answer is not quality. That’s a given.
Hall’s summary thought: “If you always do what you’ve always done, you’ll always get what you’ve always gotten.”
He added, “This year may be your best year yet, but you’re going to have to work like the dickens to have a gang buster spring.”
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