Greenhouse Industry Bedding and Garden Plants

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Greenhouse IndustryBedding and Garden Plants

• Dennis Nykamp
• Senior Financial Services Officer
• GreenStone Farm Credit Services

August 2006
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Bedding and Garden Plants

• The Industry
• Industry Trends
• GreenStone Farm Credit Services
• Financing the Industry
• Industry Risks

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The Industry
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Floriculture is a mixed bag!

• Cut Flowers
• Potted Flowering Plants
• Foliage
• Bedding/Garden Plants
• Cut Cultivated Greens
• Herbaceous Perennials
• Propagative Materials

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What are Bedding and Garden Plants?

• Flats of Annuals
• Pots of Annuals
• Hanging Baskets of Annuals
• Vegetables

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Industry Trends
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2002 Agricultural Census

• Nursery, Greenhouse, Floriculture and Sod
• 14.7 billion in Sales
• 7 percent of Total Market Value of Agricultural
  Products Sold in the U.S.
• Ranked 5th after cattle, grains, poultry and
  dairy
• .

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Leading States
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GreenStone Farm Credit Services
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GreenStone Agriculture 3.2 Billion of Principal
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GreenStone Greenhouse Customers 200 million in
Volume

• Small proprietorships
• 60,000 square feet
• 500,000 in sales
• Commercial Units
• 1,000,000 square feet
• Sales exceeding 10,000,000

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Seasonal Volume
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Michigan
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GreenStone Market Potential

• 85 market share today
• Loan volume growth based on profitability of
  current customers
• Loan volume growth could be 20-25 over next 5
  years

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Financing the Industry
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Types of Financing

• Operating money
• RLOCs - generally 3 years
• Payment in full plus annual interest
• Capital
• Intermediate Notes 5 to 7 years
• Annual payments of principal and interest
• Leasing
• Machinery and equipment common
• Usually dont lease structures

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Financing

• Most credit packages include both operating and
  capital lines
• Collateral provided from crops receivables,
  machinery and equipment and real estate
• FSA guarantees when needed
• Finance young and beginning operations

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Bedding Plant Financing Standards

• Owners Equity 50
• Loan to AV Commercial 75
• Loan to AV Mortgage 65
• Working Capital/VFP 10
• CDRC 115
• Value of Farm Production
• Capital Debt Repayment Capacity

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Bedding Plant Financing Guidelines

• Return on Assets 5
• Current Ratio 1.51
• Margin to VFP 5
• Debt Coverage Ratio 11

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Realistic Projections

• Five-year average using accurate accrual numbers
• Compare expense ratio and profit margins to
  industry trends

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Other Key Factors

• Interest expenses to VFP
• Labor per square foot including family draw
• Operating and capital debt per square foot
• ROA and ROE

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Marketing Options

• Products sold to
• Brokers
• KVPG cooperative
• Direct to garden centers
• Retail

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Marketing Issues

• Geographic area
• Collection of Accounts receivables
• Pay by scan
• Big box stores Wal-Mart approach

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Business Plans and Trends

• Sales always dependent on weather sunny dry
  weekends

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Sunny Days Sell Product
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Business Plans and Trends

• Sales always dependent on weather sunny dry
  weekends
• Profit margins tighter energy, flats, labels,
  transportation and labor costs

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Business Plans and Trends

• Sales always dependent on weather sunny dry
  weekends
• Profit margins tighter energy, flats, labels,
  transportation and labor costs
• Product differentiation flats more of a
  commodity
• Specialty products hanging baskets, pots,
  instant color

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Diversification Color and Product
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Business Plans and Trends

• Sales always dependent on weather sunny dry
  weekends
• Profit margins tighter energy, flats, labels,
  transportation and labor costs
• Product differentiation flats more of a
  commodity
• Specialty products hanging baskets, pots,
  instant color
• Consumer demand continues to grow

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Industry Risks
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Marketing Risks

• Competition requires growers to continue to
  increase products
• Managing store quality is being passed back to
  producers
• Producers are paying for by scan shrinkage
• Big box store pressure requires larger producers
  to specialize in sales
• Other producers have found a niche with smaller
  independent garden centers
• There is room for both large and small producers

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Production Risks

• Continue to be the same
• Weather product movement
• Shelf life perishable fairly limited
• Need to produce high demand quality products

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Competition

• Production capacity has grown faster
  than demand
• Quality is a key component
• Outstanding management required

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Outlook for the Future

• Guarded optimism
• Per capita consumption continues to increase by
• 2 - 4 a year
• Product movement needs to increase with promotion
  and new
• products
• Costs rising with continued pressure to not
  increase market prices
• The Industry is average by most credit standards
• Management remains key for success
• Overall, Industry remains strong

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There is always fishing!
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Life is Good in Michigan
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The End