Making Cents of Greenhouse Production Cost

1. Making Cents of Greenhouse Production Cost Ben Beale Extension Educator-MCE St. Mary’s County

2. Why do we care? • Rising population base of affluent suburbanites in reach of Maryland growers Source:Census 2000 analyzed by the Social Science Data Analysis Network (SSDAN).

3. 1953-Agricultural land

4. 1982

5. 1992

7. Production trends of floriculture crops 6,000 5,000 4,000 Million $ 3,000 2,000 1,000 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 bedding and garden plants potted flowering plants foliage plants cut flowers propagative material and cut greens

8. Floriculture crops: Average sales per grower 1,600,000 1,400,000 1,200,000 1,000,000 Dollars 800,000 600,000 400,000 200,000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 West South Midwest Northeast

9. ERS Data. $ in 1000. Greenhouse and Nursery Crops

10. Now for the Bad News! • The majority of small businesses fail within the first 2 years. • Most folks starting a greenhouse do so because they enjoy growing, not the business side.

11. Does all this math have you stressed out?? Try ancient yoga techniques

12. Does all this math have you stressed out?? Try ancient yoga techniques …or Alabama yoga techniques

13. Example Budget Gross Revenue: The total sales of product or services from the enterprises. Revenue can be calculated with the following formula: Price x Units Sold= Gross Revenue Variable Cost: Cost items that vary with production volume. Examples of such items include fertilizer, seed, fuel, electricity, piece-work labor charges, pesticides, packaging cost, and custom charges. Fixed Cost: Those cost that you will incur regardless of whether you produce any output.. These cost are determined using the DIRTI 5 method which includes Depreciation, Interest, Repairs, Taxes, and Insurance. Often a piece of equipment or building will be used for more than one enterprise. In these cases it is important to estimate the percentage of use for each enterprise and allocate the cost accordingly. Net Income: Net income is the money left after subtracting variable and fixed cost. This is the bottom line. NET INCOME = Revenue – (Variable + Fixed Costs)

15. Typical Cost Example • 30ft. X 100ft. Poly house • Raise bedding plants by the flat • House filled in February and empty by June 10. • 2 rounds of typical plants on 6 week schedule

16. Space per House 3 ft isle down center. 2 ft isle on ends 7 walkways 1 ft. wide 13.5 12 30 100

20. Space Utilization/Flats per House • 30ft. * 100ft: 3000 sq. ft. • Isle ways are: 408 sq. ft. • Usable space is: 2592 sq. ft • 86% space efficiency ratio

21. Flats per House • Standard 1020 flats are 11 x 22 inches, or 1.7 sq. feet • 2592 available sq. ft. divided by 1.7 sq. ft. per flat = 1520 flats • Considering a plan for 2 rounds of plants, we will estimate total production at 3040 flats

22. Gross Income Potential

23. Plant Material • Wide variety of plant material available • Assuming annual plug plants grown from seed and transplanted to flats • Impatiens: 490 tray : $33.20

24. Plant Material • Impatiens: 490 tray : $33.20 • 490 plugs will fill how many flats? • 490 tray will fill 10 flats • 33.20 per tray / 10 flats = 3.32

27. Flats and Inserts • Standard 1020 flats • Sold by case of 100 • $51.00 per case or 51 cents a piece • Inserts: • Available in multiple size combinations • Size description: 606, 806, 1206- • First #: # of trays; Second #: Cells per tray • $27.20 per case or 27 cents a piece

29. Substrate • High quality soil-less substrate is critical • Using peat base potting soil with Bacillus subtilis for increased root rot protection • Bedding Plant type potting soil will contain: • Peat Moss • Perlite • Vermiculite • Wetting Agent • Bacillus subtilis • Macro and micro nutrients • Lime

31. Determining Amount of Potting Soil Needed • Using the chart, 3.8 cu ft bag will fill 53 806 flats • 3040 flats will require 58 bags (3040 / 53 = 57.3 bags)

32. Fertilizer Cost • Using a constant feed 100 ppm N program • Will use a standard 20-20-20 at rate of 6.7 ozs. per 100 gallons water • Estimate 4 applications per week over 12 weeks • Estimate water use at ½ gallon water per square foot

33. Fertilizer Cost • ½ gallon per sq ft times 2600 sq ft = 1300 gallons per watering • 1300 gallons applied 4 times a week for 12 weeks is (1300x4x12) 62,400 gallons • At a rate of 6.7 ozs per 100 gallons, you will need 4180 ozs. (62,400/100 x 6.7) or 261 lbs or 11 bags of 20-20-20 fertilizer

35. Greenhouse Plastic • Assuming 4 year plastic replacement value. • Using Tufflite IV 6 mil fro top • Using Tufflite IV 6 mil infrared for bottom • 30 ft wide house will need 40 wide foot plastic • Total cost $640.00 over 3 years=213.00 year

36. Crop Management Products • Will vary for each operation, depending upon season, management, climate, luck, etc… • Estimates provided are for an average season with average problems.

37. Crop Management Products • Disease Control • Clearys 3336 • Heritage • Daconil • Insect Control • Marathon

39. Heating Expenses • Most accurate estimates are from past experience in each house. • Seasonal variation will change fuel usage dramatically • Example uses LP gas through 1 heater • Assume seasonal use of 800 gallons total

41. Fixed Cost • Those items that do not change with level of production • Often Calculated with DIRTI-5 Method • Depreciation • Interest • Repairs • Taxes • Insurance

42. Depreciation • $18,000 greenhouse construction cost • Expected life of 10 years • Value at 10 years: 2,000 • 16,000 / 10 = $1600

43. Insurance • $600.00 for general liability and hazard policy for equipment Taxes • Includes property tax rate of $300 and license fee of $100 for total of $400

44. Repairs • Can be significant, especially in an emergency • Plan for at least 10% construction cost each year • $1800 per year

45. Interest • Include interest on total money invested • In this example, assume an interest payment of 7% times $20,000 investment= $1400

46. Enterprise Budgets: • Determine profitability of one enterprise versus another. • Understand breakeven cost and pricing points for that enterprise • Understand input structure such as labor inputs, shelf space pricing structure, raw material inputs, fixed equipment cost per dollar returned. • Plan crop rotation schedules and product mix

47. Enterprise Budget Price (Revenue) Contribution Variable Costs Break-even Fixed Costs Profit Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and Management Cornell University

48. Revenue • Price x Units Sold= Gross Revenue

49. Variable costs: Cost items that vary with production volume.

50. Fixed Cost: (Overhead) Expenses that do not vary with level of production