AmericanHort economist recaps and predicts
by Sally Colby
It’s been an interesting and challenging 24 months for the horticulture industry. In a recent AmericanHort webinar, “Vaccines, Plants and Dollars The Year in Review,” Dr. Charlie Hall, chief economist for AmericanHort, said there’s no question COVID had a strong influence on the horticulture industry, from plant sales to people staying home to start gardening.
The industry had already watched sales move in an upward trend in 2017, 2018 and 2019. “In 2020, sales were scheduled to be above again, then COVID hits,” said Hall. “The shape of the economic recovery is inversely correlated with the shape of the COVID curve. It’s very important that we know what that shape is because it’s foretelling of what the recovery is going to be like.”
Hall noted that the supply chain the industry has been perfecting for four decades has been obliterated. Dealing with a global pandemic broke much of what had been built, but Hall believes the wrinkles are being ironed out. “The policies we’ve put in place since then have been in an attempt to make sure we can rectify these supply chain issues as quickly as possible,” Hall said.
Regarding the shortage of trucking services, Hall referenced a comment by AmericanHort’s senior vice president Craig Regelbrugge, who said the trucking industry is short 80,000 drivers. “Pre-pandemic we were 46,000 drivers short,” said Hall. “There were a lot of retirements, and it’s harder to build teams. Driving schools shut down, so there’s a huge demand but not enough truckers.”
The labor shortage has also proven to be challenging. “Everybody is hiring, and part of the issue is we still have fewer people who have entered the workforce since the pandemic,” said Hall. “This has been called ‘the Great Resignation’ or ‘the Great Re-evaluation.’ We just went through a very emotional and stressful pandemic, which is not over. Many people are re-evaluating whether they want to be in the same job for the same pay and the same hours.”
The rising housing market index is significant for the horticulture industry. Driving factors include demand from high-wage workers, lower mortgage rates and Millennials (those born between 1981 and 1994) who are coming of age. Hall said Millennials currently represent 38% of home purchases and will represent a significant chunk of personal disposable income by 2030.
Hall referenced an Axiom report stating there were 18.3 million new gardeners last year, a figure substantiated by the National Gardening Survey. “We have all these new folks in this market buying homes, and they need flowers, shrubs and trees,” he said. “That’s good news for our industry.” Hall predicted new housing starts will likely continue until 2023 when the Federal Reserve raises interest rates.
The grower sector has been impacted by the pandemic in a several ways. Hall listed lower shrink, difficulty finding labor, delayed delivery on inputs, fewer new products online, more expensive freight and increased production costs as challenges.
Throughout COVID, homeowners maintained a strong desire and willingness to spend money on home improvement. Online sales that were initiated in 2020 increased in 2021, and curbside service continued through 2021.
“Retailers and landscapers made business happen,” said Hall. “You were innovative in finding new ways to get product in the hands of customers for DIY or provided those services. Contactless is still the way to go for some. Sales are up but are omicron [variant] dependent. This summer  wasn’t quite as good as 2020 summer, but in 2021, every month except February was up year over year.”
Hall said the U.S. has recovered economically from the pandemic faster than other nations that did not invest as heavily in stimulus. “Yes, it increased our national debt, but now isn’t the time to worry about that,” he said. “Let’s survive the crisis, then we’ll worry about it. We’ve seen real GDP growth reach back to potential GDP growth. The stock market hit new highs, as did Black Friday sales. The number of containers sitting on docks is down 33% and shipping costs are down 25%. Two-thirds of Americans are content with their household financial situation.” Hall said he’s optimistic about the outlook for spring 2022 if consumers continue the trend from the past two springs.
What does a post-pandemic green industry look like? “I think pent-up demand is going to continue into 2023,” said Hall. “We’re going to see more household events and people are going to want flowers, shrubs and trees. The delta variant is not out of the way, but omicron will be a pivotal influence. We will see more business closures and acquisitions.” Hall also predicted more vertical coordination within the industry, more standing orders, increased lead times and greater use of webshops and online platforms. “We’re going to utilize technology tools in order to facilitate trade in the supply chain,” he said. “There will be more virtual sales, although relationships are still critical in that process.”
Certain plants will be in short supply, but that could provide an opportunity for growers to pursue other crops. E-commerce applications will continue to expand. “We saw five years of growth in e-commerce on our side of the business in one year,” said Hall. “We’ll continue seeing growth, maybe not at that rate, but we’ll still see growth in e-commerce.”
Hall predicted consumer attention will bring innovation in developing alternatives for plastics. “There’s going to be a big push in our industry to reduce our use of plastic,” he said. “We want to be thinking ‘How can we reduce the weight that’s shipped, reduce waste and reduce our carbon footprint?’”
The near future will likely bring less price sensitivity in the supply chain and more acceptance of substitutes such as those seen over the last 18 months. “Shrink, labor and working capital are still the trifecta,” said Hall. “Use working capital wisely – pay down long-term debt, invest in tradable assets. Choose wisely because of uncertainly in the future.”
Hall said the industry will likely see what he refers to as the “bullwhip” effect. “We can’t get inputs, we have longer lead times and we can’t ramp up trading assets/inventories too quickly,” he said. “But I’ve seen it every single time there are shortages – we turn shortages into surpluses in a record amount of time.”
Numerous marketing efforts are underway to promote the industry. Hall said one of the research objectives of the Horticulture Research Institute is to advance the benefits of plants. He said now that we have people’s attention, it’s time to convince them that plants offer health and well-being benefits, environmental benefits and economic benefits. “If we take advantage of this moment, we will increase the demand for our product,” said Hall.
The one question Hall said he can’t answer is related to consumer spending habits. “They were spending above trend in 2021,” he said. “But looking at October, November and December , I can’t predict that with perfect certainty. If historic precedence holds true, consumer purchases go back to trend – they don’t stay elevated because we don’t capture it. We haven’t captured their mindset, we haven’t shown our value. We’ve got to convince them now to stick with us.”