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June Newsletter

Caroline Anderson - Wednesday, May 27, 2015

Green Express June 2015

When you live in Oregon you learn to expect the UNEXPECTED; sunny and nice can turn to cold and miserable in short order. The opposite is also true, and Spring is a time in which these tendencies are on full display. The peculiar thing is that one learns to love them as variety is definitely the spice of life. Seguing off of that premise (unrelated as it may seem), it is also very true that when it comes to Supply and Demand, expect the EXPECTED when there is more demand than supply available, prices always rise; there are no exceptions and there are no surprises.

You might be wondering how this all ties into an update on the Christmas tree industry? Funny you should ask…

The Christmas tree industry has gone through some difficult times in recent years and much like the Oregon weather, things have not always worked out as we all hoped and expected. The list of challenges is long and it includes an unprecedented spike in the price of diesel fuel, a Big Box sales model that paid for only those shipped trees that passed through the register, trucker shortages, escalating labor costs, grower costing models that virtually guarantee failure, and an aging US population that has opted for the ease and convenience of an artificial tree (or no tree); we now find ourselves in an environment in which more than half of the large Christmas tree growers are no longer in business! Take a second to let that sink in as it is a staggering fact.  Not surprisingly, an oversupply of Christmas trees in the region has now turned into a serious shortage that will be with us for the foreseeable future. As mentioned Supply and Demand always work in a way that is expected. Always… Prices rise and suppliers are incentivized to produce more when demand surpasses supply. The problem sows the seeds of its own solution (high prices lead to more production). Unfortunately, when it comes to Christmas trees (from the perspective of the producer), it takes 6-10 years to produce the “product” and it is very capital intensive along the way, thus barriers to entry are very high. As a result, shortages do not correct quickly nor easily. Far fewer experienced growers, long lead times, and large capital expenditures required to play the game… It doesn’t take a genius to figure this one out.

As the Christmas tree industry was dealing with a potpourri of the “unexpected’, well-meaning industry insiders thought it would be a good idea to create a campaign much like those utilized by the dairy and beef industry to good success. “Got Milk” and “Beef, it’s what’s for Dinner” slogans successfully marketed both milk and beef at a time in which their popularity was waning. These programs were financed by an assessment charged to producers in the respective industries. The Christmas tree industry is now employing similar tactics. For those of you that are not familiar with the particulars, the National “Christmas Tree Check-off Program” would include a 15 cent per tree assessment charged to growers who sell more than 500 trees a year and to importers who import a like number. This program would be under the auspices of the USDA’s Agricultural Marketing services which oversee all similar programs. All funds collected would be limited to research and promotion. The ultimate goal would be to stimulate a greater demand for the fresh-cut Christmas tree. Sounds like a great idea on paper, however, there is one BIG problem. The program was initially planned to inaugurate in 2011 at a time when Christmas tree inventories greatly exceeded demand.

As mentioned, we are now faced with an environment in which “grower attrition” for all of the reasons mentioned above has now led to a situation in which demand far outweighs supply. And, remember, Supply and Demand always work in a completely expected way.

As a result of the current dynamics, we feel a program designed to increase demand in the current environment is simply nonsensical. The industry would be better served by implementing the program and then “banking” the proceeds for a time in which supply and demand are in better balance. Stimulating demand when we as an industry can’t satisfy current needs is completely antithetical to the best interests of everyone involved. Yes, it requires an explanation.

Most people tend to like knowing that they are getting something for their money; smart people have enough foresight to realize that “timing” is everything and that the proverbial “rainy day” is always somewhere on the horizon. This is our opinion; for those seeking more information I have included a link to the USDA website-

http://www.ams.usda.gov/AMSv1.0/FVResearchandPromotionChristmasTrees

For those friends on our list who happen to be our customers, we are encouraging and in fact asking that everyone make their commitment to us in accordance with an attached / included timeline. The trees simply will not be there if we receive your order at the 11th hour. We have made some hard choices as to whom we can supply. If you are receiving this note, you are a valued friend / partner. We simply want to make it crystal clear that we must have your orders confirmed early this year. Supply and demand at work again…

On behalf of everyone at McKenzie Farms thank you for your support and friendship. Change is a constant in life and the Christmas Tree industry is no stranger to this fact.

 

Thomas M. Cook

McKenzie Farms LLC

5/27/15

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