Green Express Newsletter Winter 2017
The New Year has dawned in our little corner of the world affectionately known as The Great Pacific Northwest; we have had a chance to sit back a little (watch the record snow-- thankful that it didn’t happen earlier) and reflect on the world of Christmas trees. A perfect time to evaluate the thoughts we had heading into Harvest 2016 and the realities we must deal with in 2017 and well beyond.
2016 is a year that we at McKenzie Farms marked as a “Year of Transition.” Importantly, the next phase is an acceptance of “The New Normal.” We are not there yet (NN), and it will take some time for consumers to realize that shortages means that they might need to accept a second or third choice rather than the perfect size and the preferred variety that were seemingly always there just waiting for their arrival on their lot of choice. With Shortages and indisputable increases in labor costs, prices will rise. Something that does not thrill consumers of course…
It was the first year in which the SUPPLY of available trees truly failed to meet the Demand of a necessity inspired, shrinking universe of Christmas tree retailers both large and small. Many Christmas tree growers saw this as exceedingly good news; for the first time in a long time, prices exceeded the cost of the product’s intrinsic value. Unfortunately, this change in dynamics happened too late for many as the roster of large 100 acres plus operations has been halved over the course of the last several years; our long glut led directly to our current shortage. Selling trees at a lower price than it costs to grow, harvest, and ship the trees is a formula for failure. There has been carnage and that carnage has created THE OPPORTUNITY for survivors. Low prices often cure low prices in really harsh ways.
So, heading into Harvest 2016, we had fewer growers, fewer retailers, fewer trees, fewer overall choices, and higher prices. In large part 2016 was a solid, marginally successful year. A good solid “double” to use a baseball analogy… What are the factors that kept it from being a “home run” you might ask? One would have guessed that a home run was in the offing? Funny things often happen on the way to the celebration, and I thought it would be interesting to touch on a few of those challenges / dynamics.
An overall industry purge led to a contraction of participants which led to an environment in which prices could rise. One should make a strong argument that overall unit demand is in fact CONTRACTING and will continue to CONTRACT. One recent estimate shows 32 million sold in 1990 and less than 20 million sold in 2016 (a difficult number to quantify exactly yet we believe this is directionally correct). More dollars and fewer units is a great problem to have yet a problem, nonetheless…
- From all anecdotal evidence it appears that artificial trees enjoyed another really strong year. One year however, DOES NOT tell the story. As of 2014 data, close to 7 in 10 US households display an artificial tree and the average life span for use is 10 years. America is one of the oldest industrialized nations in the world and well over 20% of the population is 60 and above (Baby Boom Generation). Older people tend to buy artificial trees or opt for “no tree” in far greater frequency than real trees. “Older” is great for those looking to become nurses, not so great for Fresh Cut Christmas tree sales.
- For the Fresh Cut segment, it appears as though unit sales were relatively flat to down (but remember) many smaller to mid-level retailers were shut out completely due to availability (less overall trees shipped). Dollars were up 8-10% as all retailers passed on price increases. The increase in dollars was nice for all involved yet it does force one to look at strong artificial tree sales and wonder? Due to the fact that fewer retailers were participants (“have nots”), it is concerning that unit sales among the “haves” were so tepid. This trend is not good for the long term health of our industry. At this point, there are more questions than answers yet clues abound.
- Open market prices within the internal (Grower to Grower) Christmas tree industry struggled with another extremely powerful economic force- GREED. After years of difficult times and a sudden Supply / Demand dynamic shift (rather than gradual), some looked to recoup too much, too soon. Steady but consistent price increases are to be expected and are proper. Sudden, drastic increases only serve to hurt the industry by encouraging retail pricing spikes. Current margins for large scale Christmas tree growers are NOW marginal and modest at best. They were NONEXISTENT in the recent past so we are making progress. That progress needs to be controlled and measured and we may need to incorporate ways that share the risk in “guaranteed sale” arrangements. Those who bear the majority of the risk are entitled to margins equal to or greater than the lower risk consignee.
- For the foreseeable future a new mentality of flexibility and creativity need to take root. There is no doubt that the consumer has developed a love affair with Noble Fir. Unfortunately, since the growing time required to develop a “market NF” is 8-10 years, this problem does not remedy itself quickly. For the foreseeable future THE TREE, may need to become A TREE, in order to not fall into the category of NO TREE. The sooner we all learn this, the better. We saw this shortage coming and procured inventory (particularly NF) thus positioning ourselves really well for the future. Most of this inventory was young, but it is coming on line relatively soon. In the meantime we all need to broaden our horizons.
Finally, we’d like to acknowledge and recognize our much respected and dear friend Bryan Ostlund who recently resigned as the Executive Director of the Pacific Northwest Christmas Tree Association (PNWCTA) after 29 years of service. He has been a champion for our industry and for that we are all very grateful. Their challenges are understandable in a world in which many growers / members are GONE. Fewer growers equal fewer revenues, and fewer revenues equal fewer resources that can be wielded in light of the many challenges faced by our industry. Significantly, a USDA Marketing Order, which earmarks .15 per Christmas tree cut and sold is a strategy that is now being enforced without a winning strategy to mixed reviews within the industry.
The USDA Marketing Order that is similar to the campaigns by the Dairy Industry “Got Milk” and “Beef, it’s what’s for Dinner” at a time in which their popularity was waning, is being questioned in light of the fact that stimulating demand in a time of shortage (this concept was envisioned at a time when trees were plentiful) . While we all agree that consumer education is a great thing (many consumers still believe that we cut down forests), the fact remains that we do not have the inventory to satisfy ANY increased demand that we could stimulate. A real Catch 22 and it is strategy that still needs to be formulated if we hope to convince our future “Millennial” consumers who will represent 75% of the workforce by 2025, that “real” is the best choice for a group that purports to desire a GREEN lifestyle. Then again they are far more secular, far less traditional, and increasingly less inclined to marriage and family. Suffice it to say that this chapter still needs to be written yet they are our future and we need their support in the years to come.
In closing, I would like to end with a positive, encouraging note from our founder McKenzie D. Cook.“We are encouraged and motivated by our commitment and passion for Christmas trees. There is hope for a new spirit moving in the industry and our country. May God bless you and America. We wish you a blessed, happy, and healthy New Year.” Thomas M. Cook McKenzie Farms LLC 1/16/2017