2022 is coming up, and like any other year, it’s important to have a plan and a budget ready for the new year. But after such a crazy and prolific year and a half, a lot of growers may be struggling with planning for the upcoming year. With such an unexpected 2020 and 2021, how can we know what to expect in 2022?
Luckily, some of the field’s leading economic experts have ideas of what 2022 may look like. Purdue University’s Dr. Ariana Torres, the University of Georgia’s Dr. Ben Campbell, and Texas A&M University’s Dr. Charlie Hall are anticipating a good year ahead of us in 2022, but that doesn’t mean businesses should expect a repeat of the historic, pandemic-induced sales booms of 2020 and 2021.
Our experts anticipate consumer demand for plants to stay strong but admit that demand will eventually return to what we saw in 2019 before the pandemic. However, they agree that it will likely take a while to reach that point, as the drop in demand will be gradual. To prepare for this gradual winding down, Torres and Campbell advise growers to use 2019 sales figures when forecasting revenues for 2022. Similarly, Hall recommends taking an average of the last three years.
Additionally, there’s been a great deal of talk in the industry about raising prices, and Hall recommends that growers raise prices by 11-13%. He anticipates that consumers will be willing to pay that increased price, which is good news for growers.
Strong demand and higher prices paint a pretty good picture, but they will likely be offset by increased production costs, chiefly driven by increased labor costs. It’s no secret that there’s a labor shortage right now, and it’s only going to get worse. That means growers must tackle it head-on by offering higher wages, better benefits, and advancement opportunities to get new employees in the door.
Much like his suggestion that growers base their sales forecasts on 2019 figures, Campbell suggests that growers budget based on how 2019 went. He also worries that growers are planning on seeing their revenues increasing, but not their costs. While revenues will still be strong, thanks to the gardeners who are sticking with their new hobby and thanks to increased prices, increasing costs will eat into some of those profits.
Torres provides a caveat that, while a conservative production budget would be a good plan for growers, they can’t necessarily sacrifice on marketing. Growers still need to conduct market research so they understand what consumers want and how they can attract consumers to their products, and they still need to promote their products and services.
2022 still presents a lot of unknowns. Growers must be prepared for whatever the new year brings their way, and that starts with careful budgeting and planning. With demand likely returning to 2019 levels and both prices and operational costs going up, growers need to think carefully about how they are going to spend their working capital in 2022.
For more on what the year ahead could look like, check out our “Tactical economics: An update” feature from the October 2021 issue (bit.ly/tactical-economics-update).