Offset slumping sales by reducing production costs

  Julie NewmanIn tough economic times when sales are down it is especially important to trim production costs where possible. As of March, the country is in the 16th month of a deep recession with high unemployment rates and dwindling consumer spending. Those growers who lag behind on making adjustments to lower their operating costs will have a harder time being competitive in the months ahead. Businesses that can grow lean and efficiently are the most likely to survive the current economic crisis.

Where is your money going?
What are the highest production costs in your operation and what corners can you cut and still grow a quality product? Answering this question is crucial and requires meticulous record-keeping to provide the necessary data. Once you understand where your money is going, you can address the aspects of your operation that are costly and work to improve efficiency.

Labor, automation
Many businesses have downsized their work force to reduce labor costs. While this strategy can help sustain operation in the short term, in the longterm it adds to the economic down-swing. If you can do it, consider investing in mechanized equipment to gear up for higher production when the economy improves and continue to save on labor costs. At the same time, by investing your money in capitol improvements, you help to improve the economy.

Energy conservation
Thankfully, there’s been some relief from spiraling fuel costs due to the weak U.S. dollar, despite price fluctuations. Regardless of whether oil prices rise or fall, this is not the time to shun frugal habits. Anything you can do to save energy will help your business because energy is such an important component of production costs. There are a number of greenhouse conservation practices that you hopefully implemented when fuel costs were high. These include:

• Maintain a well-sealed greenhouse and heating system by making regular repairs and fixing leaks. The tighter your greenhouse is the better. Checking for uniform air temperatures throughout your facilities is a good way to confirm this.
• Calibrate thermostats.
• Use double layer coverings, such as double layer polyethylene, or single- or double-layer poly placed over glasshouses.
• Use heat retention curtains and keep them in good repair.
• Replace inefficient old boilers with new, energy-efficient models.
• Properly clean and adjust furnaces and replace filters.
• Routinely clean reflectors on supplemental lighting fixtures to increase efficiency.
• Select crops that can be grown at lower air temperatures.

A detailed list of tips to conserve energy in greenhouses has been prepared by the University of Connecticut and can be found online here. 

Adopt energy conservation practices in offices and packing houses. Use energy-efficient refrigeration appliances, and replace incandescent light bulbs with compact fluorescent bulbs or other energy-saving products.

The use of alternative energy sources can save money in addition to being environmentally friendly. In some areas, growers are using cheaper alternative heating sources such as geothermal energy. The use of solar cells or wind power to create on-site electricity are also options.

Utility rebates are available for some energy-saving investments such as insulating pipes, installing dual shade and heat retention curtains, and installing infrared, polyethylene plastic for heat retention.

Growing media
The cost of growing media varies with supplier and prices fluctuate regularly. You may be able to reduce costs by purchasing separate components and making your own mixes rather than using ready-made substrates.

When selecting a new, less expensive substrate, make sure property differences in components won’t cause future production problems. For example, inexpensive wood chips may break down when fertilizer is added to this high-carbon component. This causes shrinkage of the growing mix and robs nitrogen from the plants. The increased cost of adding more fertilizer could eliminate the savings gained from producing your own mix.

Also check sources of coir because they may be high in salts. Be sure that the electrical conductivity of coir is low ensuring that the salts have been leached out before purchasing it.

Selecting a relatively lighter substrate component such as perlite compared to sand or pumice may reduce shipping costs. However, the change in a mix’s chemistry needs to be managed carefully. Set up some trials with the new mixes before changing your entire production program.

Irrigation, fertilization
Proper water and fertilizer management is also important in keeping production costs down, especially if your business is in an area where water is expensive. Improve irrigation efficiency by converting to pulse irrigation, using drip irrigation instead of hand watering or an overhead system. Provide regular irrigation system maintenance, such as checking for leaks and clogged nozzles.

The amount of energy required daily to pump enough water from a well to irrigate an acre of greenhouse plants can easily exceed 30 kilowatts per hour, so irrigating efficiently can conserve both water and energy. Some energy suppliers offer a lower rate for off-hour water pumping. Growers can pump well water into a reservoir at night and then use the stored water to irrigate plants during the day.

Growers who recycle water can substantially reduce the cost of irrigation. For example, operating an overhead delivery system, you may be able to recycle 50 percent of your irrigation water. This can also result in major savings in fertilizer, especially when fertilizer is injected into the recycled irrigation water.

Pest control
Use of pesticides and the labor involved in their application can contribute to higher production costs. By adopting an IPM program, including routinely monitoring crops for insects and diseases and spot treating only as needed, costs of chemical inputs can be reduced.

Post-production costs
It’s also important to consider practices that reduce post-production costs, most notably transportation to market. The current economy favors regional markets, making domestic cut flower production and regionally-focused growers more competitive. Farmers’ markets or grower cooperatives have been quite successful in California. With these marketing approaches, there is a central distribution point where growers bring local product for sale, usually resulting in lower transportation costs.

Consider delivery using your own trucks to support and increase local markets and to reduce transportation costs for customers. Consolidate delivery orders to reduce fuel usage. Schedule deliveries along the shortest routes, combining as many routes as possible, and limit delivery equipment in the trucks so that product capacity is increased.

If you are shipping product that needs to be transported at lower temperatures, do not be tempted to increase the thermostat setting to lower refrigeration costs. This will only reduce the quality of the product and potentially hurt future sales.