This spring, as you contemplate the state of the economy, your business’ cost structure and prices in general, some timely real-world information might help. With the price of so many products on the rise, this might be the right time to increase your prices. But you may be wondering with so many people and companies having a tough time economically, should you keep prices steady and absorb the rising costs and take a hit on profits?

Pricing greenhouse plants has the appearance of being cost-based and somewhat mathematical until you realize the art involved in finding the right price. Even more important today, is determining when is the price right.

Consider your costs
Both direct and indirect costs, are key components of the pricing equation. But simply adding a percentage mark-up to a product cost might not get you to the right price. Many growers don’t develop a system to help them calculate their costs on a regular basis. This is a system that is needed, since costs quite often change on just about everything these days.
 
Most growers start the pricing calculation by marking-up items using a standard percentage. A simple mark-up on cost formula uses a set percentage and multiplies that by an item’s cost. If the standard percentage mark-up on the cost for a 4-inch pot is 200 percent, and the pot has direct and indirect costs of $1.37 then the retail price is calculated by:
2.00 (or 200 percent) = (retail price - $1.37)/$1.37
$2.74 = (retail price - $1.37)
$4.11 = retail price
 
The mark-up on cost percentage may vary by product line. For example, the mark-up might be 150 percent on fertilizer and 300 percent on annuals. Doing the calculations is important, but how do you know if the prices are right?
 
A grower or retailer who can cover all costs and generate sufficient profit to sustain the business is the one with the right prices. If you sell out of product too quickly, you probably didn’t set the price high enough. If there is product left on your benches or there is a surplus in the market, you may not be asking as competitive a price as you need to move enough units to make an item profitable.

Real world pricing
We were interested in learning how cost increases for inputs from containers to transportation influenced prices from one year to the next. In spring 2007, we surveyed Michigan greenhouse grower-retailers about their prices for some of their common annual plant container sizes. We collected the same data in spring 2008. The prices were collected through a convenience sample of 79 (in 2007) and 58 (in 2008) businesses in a six county area of western Michigan. The sample represented 95 percent (2008) to 98 percent (2007) of the businesses for which prices had been requested. All of the businesses were independent greenhouse grower-retailers. The prices were obtained during the first week of May. These were the initial prices of products before any discounts were made later in the season.
 
One objective of the study was to show retailers how some pricing strategies are detrimental to everyone, including their own businesses. Another objective was to show retailers the upper end of possible prices, giving them some objective information on which to base next year’s pricing decisions. A third objective was to determine what changes had occurred from 2007 to 2008.

Price differences for pots
The first item for which pricing data was collected was for a single-item 4-inch pot. Figure 1 shows a plot of each retailer (each data point represents a single business) and the price (in dollars along the Y axis) they initially charged for 4-inch pots in 2007 and 2008. In 2007, retail prices ranged from $1.50 to $4.99 with an average retail price of $2.83. In 2008, prices ranged from $1.50 to $4.99 with an average price of $3.03.
 
The average price for 4-inch pots increased 7.1 percent over the year. Neither the lowest price point nor the highest price point for this size container changed, but the average climbed 7 percent. The reason for the increase was because most firms in the study did raise their prices.
 
Was the 7.1 percent increase enough to account for rising costs and inflation? Maybe not. A verbal estimate from Erik Runkle, Michigan State University associate professor and extension specialist, was that most input costs conservatively increased 10 percent in that area of Michigan between 2007 and 2008. So even an average increase of 7 percent per 4-inch pot may not have been enough to keep this product profitable.
 
Looking at Figure 1, the price for 4-inch pots plateaus at key price points. A number of grower-retailers charged the same price at $1.99, $2.49, $2.99, $3.49 and $3.99, which is indicated by the line flattening at those points. There are some points in between these price plateaus that represent growers who are selling the pots at another price point.

Range of prices
How can some growers charge $1.99 while others in the same market charge $4.99 for virtually the same product? This is a pivotal pricing question. It’s highly likely that cost inputs do not account for all of the spread in prices. This shows the tremendous range of prices that retailers can receive for a product that is most likely available elsewhere at a lower price.
 
Being the low price leader in any market is a tenuous position at best, since all another business needs to do is lower its price.

Raising prices
Given the cost increases of so many other products, now might be a good time to consider a price increase. How much should you raise your prices? Pricing literature would tell you to raise the price to the next key price point. If the current price is $3.49, you might consider increasing it to $3.99 rather than $3.79. Why? Many, but not all, consumers perceive a 50 cent increase the same as a 20 cent increase. Don’t leave that extra 30 cents on the bench. If you are priced in between a key point (i.e., $3.79 in 2008), strongly consider the $3.99 price point. This will help you add to the profit margin, cover costs, and extend the next price increase a bit further into the future.

Price differences for flats
The price data collected from Michigan grower-retailers for a 36-count flat is shown in Figure 2. In 2007, prices ranged from $5.29 to $12.29 or $7, with an average price of $8.93. In 2008, prices for flats ranged from $5.79 to $12.99 or $7.20, with an average price of $9.58. The price range expanded only slightly, with the minimum price going up 50 cents and the maximum price increasing by 70 cents.
 
The parallel lines show that, as with the 4-inch pots, most grower-retailers increased prices. The average price rose 7.3 percent which was similar to the price increase for 4-inch pots.
 
Some retailers at the low end of the price range are likely to sell flats below cost. What does this pricing strategy do to the entire market? It is difficult for some customers to differentiate between products. When they can’t tell a big difference between two retailers’ flats, they will differentiate solely on price.
 
Our inability as an industry to differentiate between products is exaggerated by retailers who sell at or below cost. This practice only pushes growers and retailers closer to the mature stage of the product life cycle where profits only exist to those who sell massive quantities. This tactic undermines everyone’s ability to generate profits.

Price differences for hanging baskets
Figure 3 shows the changes in the prices of 10-inch hanging baskets. In 2007, prices ranged from $5.98 to $21.95. In 2008, the price range for the same size basket was $7.49 to $25. The low end of the price range was raised substantially and the high end also increased sharply.
 
Notice how the data points are almost directly on top of each other for the two years. This means that there was very little change in most prices.
 
With such big changes in the low and high end prices, why did the average price for the hanging baskets only increase 1.8 percent from $13.06 in 2007 to $13.29 in 2008? There probably were several reasons why basket prices didn’t increase more.
 
A 10-inch basket may be approaching the mature state of its product life cycle.  Mature products don’t have as rapid of an increase in the growth in sales. This makes it harder for a retailer to increase the price and maintain sales.
 
Another reason may be that 10-inch baskets are great signpost items. Signpost items are products about which consumers make inferences about prices of other products. Signpost items are common among retailers, making it easy to compare them or “price check.” If a signpost item is priced low or what is perceived to be a real value, then generally consumers are more likely to think that the prices of other products may be low. But, most likely retailers may fear that they would lose a significant number of sales if they did increase the price, even enough to account for the cost increases.

The right price
Who has the right price? The grower or retailer who can cover all of the costs of production and generate sufficient profit to sustain the business is the one with the right prices.
 
If you sell out of product too quickly, you probably didn’t set the price high enough. If there is a surplus on the bench or in the market, you may not have as competitive a price as you need to move enough units to make an item profitable.
 
With most of your costs increasing, have you taken a long hard look at your prices? Maybe it’s time to devote some new energy so your customers will say (and buy to show) that the price is right.

Bridget Behe is professor, Michigan State University, Department of Horticulture, (517) 355-51291, Ext. 1346; behe@msu.edu. Thomas Dudek, is district extension horticulture and marketing educator, Michigan State University Extension-Ottawa County, (616) 994-4580; dudek@msu.edu.
 

In 2003 the North American Horticultural Supply Association (NAHSA) formed a water committee to address water-related issues that affect our industry. The committee was formed in response to a severe drought that occurred in the Rocky Mountain states from the late 1990s to 2004.
 
The lack of water forced municipalities and water providers to exercise extreme measures. The horticulture industry took the hardest hit from these restrictions. Some municipalities banned the sale of flowers, trees and shrubs stating they required too much water to plant. The result was a downsizing of many businesses both in plant production and employees. Some businesses were forced to close. A similar scenario recently occurred in California and in some Southeast states.

Poor planning takes its toll
One reason water restrictions continue to be implemented is many municipalities have done a poor job of planning the expansion of their communities. Some only see the potential for increased tax revenues without giving little consideration to the allocation of valuable resources, like water. Unrestricted development has resulted in too many people and not enough water.

Water providers control the water
Water providers are the agencies that provide the storage, transfer, treatment and distribution of water to local communities. In some communities they provide the treatment of sewage and return water to the water grid.
     
In an Oct. 2, 2008, Rocky Mountain News article, the newspaper’s former political columnist Peter Blake discussed how water costs flow uphill. In Colorado, water providers are not under state or legislative orders. Water providers in all states are either quasi-government, city government or private enterprises like ditch companies.
 
Water prices are not affected by supply and demand. Water providers can ask consumers to conserve and then can raise prices. There are no volume discounts. The providers have the power to enact water restrictions for landscapes including which days water can be used, how long a zone can be watered, and most devastating is no watering of outdoor plant material at all.
 
Water providers can impose fines if outdoor watering is done on off-days or watering occurs too long per zone. These fines are significant. In Denver, water providers have their own enforcement officers who patrol neighborhoods looking for violators.
 
Many water providers strongly encourage xeriscaping which means no lawns and promoting the planting of native plant species. In Denver, citizens became more vigilant of water use after the 2003 drought. They decreased their water consumption by 20 percent, but water bills have increased by 35 percent during the past five years.
 
Water providers employ their own economics. They tend to raise rates even while demand drops. Many municipalities around the country have similar economics, rules and enforcement. This is possible because most urban areas have only one water provider. When it comes to municipal water, most users don’t have a choice. This gives most water providers an enormous amount of power since they own the infrastructure that delivers water to consumers.

Increasing demand for water
With the increase in agricultural crop production for biofuel, water demands have skyrocketed, putting more stress on the supply side. Agricultural demands versus urban demands are increasingly competing for a limited supply of water.
 
Government officials have done little to increase water storage with most efforts focusing on conservation, reuse and recycling. Eventually availability is going to be a major issue.
 
Since water is delivered to homes and businesses, it has been assumed that landscapes are a part of the public need. Water for drinking, food preparation and hygiene is considered necessary for survival. Water for landscaping is not. Since landscaping is viewed as a “luxury” water user, water providers have hit the horticulture industry with restrictions.
 
According to Denver Water, home landscapes are the largest user of water followed by agriculture. Agricultural production and food processing consume most of the fresh water.
 Most manufacturing industries, including steel, aluminum, plastics, fuels and wood products, require water during the production process. Many of these industries have formed politically powerful coalitions and associations to assure future water availability.

Lack of water-use data
The horticulture industry is a fragmented group of associations and businesses representing nursery, greenhouse, landscape, turf and allied suppliers. Due to the lack of information available about the horticulture industry, only estimates can be made in regards to its water consumption.
 
For example, if a municipal water provider claims that 75 percent of household water consumption is applied to landscapes, there is very little data available to dispute this claim. In California, the horticulture industry actually collects specific consumption data. Unfortunately, California water usage does not apply to other states.
 
North American Horticultural Supply Association’s (NAHSA) water committee has focused its efforts on:
 1. Collecting specific data related to water usage of horticultural products within the eight regions of the United States designated by USDA.
 2. Impact of the horticulture industry on society, such as benefits to cities, neighborhoods, parks and golf courses.
 3. The role the horticulture industry plays in the global theater. The committee will not focus on the cause of global warming, but will look at whether the horticulture industry is part of the solution to this problem. Solutions include the consumption of carbon dioxide gas by plants and turf and the impact of switching from traditional to xeriscape landscapes.
 
What the horticulture industry brings to society and the global theater is extremely important. Industries that demonstrate a positive benefit to society and the planet will be the ones that survive.
 
The NAHSA water committee is working with other associations (i.e., Irrigation Association) to form a coalition to address water issues related to the horticulture industry. There is a sense of urgency regarding water issues and the impact additional water restrictions and legislation could have on the horticulture industry.
 
Other industries are already organized or in the process of organizing to address water issues. A coalition of horticulture industry associations addressing these issues would provide a significant representation of resources both in numbers and dollars.
 

Ron Eberly is industry advocacy chairman, North American Horticultural Suppliers Association, (215) 564-3484; www.nahsa.org, and vice president, American Clay Works & Supply Co., (800) 873-2297; www.americanclayworks.com.

Nitrogen is the mineral element found in greatest concentration in plants. It is an essential component of chlorophyll, enzymes and nucleic acids. It’s important to supply plants with enough nitrogen so these compounds can be made in adequate amounts.

Figure 1. Conversions between nitrogen form and the effect of nitrogen uptake on growing medium pH.Nitrogen form
Plants have the ability to take up several chemical forms of nitrogen. The most common are: ammonium (NH4+), which has a positive charge; nitrate (NO3-), which has a negative charge; and urea, ((NH2)2CO), which has no charge. Many commercial fertilizer mixes contain a combination of all three nitrogen forms.
 
When these nitrogen forms are added to the growing medium natural processes can take place that convert one form to another (Figure 1). Bacteria can convert urea to ammonium or ammonium to nitrate. Hydrogen ions (H+) which acidify the medium are released when ammonium is converted to nitrate. In growing medium urea is converted to ammonium very quickly in less than two days. Urea and ammonium are typically grouped together and referred to as ammoniacal nitrogen.

pH effect
When roots take up charged molecules, such as ammonium or nitrate, they typically release an oppositely charged molecule to maintain a balanced pH inside the plant cells. Because nitrogen can be supplied as a positively or negatively charged form, the root substrate pH can be altered.
 
Plants take up ammonium and other positively charged cations by releasing one hydrogen ion (H+) into the medium solution for each ammonium ion absorbed. Over time, ammoniacal nitrogen uptake increases hydrogen ion concentration thereby lowering the growing medium pH.

The uptake of negatively charged anions such as nitrate is most often accomplished by releasing hydroxide ions (OH-). In the medium solution, hydroxide and hydrogen ions combine to form water (HOH). Over time the reaction of hydroxide and hydrogen ions decreases hydrogen ion concentration and increases the medium pH.
 
Under some circumstances plants absorb a nitrate anion by simultaneously absorbing hydrogen ions or releasing bicarbonate. Like hydroxide ions, bicarbonate combines with hydrogen ions and thus raises the medium pH. The net effect of using a nitrate-based fertilizer is to increase the overall medium pH.
 
A dramatic example of the effect of nitrogen form on growing medium pH is shown in Figure 2. Rose plants were grown hydroponically in a nutrient solution containing different percentages of ammonium. During the first day after nitrogen addition, the pH dropped by one to two units as bacteria converted ammonium to nitrate.
 
After the initial pH drop, pH increased over time in the 8 percent and 16 percent ammonium treatments as only nitrate was left to be absorbed by the plants. In the 31 percent ammonium treatment, a combination of ammonium and nitrate was taken up by roots over the next five days which kept pH fairly steady. These effects are much more dramatic than what would occur in a commercial growing medium as it is somewhat buffered due to its chemical properties and added limestone.

Selecting a fertilizer
The ratio of nitrate to ammoniacal nitrogen in a fertilizer determines the rate of substrate pH change and can even be used to correct pH during production. The pH changing property is known as a fertilizer’s potential acidity or basicity and is listed on a fertilizer’s label (Table 1).
 
High pH can be corrected by switching to a more acidic fertilizer. One example is 21-5-20 fertilizer which has a potential acidity of about 400. Application of 1 ton of 21-5-20 causes acidification which would require 400 pounds of calcium carbonate limestone to counteract. Similarly, 15-0-15 has 420 pounds of potential basicity and can be used to increase a low pH.
 
For crops that are known to have issues with pH decline, using a nitrate-based fertilizer such as 15-5-15 may aid in slowing or stopping pH decline over time. The greater the potential acidity or basicity, the more pH change occurs.

Figure 2. Change in pH of the root-zone of rose plants provided with three different percentages of ammonium. Plants were grown hydroponically, so pH fluctuations occurred much more rapidly than in a commercial growing medium, which is buffered by limestone additions.Ammonium toxicity
Often nitrogen is applied at concentrations greater than plants can readily absorb. Plants can take up and store additional nitrogen to use later if nitrogen becomes limiting.

Nitrate can be safely stored by plants; but when plants take up and store too much ammonium, cell damage can occur. Luckily, under normal conditions of warm temperatures and a well aerated medium, urea and ammonium are converted to nitrate by nitrifying bacteria so there is little worry about excess ammonium in the medium.
 
Certain conditions such as low temperatures (less than 60°F average daily temperature), water-saturated or low oxygen growing media, and low
medium pH will suppress the function of nitrifying bacteria and cause ammonium to build up to toxic levels in the growing medium.
 
Symptoms of ammonium toxicity include upward or downward curling of lower leaves depending on plant species; and yellowing between the veins of older leaves which can progress to cell death.
 
To avoid ammonium toxicity it is recommended to use fertilizer with 40 percent or less ammoniacal nitrogen when growing conditions are cool and wet. When cold gray weather occurs a common strategy used by growers is to alternate to a 15-0-15 “Dark Weather Forumla.” This eliminates the extra ammonium input temporarily, but then allows growers to return to their normal formula when growing conditions improve.

Impact of growing cool
With the high cost of fuel to heat greenhouses, there is an increased temptation to produce plants at cooler temperatures. If greenhouse temperatures are going to be reduced, consider adjusting the nitrogen form so that ammonium toxicity doesn’t occur.
 
If ammonium toxicity has occur-red, corrective measures include: discontinue applying the current fertilizer, leach the growing medium, add a nitrate-based fertilizer and raise temperatures.
 
Under conditions of severe ammonium toxicity an effective method of alleviation is a leaching treatment with gypsum. Topdress 1 tablespoon of gypsum (calcium sulfate) to each 6-inch pot and water in thoroughly with clear water.
 
Follow with a 50 parts per million drench of calcium nitrate two hours later. The ammonium bonds with the sulfate from the gypsum and becomes highly soluble allowing it to flush easily out of the medium.
Nitrogen and finished plants
 
The type of nitrogen used can also influence the tone or finish of the plants. Ammonium/urea based fertilizers tend to create lush or soft growth resulting in larger leaves and darker green plants.
 
When these plants are sold directly to consumers as patio plants or hanging baskets, lush growth and a deep green color caused by ammonium-nitrogen may be desirable.  Plants must also withstand the stresses of shipping and the retail environment.
 
Nitrate fertilizers are used by plug growers and others that ship plants to help tone or “harden” plants. One drawback of a classic plug formula is the tendency to raise the medium pH over time leading to micronutrient deficiencies.
 
Plug growers with high water alkalinity or high water pH are challenged with the question of adding acid to counteract the gradual pH increase. This could set up the potential for damaging plants.
 
Look for plug fertilizer formulations with low ammoniacal nitrogen content (less than 5 percent) to provide a small amount of acidity while still delivering the low phosphorous required for strong plugs.
 
Neil Mattson is assistant professor and floriculture extension specialist, Roland Leatherwood is postdoctoral associate, Cornell University,  Department of Horticulture, (607) 255-0621; nsm47@cornell.edu. Cari Peters is manager, Research and Analytical Services, J.R. Peters Laboratory. 

Businessman Chris Richardson wasn’t looking to get into the green industry. In the early 1990s, he was busy building multifamily housing developments in Texas. He needed plants to landscape his apartment complexes, so he lined a short stretch of road on his ranch with plants and put up some sprinklers. A couple of serendipitous years later, Creekside Nursery LLC in Hempstead, Texas, was formed. The 40-acre nursery was no longer an experiment or a means solely to supply plants for Richardson’s own developments.
 
Since 1995, Creekside Nursery has stealthily positioned itself as a major player in the Texas market. With greenhouses and outdoor container pads full of annuals, perennials, potted plants, trees and shrubs, the nursery has grown 20 percent a year for more than 10 years.
 
“Even in this ‘new’ economy, we’re still expanding and we continue to gain market share,” said Bill Brown, general manager of Creekside. “We’re a high-production nursery. It’s a high-speed place.”
 
He attributes that double-digit growth rate to a well-seasoned staff, the proliferation of new plants offered and an effort to automate as many processes as possible.

Perpetual movement 
The nursery is almost always in expansion mode. Richardson’s construction company and equipment help support the nursery with some projects.
 
“If we’re going to do a major project, we’ll utilize the construction crew. But for other projects, we have people on-site that can build what we need,” Brown said. “But it’s nice to have the expertise and especially the equipment when we need it.”
 
Creekside operates 1.3 million square feet under cover and 9 acres of shade houses. The majority of the greenhouses are Ludy and Crider models. Creekside modified a Cravo house by adding hoops to the roof. It’s now a huge gutter-connected hoop house.
 
Creekside does most of its own propagation, which is supported by 175,000-square-feet of propagation houses. One of the houses is equipped with bottom heat and movable tables. It’s reserved primarily for unrooted cuttings for color crops.
 
The winter protection houses measure 88- by 300-feet, which allows the nursery to set them on existing beds without having to modify the houses.

Innovative solutions
Efficiency and cleanliness are imperative objectives at Creekside. Concrete roads run from the color department to the loading dock — another advantage of having an owner with a construction company.
 
“We work hard to minimize the number of touches on the plants,” Brown said. “We can pull from the color house and send plants on racks to the loading dock. We can do all the assembly at the source of the plants.”
The grower discontinued the pallet loading system in 2000 in exchange for the conveyor system.
 
One of Creekside’s clever innovations is the tractor tunnel built under the busy road that intersects the property. The road had a dangerous bend with a blind spot, which put nursery workers and drivers at risk. When Creekside found out the road would be closed for bridge work, the company was able to build the tunnel.   

For more: Creekside Nursery, (713) 265-4300; www.creeksidenursery.com.