The horticultural economics of a pandemic

by Courtney Llewellyn

Information is a necessity in times of crisis. That is what AmericanHort provided during a live webinar on Monday, March 23. Presenting were the organization’s Craig Regelbrugge, senior vice president of advocacy and research, and Dr. Charlie Hall, chief economist.

Regelbrugge dove in first. “The first issue is business closures,” he said. Federal guidance from the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (DHS-CISA) on what constitutes “critical infrastructure” and “essential workers” varies by sector, but there is no doubt that the food and agriculture industries are critical. Fortunately, Regelbrugge said, the guidance does not specify individual sectors of agriculture.

“However, the ultimate authority rests with state and local authorities,” he noted. As of the morning of the webinar, 22 states were under stay at home orders. He mentioned the North Carolina Department of Agriculture and Consumer Services as a favorable model. Check out their website at ncagr.gov/disaster/documents/covid-19.htm.

“The most important point is even if your business is allowed to stay open, it’s an individual decision to stay open,” Regelbrugge said. For example, a greenhouse growing ornamental flowers and a nursery growing food-producing plants can both stay open for now, but it might make more sense for the vegetable grower to stay open, since customers out of work with limited funds would be more likely to buy something that could be consumed later. Keeping your business open is “not a decision to be taken flippantly,” he said. “Employee health comes first.”

In business, however, the bottom line must always be considered. Many businesses have concerns about financial liquidity and capacity – especially those in horticulture, where a year’s worth of income can come from just an eight-week period. “This [virus outbreak] could not have come at worse time for this industry,” he said. There is a silver lining, though: people will be spending more time in their yards and gardens, reconnecting to horticulture.

There is a very large dark cloud within that silver lining. According to Hall, from 2015 – 2018 (the period for which he has complete data), horticulture was a $1.3 billion industry, encompassing small, medium and large businesses. Sales increased from 2015 to 2017, with a slight slowdown in 2018. Net profits also fell, due to losses from shrink and increases in payroll. Hall said the increase in shrink was not surprising, since production had ramped up, which meant there was more potential for loss.

“Before the outbreak, our economy had seen 128 months of growth. Housing was peaking. Inflation was in check. Consumption was steady. Job growth was slowing,” Hall said. But then a global pandemic occurred.

COVID-19 caused major supply chain disruptions, including a shortage of available trucking. International shipping was already an issue due to ongoing trade wars. Another direct effect of the outbreak and subsequent quarantining was unemployment. The U.S. government may see over a million unemployment claims in the coming weeks. Closures of businesses have also led to decreased demand in a lot of industries.

“Seventy percent of GDP is tied to spending,” Hall said. “The question now is where the consumer is going to cut back.”

With his data and analyses, a month ago, Hall would have predicted a 40% chance of recession in 2020, and an 80% chance in 2021, with increased risk due to an exogenous event (like a virus outbreak), trade war effects, OPEC reneging on an output deal and recession in China and Europe all contributing to derailing our steady economy.

“Though the data through February do not bear this out, we are likely already in recession,” he stated. “The impacts in the second and third quarters of 2020 will be significant.” Hall forecasted four scenarios as to how the coronavirus situation could play out:

• It could end in three months

• It could be seasonal, and return in November (12 months)

• It could last until a vaccine or effective treatment is developed (12 – 18 months)

• It could be persistent until herd immunity takes over (24 months)

For now, he said growers should expect clusters of illness among their teams. And if your business doesn’t already have a contingency plan, one needs to be developed now. It should answer these questions: How prepared am I for the next downturn? What predetermined strategies should I have in place? How can I leverage what I have properly? How much working capital do I have and need? Is my business lean and efficient? And, is your business valuable – do people view you as essential?

“We were poised to have a really good spring,” Hall lamented. “But now there are so many unknowns, especially depending on the part of the country you’re in. It’s hard to prognosticate.”

What’s Ahead

“AmericanHort believes that safety nets in the moment of crisis are essential to long-term business survival,” Regelbrugge said. “Relief 12 to 18 months later is not the same.” That’s why AmericanHort is part of a group of 105 organization lobbying Congress to create both short- and long-term solutions to this crisis.

As for what those in the horticulture industry can do now, Hall said to document in detail all of your monetary impacts, in anticipation of safety net programs requiring proof of losses. He also recommended deferring major strategic decisions until there is further data. “Build flexibility in your labor force, your supplies and your deliveries,” he said. “In the midst of any crisis, there are growth opportunities – keep your eye on particular opportunities, including mergers and acquisitions for the future.” He added that business owners need to be proactive rather than reactive.

Flexibility in your workforce will be crucial, as migrant workers from Guatemala and Jamaica cannot enter the country right now; Mexican worker visas are still being approved. (AmericanHort is also advocating for a broader fix for this issue.)

“Spread the word about the health and well-being benefits of plants to all citizens, regardless of ethnicities, socioeconomic characteristics, in all economic conditions,” Hall said. “The green industry needs to embrace this, build it into our marketing messages. Make horticulture an essential, not a luxury.”

Hall concluded, “The bottom line is our economy was functioning, and this outbreak is a major bump in the road. We’re likely already in recession – but that does not mean the end of all time for our industry. We provide a lot of solutions to societal needs. We just need to emphasize that.”

For more information, visit americanhort.org/coronavirus.

2020-04-08T07:46:25-05:00April 8, 2020|Grower, Grower East, Grower Midwest, Grower West|0 Comments

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