Making Cents of Greenhouse Production Cost

Ben Beale

Extension Educator-MCE

St. Mary’s County

Why do we care?

• Rising population base of affluent suburbanites in reach of Maryland growers

Source: Census 2000 analyzed by the Social Science Data Analysis Network (SSDAN).

1953-Agricultural land

1982

1992

Greenhouse and nursery crops: Wholesale cash receipts

0.0 5.0 10.0 15.0 20.0

1992

1994

1996

1998

2000

2002

Billion dollars

Nursery and other greenhouse Floriculture

Production trends of floriculture crops

0

1,000

2,000

3,000

4,000

5,000

6,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Mill

ion

$

bedding and garden plants potted flowering plants

foliage plants cut flowers

propagative material and cut greens

Floriculture crops: Average sales per grower

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Do

llar

s

West South Midwest Northeast

Maryland

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Maryland

ERS Data. $ in 1000. Greenhouse and Nursery Crops

Now for the Bad News!

• The majority of small businesses fail within the first 2 years.

• Most folks starting a greenhouse do so because they enjoy growing, not the business side.

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Net Income: Net income is the money left after subtracting variable and fixed cost. This is the bottom line.NET INCOME = Revenue – (Variable + Fixed Costs)

Variable Cost: Cost items that vary with production volume. Examples of such items include fertilizer, seed, fuel, electricity, piece-work labor charges, pesticides, packaging cost, and custom charges.

Fixed Cost: Those cost that you will incur regardless of whether you produce any output.. These cost are determined using the DIRTI 5 method which includes Depreciation, Interest, Repairs, Taxes, and Insurance. Often a piece of equipment or building will be used for more than one enterprise. In these cases it is important to estimate the percentage of use for each enterprise and allocate the cost accordingly.

Gross Revenue: The total sales of product or services from the enterprises. Revenue can be calculated with the following formula: Price x Units Sold= Gross Revenue

Example Budget

GREENHOUSE BEDDING PLANTS (30'X100' DOUBLE LAYER PLASTIC)PER ACRE FOR YEAR 2008

ITEM UNIT QUANTITY PRICE TOTAL

GROSS INCOMEBEDDING PLANTS FLATS 3040 $12.00 36,480.00$ -$ TOTAL GROSS INCOME 36,480.00$

VARIABLE COSTSSOIL MIX 3.8 cu ft bags 58 $19.35 1,122.30$ PLUGS FLATS 3040 $3.25 9,880.00$ FLATS FLATS 3040 $0.51 1,550.40$ INSERTS FLATS 3040 $0.27 820.80$ PLASTIC COLOR TAGS PACK 16,500 $0.02 330.00$ 20-20-20 All Purpose 25# BAG 11 $21.00 231.00$ LIQUID FEED NUTRIENTS POUND 50 $1.00 50.00$ PLASTIC COVER (40'X100'-2LAYERS-$640/3YRS)YEAR 1 $213.00 $213.00BANROT POUND 4 $31.00 124.00$ INSECTICIDES, MITICIDES n/a 1 $182.57 $182.57HEATING FUEL GALLON 800 $3.15 $2,520.00UTILITIES (ELEC. ) MONTH 4 $100.00 $400.00HAULING FLATS 2100 $0.20 $420.00LABOR HOURS 600 $9.50 5,700.00$

-$

INTEREST ON OPERATING CAPITAL 1 6.5% 765.18$ TOTAL VARIABLE COSTS LISTED ABOVE 24,309.25$ NET INCOME OVER VARIABLE COSTS LISTED ABOVE 12,170.75$

FIXED/OVERHEAD COSTS - METHOD: CUSTOM RATE X DIRTI-5(DO NOT DUPLICATE COSTS LISTED ABOVE)Derreciation 1,600.00$ Interest on Fixed Cost 1,400.00$ Insurance 600.00$ Repairs 1,800.00$ Taxes $400.00

$0.00$0.00

LAND CHARGE ACRE 1 $50.00 $50.00TOTAL FIXED COST LISTED ABOVE $5,850.00

TOTAL VARIABLE AND FIXED COST LISTED ABOVE $30,159.25NET INCOME OVER VARIABLE & FIXED COSTS LISTED ABOVE $6,320.75

PRICESNET INCOME ABOVE VARIABLE AND YIELDS 9.00$ 12.00$ 15.00$ FIXED COSTS LISTED ABOVE FOR 2280 (9,639)$ (2,799)$ 4,041$ VARIOUS YIELDS AND PRICES 2700 (5,859)$ 2,241$ 10,341$

3040 (2,799)$ 6,321$ 15,441$

Typical Cost Example

• 30ft. X 100ft. Poly house

• Raise bedding plants by the flat

• House filled in February and empty by June 10.

• 2 rounds of typical plants on 6 week schedule

Space per House3 ft isle down center.2 ft isle on ends7 walkways 1 ft. wide

30

100

12

13.5

Space Utilization/Flats per House

• 30ft. * 100ft: 3000 sq. ft.

• Isle ways are: 408 sq. ft.

• Usable space is: 2592 sq. ft

• 86% space efficiency ratio

Flats per House

• Standard 1020 flats are 11 x 22 inches, or 1.7 sq. feet

• 2592 available sq. ft. divided by 1.7 sq. ft. per flat = 1520 flats

• Considering a plan for 2 rounds of plants, we will estimate total production at 3040 flats

Gross Income Potential

Price9.00$ 12.00$ 15.00$

% Sold # Flats75% 2280 20,520.00$ 27,360.00$ 34,200.00$ 90% 2700 24,300.00$ 32,400.00$ 40,500.00$

100% 3040 27,360.00$ 36,480.00$ 45,600.00$

Gross Income Potential

Plant Material

• Wide variety of plant material available• Assuming annual plug plants grown from seed

and transplanted to flats• Impatiens: 490 tray : $33.20

490 tray 275 tray per piece cost

Begonia 34.32$ 0.0700$ Celosia 27.64$ 0.0564$ Impatiens 33.20$ 0.0678$ Marigold 31.21$ 0.0637$ Petunia 27.64$ 0.0564$ Snapdragon 31.21$ 0.0637$ Zinnia 38.72$ 0.1408$

Sample Annual Plug Prices

Plant Material

• Impatiens: 490 tray : $33.20• 490 plugs will fill how many flats?• 490 tray will fill 10 flats• 33.20 per tray / 10 flats = 3.32

Flat Type Cell per Flat Flats per 490606 36 13.6806 48 10.2

1204 48 10.21206 72 6.8

Flats and Inserts

• Standard 1020 flats– Sold by case of 100– $51.00 per case or 51 cents a piece

• Inserts:– Available in multiple size combinations– Size description: 606, 806, 1206-

• First #: # of trays; Second #: Cells per tray

– $27.20 per case or 27 cents a piece

Substrate

• High quality soil-less substrate is critical• Using peat base potting soil with Bacillus subtilis

for increased root rot protection• Bedding Plant type potting soil will contain:

– Peat Moss– Perlite– Vermiculite– Wetting Agent– Bacillus subtilis– Macro and micro nutrients– Lime

Determining Amount of Potting Soil Needed

• Using the chart, 3.8 cu ft bag will fill 53 806 flats

• 3040 flats will require 58 bags (3040 / 53 = 57.3 bags)

Container Type SizePer Cubic

FootPer 3.8

cubic ft bag

Flats 804 5.9 44806 7.1 53

1203 5.9 441204 6.7 50

Container per Bag Potting Soil

Fertilizer Cost

• Using a constant feed 100 ppm N program

• Will use a standard 20-20-20 at rate of 6.7 ozs. per 100 gallons water

• Estimate 4 applications per week over 12 weeks

• Estimate water use at ½ gallon water per square foot

Fertilizer Cost

• ½ gallon per sq ft times 2600 sq ft = 1300 gallons per watering

• 1300 gallons applied 4 times a week for 12 weeks is (1300x4x12) 62,400 gallons

• At a rate of 6.7 ozs per 100 gallons, you will need 4180 ozs. (62,400/100 x 6.7) or 261 lbs or 11 bags of 20-20-20 fertilizer

Greenhouse Plastic

• Assuming 4 year plastic replacement value.

• Using Tufflite IV 6 mil fro top

• Using Tufflite IV 6 mil infrared for bottom

• 30 ft wide house will need 40 wide foot plastic

• Total cost $640.00 over 3 years=213.00 year

Crop Management Products

• Will vary for each operation, depending upon season, management, climate, luck, etc…

• Estimates provided are for an average season with average problems.

Crop Management Products

• Disease Control– Clearys 3336– Heritage– Daconil

• Insect Control– Marathon

Product#

Applications

Rate per 100

gallons

Ounces needed for 2500 sq ft

houseCost per ounce Total Cost

Clearys 3336 2 16 ozs 8 1.75 28.00$ Heritage 2 2 oz 1 43.25 86.50$ Daconil W. Stik 2 22 ozs 11 0.585 12.87$

Marathon II 2 1.7 oz 0.85 32.47 55.20$

Total 182.57$

Crop Protection Program

Heating Expenses

• Most accurate estimates are from past experience in each house.

• Seasonal variation will change fuel usage dramatically

• Example uses LP gas through 1 heater

• Assume seasonal use of 800 gallons total

Fixed Cost

• Those items that do not change with level of production

• Often Calculated with DIRTI-5 Method– Depreciation– Interest– Repairs– Taxes– Insurance

Depreciation

• $18,000 greenhouse construction cost

• Expected life of 10 years

• Value at 10 years: 2,000

• 16,000 / 10 = $1600

• $600.00 for general liability and hazard policy for equipment

Insurance

Taxes

• Includes property tax rate of $300 and license fee of $100 for total of $400

Repairs

• Can be significant, especially in an emergency

• Plan for at least 10% construction cost each year

• $1800 per year

Interest

• Include interest on total money invested

• In this example, assume an interest payment of 7% times $20,000 investment= $1400

Enterprise Budgets:

• Determine profitability of one enterprise versus another.

• Understand breakeven cost and pricing points for that enterprise

• Understand input structure such as labor inputs, shelf space pricing structure, raw material inputs, fixed equipment cost per dollar returned.

• Plan crop rotation schedules and product mix

ProfitProfit

Enterprise BudgetEnterprise Budget

Variable CostsVariable Costs

Fixed CostsFixed Costs

Price Price (Revenue)(Revenue)

Contribution

Break-even

Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and ManagementCornell University

Revenue

• Price x Units Sold= Gross Revenue

ITEM UNIT QUANTITY PRICE TOTAL

GROSS INCOMEBEDDING PLANTS FLATS 3040 $12.00 36,480.00$ -$ TOTAL GROSS INCOME 36,480.00$

Variable costsVariable costs: Cost items that vary with production volume.

ITEM UNIT QUANTITY PRICE TOTAL PER PIECEPercentGROSS INCOMEVARIABLE COSTSSOIL MIX 3.8 cu ft bags 58 $19.35 1,122.30$ 0.37$ 3.7%PLUGS FLATS 3040 $3.25 9,880.00$ 3.25$ 32.8%FLATS FLATS 3040 $0.51 1,550.40$ 0.51$ 5.1%INSERTS FLATS 3040 $0.27 820.80$ 0.27$ 2.7%PLASTIC COLOR TAGS PACK 16,500 $0.02 330.00$ 0.11$ 1.1%20-20-20 All Purpose 25# BAG 11 $21.00 231.00$ 0.08$ 0.8%LIQUID FEED NUTRIENTS POUND 50 $1.00 50.00$ 0.02$ 0.2%PLASTIC COVER (40'X100'-2LAYERS-$640/3YRS)YEAR 1 $213.00 $213.00 0.07$ 0.7%BANROT POUND 4 $31.00 124.00$ 0.04$ 0.4%INSECTICIDES, MITICIDES n/a 1 $182.57 $182.57 0.06$ 0.6%HEATING FUEL GALLON 800 $3.15 $2,520.00 0.83$ 8.4%UTILITIES (ELEC. ) MONTH 4 $100.00 $400.00 0.13$ 1.3%HAULING FLATS 2100 $0.20 $420.00 0.14$ 1.4%LABOR HOURS 600 $9.50 5,700.00$ 1.88$ 18.9%

-$

INTEREST ON OPERATING CAPITAL 1 6.5% 765.18$ 0.25$ 2.5%TOTAL VARIABLE COSTS LISTED ABOVE 24,309.25$ 8.00$ 80.6%NET INCOME OVER VARIABLE COSTS LISTED ABOVE 12,170.75$

Fixed Cost: (Overhead) Expenses that do not vary with level of production

GREENHOUSE BEDDING PLANTS PER ACRE FOR YEAR 2008ITEM UNIT QUANTITY PRICE TOTAL PER PIECEPercent Depreciation 1,600.00$ 0.53$ 5.3%Interest on Fixed Cost 1,400.00$ 0.46$ 4.6%Insurance 600.00$ 0.20$ 2.0%Repairs 1,800.00$ 0.59$ 6.0%Taxes $400.00 0.13$ 1.3%LAND CHARGE ACRE 1 $50.00 $50.00 0.02$ 0.2%TOTAL FIXED COST LISTED ABOVE $5,850.00 1.92$ 19.4%

Net Profit: Revenue-Variable Cost-Fixed Cost

NET INCOME ABOVE VARIABLE AND YIELDS 9.00$ 12.00$ 15.00$ FIXED COSTS LISTED ABOVE FOR 2280 (9,639.25)$ (2,799.25)$ 4,040.75$ VARIOUS YIELDS AND PRICES 2700 (5,859.25)$ 2,240.75$ 10,340.75$

3040 (2,799.25)$ 6,320.75$ 15,440.75$

Break Even AnalysisBreak Even Analysis

Unit Costs ($) ==Fixed Costs ($) Variable Costs ($)+

Units Produced (lbs, dozens, bag)

Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and ManagementCornell University

Breakeven AnalysisVariable Costs per Unit Sold $24,309 / 3040 = $7.99 Consider discontinue if

below this number

Overhead Costs per Unit Sold $5850 / 3040 = $1.92 Need to cover this number

Total Cost per Unit $30,159/ 3040 = 9.91

$7.99 + $1.92 = $9.91

Breakeven price

Profit per Unit Sold $ 12.00- 9.91 = $2.09 Profit factor

Slide Adapted from: Dr. Wen-fei Uva Department of Applied Economics and Management Cornell University

Remember good financial management can help avoid surprises…

Remember good financial management can help avoid surprises…

http://aede.ag.ohio-state.edu/people/moore.301/index.htm

So get ready, hold on and enjoy the ride. The trying is half the fun.

And after all the hard work, you get to reap the benefit of your efforts!

The End