OLMIS

by Pat O'Connor
Published Jul-23-2012

Employment has Seasonal Pattern Production Value Approximated $1 Billion - Then Fell Large Operations, Out-of-State Buyers Dominate Sales Christmas Trees Opportunities and Challenges Future Green Shoots

Oregon's nursery industry began before Oregon was even a state. The industry dates back to the time when pioneers used the Oregon Trail to come and live in the Oregon Territory. In 1847 Henderson Luelling and his family arrived in Oregon with a wagon load of over 500 young plants, trees, and seeds. The family settled in what is now the city of Milwaukie, near what is now the Waverly Country Club. The following year, William Meek, a neighbor of the Luellings back in Iowa, brought another 20 varieties of grafted trees to Oregon and the two men formed Luelling and Meek Nursery, the first nursery of grafted plant material on the Pacific Coast. Within a few years the company had more than 60 varieties of trees for sale.

Word quickly spread that the Willamette Valley was a wonderful place for agriculture, with rich soil, moderate weather, and plenty of rainfall. The market was quite local for the pioneers of Oregon's nursery industry, but homesteaders and miners in California provided a lucrative market for early nurseries.

In the 1880s, the nursery industry's importance in Oregon was further solidified with the founding of the horticulture department at Oregon Agricultural College in Corvallis.

By the early 1900s, the state's nursery industry had grown to about 1,000 acres with a crop value of more than $150,000. Over the next decade the acreage more than doubled and the crop value topped $1 million for the first time.

Growth has continued in Oregon's nursery industry during the past century. In 2010, the crop value of Oregon's greenhouse and nursery products topped $676 million; it is the largest commodity in Oregon agriculture by $173 million. However, this was a large drop from the pre-recession high of more than $1 billion in 2006 - a drop of 35 percent over the four-year period. Oregon's nursery industry is the second largest in the U.S., second only to California. Oregon produces 18 percent of the nation's nursery crops.

The United States Department of Agriculture (USDA) conducted a survey of Oregon's nursery and greenhouse operations in 2010. That survey found 1,800 nursery and greenhouse operations in Oregon - down from the pre-recession high of 2,100 in 2007. Oregon Employment Department (OED) records counted 487 firms in the "greenhouse and nursery production" industry. The industry includes business establishments engaged in growing nursery and floriculture products under cover or in open fields and businesses growing short rotation woody trees (e.g., Christmas trees). These 487 firms that report their employment to the OED are covered under the unemployment insurance (UI) program, and the discrepancy with the USDA figure is mostly due to the USDA's inclusion of a large number of farms that have no workers covered by unemployment insurance. Many small farms that don't exceed certain payroll thresholds, primarily use farm labor contractors, or almost exclusively employ family members are examples of farms without UI covered workers.

The USDA data estimates that Oregon had 1,000 nursery and greenhouse operations in 2009 with sales of less than $20,000 per year. It also estimated that there were 500 employees (50 full time and 450 seasonal) for these 1,000 nurseries, giving it a ratio of two nurseries per employee.

In 2001, the nursery and floriculture production industry's annual average employment was 10,370 (Graph 1). The monthly employment ranged from a low of 8,615 jobs in January to a high of 11,869 in November. By 2007, which was the peak before the Great Recession, the industry's employment had grown by 21 percent (2,170 jobs) to an annual average of 12,540. The seasonal pattern in the industry remained, with a low of 10,791 jobs in January 2007 and a high of 14,034 jobs in November. The sharp spike in employment that occurs each November is due to Oregon's annual harvest of cut Christmas trees. By 2010, employment dropped 24 percent from the 2007 peak to 9,545 jobs. Employment numbers in 2011 show a continued slide in employment, declining to 9,092 jobs, the lowest annual employment the industry has experienced since the employment series began in 2001.

As mentioned earlier, not all nursery operations employ workers covered under the unemployment insurance program. A 2010 USDA survey found that Oregon's nursery industry employed 20,600 in 2009: 9,500 full-time workers and 11,100 seasonal workers. According to the survey, the average wage per worker was $14,016. OED's 2011 payroll data showed an average annual wage of $25,822 for nursery employees that are covered under UI.

Oregon's nursery industry is concentrated in the northern Willamette Valley. The top five producing counties - Clackamas, Marion, Lane, Washington, and Yamhill - account for 85 percent of the industry's total production. Marion County is the largest producer, and Clackamas County is in second place with Washington County in a close third. However, given the number of growers and acreage in Clackamas, Washington, and Marion counties, any of the three counties could be the number one producer depending on the year.

After adjusting for inflation, gross sales in Oregon's nursery and greenhouse industry showed slight declines in the early 1990s before it recorded 13 straight years of growth from 1994 to 2006 (Graph 2). After peaking with gross sales of $1.04 billion in 2006, sales declined sharply as a result of the severe slowdown in the U.S. housing market. From 2006 to 2010, gross sales dropped 35 percent, which translates into a decline of $369 million from the peak.

More than half of the nursery operations in Oregon had less than $20,000 in gross sales in 2006 (Table 1). Although large in number, these smaller nurseries comprised less than 1 percent of the industry's gross sales. At the other end of the spectrum, the 70 nursery operations with gross sales of more than $2 million generate nearly 70 percent of the industry's total gross sales.

A 2007 survey by the USDA found that nearly three-quarters of Oregon's nursery gross sales are outside of Oregon. Sales in the upper Midwest account for 19 percent of the industry's sales. Our neighbors to the north and south in Washington and California are responsible for nearly 18 percent of the industry's sales. Canada is the only foreign country with a significant share of sales, comprising more than 4 percent. Other foreign countries make up less than 1 percent of the industry's gross sales.

The umbrella definition of "nursery" includes not only nurseries and greenhouses, but also Christmas tree growers. The USDA separates nurseries from Christmas tree growers in its data (OED's data includes it) and this industry is far too large to be overlooked when talking about nurseries.

Christmas tree growers, like nursery and greenhouse growers, have similarly been hit by the Great Recession - but to a lesser extent. The USDA estimates that total sales ($91.1 million) in 2010 were down 17 percent from the 2008 peak and total cut trees (6.41 million) were down by 13 percent.

The dichotomy between tree sales and total dollar sales is due to the declining price of trees. The average price per tree in 2010 was $14.21 - a decrease of $0.80 per tree compared with 2008. This nominal decline in the price of Christmas trees has occurred since 2003 when the average price was $17.06 - $20.03 on an inflation-adjusted basis. (Note: this calculation does not adjust for the age or species of the tree, which can also affect prices.) This translates into a real decline in Christmas tree prices of almost 30 percent over the seven-year period, squeezing profit margins and lowering incentives to plant new trees. This trend is also borne out in the data. In 2003, 9.8 million trees were planted; in 2010, it dropped to 5.6 million, which translates into a 43 percent decline in Christmas tree planting. This trend is predicted to continue. According to the USDA survey, producers intend to plant 5.8 million trees in 2012, which is roughly the same as 2010.

The decline in planting, though, has not led to a significant decline in Christmas tree operations. There were 1,450 Christmas tree operations in Oregon in 2003. The number peaked at close to 1,800 in 2008 and dropped to 1,600 in 2010. Even though the number of operations increased since 2003, the number of large operations (100+ acres which sold 70 percent of all cut Christmas trees in 2010) declined from 95 to 67 in the same period. Smaller operations (1 to 29 acres) increased from 1,170 to 1,350 during the same period.

The issue of sustainability has been a hot topic lately. One of the simplest ways to help the planet and reduce CO² levels is by planting more trees and plants; this could increase demand for Oregon's nursery products. A second opportunity for the industry is technological advancements that could make the industry more competitive. These advancements could control costs by reducing the amount of labor it takes to bring a product to market.

According to Elizabeth Peters of the Oregon Association of Nurseries (OAN), one of the biggest challenges facing the industry will be the availability of a skilled labor force. The nursery industry is labor intensive and depends on a reliable and skilled workforce. The OAN says, "Many farm workers are immigrants, who lack proper authorization to work in the United States. The high incidence of unauthorized workers in the agricultural labor force creates vulnerability, for workers and employers alike, and has the potential to destabilize Oregon's nursery industry." OAN also, "strongly supports passage of federal legislation that would grant immigrant farmworkers the opportunity to obtain legal work status in the United States."

A second challenge for the nursery industry is the nation's transportation system. Transporting Oregon's nursery crops to market, in particular to the upper Midwest and Northeastern states, can be a logistical challenge. Crowded conditions on highway systems in the nation's metropolitan areas, where most customers live, provide a big obstacle for truckers transporting nursery products to market. Delays can be hard on the plants, and truckers may need to provide some care enroute. After all, nursery plants still require water to remain healthy even when being transported across the country.

A third challenge the nursery industry faces is preserving agricultural land. The majority of Oregon's nursery industry is located in the northern Willamette Valley and is near urban areas. The OAN says, "The expansion of Urban Growth Boundaries (UGB) onto prime and unique farmland, a limited resource, should be discouraged and in the event that UGB expansion onto such land occur, added protections should be applied to the area's remaining prime and unique farmland base."

It has been more than 160 years since Henderson Luelling and his family arrived in Oregon to start Oregon's first nursery. We can only wonder if he knew that his nursery would begin what would eventually grow to become a $1 billion-a-year industry in Oregon.

According to the USDA, Oregon had four consecutive years of declining sales in the nursery and greenhouse industry totaling 35 percent losses from its 2006 peak and 17 percent losses in Christmas tree sales from its 2008 peak. However, there are some positives to be seen when reading the (nursery grown) tea leaves.

A good portion of the losses in sales of Christmas trees was not just because of the recession but also from a retaliatory tariff from Mexico in 2009. The USDA estimates that in 2008, the year before the tariff, 1.2 million Christmas trees were sold to Mexico from Oregon. In 2010, that number dropped to 641,000. The tariff was lifted in late 2011 which should raise Christmas tree sales in the future.

Nursery sales (excluding greenhouse and Christmas trees) are highly correlated to new housing construction and road building since many of the new trees and shrubbery on the side of new roads or in the front yard of new houses come from a nursery. Housing starts have been in the doldrums over the past three years as the marketplace digests the glut of houses in the market, but this trend cannot last forever. When housing starts begin to reflect something closer to the long-term trend, nursery sales should also rebound.

A final bit of good news is that exports to other nations have been on a steady rise. Exports of greenhouse, nursery and floriculture production (which include Christmas trees) have risen nine out of the last 10 years to a total of $54.6 million of exports to 38 different countries in 2010. This translates into 133 percent growth in nominal sales over that period. The NAFTA trading partners have taken the lion's share of those exports with over $45 million of exports in 2010.