2021-08-23

Rising raw material prices in horticultural production with stagnating sales prices

Rising raw material prices in horticultural production with stagnating sales prices
 
Author:
Managing Director Media Concept Schweiz AG

Which plant producer has not complained about "bad prices" in the last decades. In fact, our industry has a slight trend towards overproduction and sales problems. No sooner is a product innovative and interesting than a year later there is too much supply and falling prices. This cycle is regulated by the market. Now many production companies are confronted with a new problem - massive price increases for raw material. We take a closer look at this problem.

In Europe, there are no comprehensive studies on this topic, but figures have been published in the USA, according to which the costs for horticultural production in 2020 were about 32 % higher than in 2007. If one adds the increased costs for wages, the total increase is even 46.3 %.

As everyone knows, the prices for plants have not increased as much in the same period. For example, most core items have remained unchanged in terms of wholesale prices during this period. Pelargoniums zonale in a 12 cm pot or garden hydrangeas in a 5-litre pot cost approx. 1.99 € / piece in 2007 in a promotional sale and a hydrangea 24.99 € respectively and both still had approximately the same price in 2020.

Wholesale and retail prices for some core products have already been almost unchanged for many years 
Wholesale and retail prices for some core products have already been almost unchanged for many years

The year 2021 is a turning point for production companies. Prices for plastics (pots, trays) have risen by up to 30 % in recent months. The costs for substrates, transport, etc. are following. By what percentage do each costs influence the total selling price of the product? Here are some guidelines:

Pots 6.5 %
Substrate 2.5 %
Young plants 15 %
Fertiliser/plant protection 2 %
Wages 22 %
Energy 2.5 %
Machinery 2 %
Transport 11 %

These values vary greatly from producer to producer, but they show the impact that cost increases can have on a company's margin.

Young plants represent approx. 15 % of the total costs of production. Whether injection moulded or deep-drawn pots - the prices for plastic pots have increased between 15 % and 30 % in 2021. 
Young plants represent approx. 15 % of the total costs of production.
Whether injection moulded or deep-drawn pots - the prices for plastic pots have increased between 15 % and 30 % in 2021.

Now the hope remains that the increased demand will also open up the possibility for horticultural production companies to increase sales prices. In general, there are two factors that support stable sales prices:
- Special genetics (e.g. garland hydrangea Runaway Bride).
- Special marketing (e.g. Pink Kisses perennial carnation).

A special brand campaign, which has been running for about six years now, has made 'Pink Kisses' a product with stable prices. Even at discounters the prices are adequate and the breeder selectaONE sells millions of young plants year after year.
The long supply period from March to October also contributes to the year-round market presence.

An eye-catching logo and a very good advertising campaign – Pink Kisses by selectaONE 
An eye-catching logo and a very good advertising campaign – Pink Kisses by selectaONE

The members of the Media Concept Group network would be pleased to discuss with you ranges and concepts that will strengthen your positioning and enable sustainable product sales with higher margins.

Source: AmericanHort

 

Author:
Robert Wacker
Managing Director Media Concept Schweiz AG
Robert Wacker has been working in the green industry since 1980. For 20 years, he has been developing marketing and sales concepts for breeders, producers and retailers. As Managing Director of Media Concept Schweiz AG, he regularly writes articles for this blog.