Managing Production Risks in the Nursery

Managing Production Risksin the NurseryUrsula SchuchTrent TeegerstromSchool of Plant Sciences Ag Economics DepartmentUniversity of ArizonaTucson, AZ 85721USDA Outreach Program

Risk Management• Finance• Marketing• Human resources• Legal• ProductionWhich risks are most relevant in your nursery?

Labor accounts for 30-60% of production costs in agriculture.Estimated cost to replace an hourlyworker is $1,000 – 3,000.Human Resources

Costs for replacing a worker• Lost productivity until replacement is found• Co-workers taking on extra work• Advertising and recruitment• Training new employee• 2 months on average for full productivity• Ex.: $2,288 turnover for a worker @ $9.50/hhttp://www.uwex.edu/ces/cced/economies/turn.cfm#calcHow much does you employee turnover cost?Univ. of WI, Center for Community and Economic Development

Nursery workforce is diverse• 70% Hispanic• < 25% understand English• 66% not trained, have interest in training• Half of laborers leave a nursery after 5 years• 5% stay with same nursery after 10 years• Training can improve retention of workers• English fluency, benefits, salary, accidents aregreatest concerns of workers(Mathers 2003; Mathers et al., 2010)

Ag Help Wanted – Guidelines forManaging Agricultural Labor• Tools and tips for dealing with staffing,supervising, managing employeeperformance, improving communication,problem solving($25 paper, web free)• Rosenberg et al., 2002• www.AgHelpWanted.org

Mechanization or automation is more prevalent• in greenhouse only operations compared tonurseries• in nurseries on larger acreage• in operations with gross sales > $250,000• in nurseries that used computers to scheduleproductionResults from a survey of operations of the Northern Gulf of Mexico states (2004-05)Project: Enhancing labor performance of the green industry(http://coastal.msstate.edu/nurseryautomation.html)

Survey results from seven Southern states from nursery andnursery/greenhouse operations (2003-2008, n=137)Task Performed manually in %of operations surveyedContainer filling 47Plant placed in containers 69Moving containers from pottingarea to transport vehiclesTransport containers to field 36Placed containers in field 75Spaced containers 80Plant pruning, pesticideapplicationFertilizer application 69Irrigation 226140

Mechanization• Mechanization = replacement of human tasks withmachines• Automation = Use of several mechanized systems ina facilityMechanization resulted in:• Increased efficiency• Improved workers earnings• Did not result in worker displacement• Resulted in higher sales

Conveyer belts for moving potted plants

Green Elf ® battery powered dispenser301 Series fine grain materials (herbicides, 0.1 – 5.5 g)501 Series controlled release or slow release fertilizer (2.5 - 78 g)Automated use for mounting on potting machines50% or more reduction in labor time22,000 – 30,000 pots a dayCost ~ $1,900

• Robots to space potsMechanization– Work in greenhouse, hoop house, nursery– Space, collect, re-space, consolidate pots– works in teams with human workers– Moves 200-300 containers per hour– Cost $25,000, estimated payback time within 12-24 months

Systems improvements• Inventory management for productionplanning and forecasting• ERP Software for instant access by manyemployees– Enterprise resource planning (ERP) integratesfinancial, manufacturing, sales, HR,

Ag. & Resource Economics Dept.and School of Plant SciencesCollege of Tropical Agricultureand Human ResourcesUniversity of Hawaii at ManoaNursery Cost/Profit EstimatorHow much does it cost to produce liners?Is a plant more profitable to sell as #2 or #5?How long should I keep plants that don’t sell?What is my overhead cost $/squ. ft/week?- for outdoor, greenhouse, shade house

This sheet summarizes all the results of the template.The first part lists (1) each product, (2) the expected sales price (enter price onthis page), (3) cost estimated by the spreadsheet, and (4) the expected profit.

Many nurseries purchaseproducts from othergrowers. The second partallows you to comparebuying a product againstgrowing it.Black = growRed = buy

Green = dataThe first part asks for information from your map.“% open” = the amount of space that is typically empty at any given time.Our aim = find the “working” space or square footage that actually earnsrevenue.

• names of the stock plants• area usedStock Plants sheet• total unused space in the stock plant area• number of units produced annually. units - appropriate for thatplant

Analysis and Comp(arison) sheetCollects information from other worksheets and summarizes to get the totalcost per unit for each plant.Calculates the expected profit for the sales price we enter.

• Risk Management website Univ. of Arizonahttp://ag.arizona.edu/extension/riskmanagement/managing_finance_risk/index.htmlOrder form for spreadsheet: ($50)http://ag.arizona.edu/extension/riskmanagement/managing_finance_risk/nurserysoftwarepurchaseform.pdf

Risk Management Agency:Nursery Insurance ProductsUSDA Outreach Program

Why buy insurance for nursery crops?• Manage risk of nursery crops– Perishable– Weather– Marketing risk– Production risks

Products for Nurseries• Nursery Insurance• Adjusted Gross Revenue (AGR)• AGR-Lite• Nursery insurance available nationwide• AGR and AGR Lite differs by state and county

Nursery Crop Insurance• Complex crop insurance program• Asset based - doesn’t guarantee yield or minimumamount of revenue• For wholesale nurseries (wholesale revenues >retail revenues)• Amount of insurance provided is based on reportedPlant Inventory Value (PIVR)• > 20,500 plants on the RMA Eligible Plant List andRMA Plant Price Schedule with > 500,000 plantprices

Determine PlantInventory ValueComputepaymentDecide on coverage levelHowNurseryInsuranceWorksDeterminedeductibleDetermine amount of loss

Adjusted Gross Revenue (AGR)and AGR-Lite for Nurseries+ Whole-farm revenue insurance product+ Insurable Causes of Loss:* Revenue loss from natural causes (yield loss)* Revenue loss from market fluctuation (price drop)+ Stand alone or in addition to other coverage+ Average annual adjusted gross revenue less than$2,051,282 (AGR-Lite)+ Non-traditional coverage -- tax year

Premium or insurance cost to producer ishighly subsidized by governmentCoverageLevel*65%75%80%GovernmentSubsidy%59%55%48%You pay%41%45%52%* Coverage level = % of eligible revenue that can beinsured

Determine 5 - yearaverage farm revenueAGR revenueguarantee minusactual crop revenue Xpayment rate = losspaidProject 2013 expectedcrop revenueHow AGR &AGR-Lite WorkTaxes filed & possibleclaim calculatedDetermine “adjusted grossrevenue” (AGR)Decide whatpercentage of AGR toguaranteeHarvest: Actualcrop revenuedetermined

Accessing or Getting a Quotewww.rma.usda.gov