The costs of purchasing trees are on the rise. I spoke with a grower to learn firsthand about his costs of growing trees. I hoped to gain an understanding of his need to increase prices. This is a small family farm that we have been purchasing trees from for over 30 years. Following are just a few of the surprising things that I learned from the conversation we had:
- Overall, all of his trees over 7 ft. are still priced the same as 2005.
- Wages have risen $3.00 per hour since 2005.
- The Affordable Health Care Act increased their insurance premiums $5000 per year.
- Operating costs, such as fuel, chemicals, and fertilizer have continually increased substantially. For example, the cost of diesel was below $2.00 per gallon in 2005, and has risen as high as $4.00 per gallon in recent years. Over the 7 to 9 years that it takes to grow a tree, that is a considerable expense.
- Goods such as supplies, tree tags and top tie tape have also increased substantially.
- Seedlings have gone up 50% from 30 cents to 45 cents, if you can find them.
- Farm Insurance has risen.
- As trees grow and use minerals out of the ground, they need to be added back after a couple of rotations. The cost of lime rose from $120 per ton to $230 per ton in one year. To keep the trees in the healthy condition that his customers expect from him, he also adds potassium, phosphorous preplant, root dip, and nitrogen fertilizer. The cost of new pre-plant fertilizer alone increased $2000 on top of the already $5000 annual bill.
- Maintenance and repair of equipment costs continually increase. For example, an unexpected but necessary $11,000 repair bill on a tractor occurred this month.
- The Pacific Northwest Tree Association imposed a mandatory 15 cent fee for every tree harvested, to advertise and promote the value of real trees verses artificial, which amounted to a $1500 expense to the grower.
- Bookkeeping costs for payroll, etc., have risen over 40%.
The grower also explained that in the last few years over 1/3 of tree farms in the Pacific Northwest have gone out of business. This was because of the steady increases in costs, and not having the ability to sell their trees at a high enough price to cover those costs.
I also spoke with a retailer in Southern California. He has built a successful retail business lasting over 30 years. Top quality trees topped with excellent service is the business plan. He know his customers and finds the ways to meet their needs. “None of our customers NEED Christmas trees however, all of us NEED our customers to be successful”.
Having been through these up and down price cycles before, he plans on sticking around. He will stay with his normal proven business plan, and focus on meeting his customer’s needs. Lowering the markup on trees will be necessary to avoid having to “stick it” to his customers with a disproportionate sudden price spike . “Raising retail prices too fast would be detrimental to the industry. It would encourage some customers to switch to an artificial tree. Some may abandon their tradition of kicking off the Holiday Season with the family trip to the local tree lot altogether, and buy their tree from the big box retailer down the road”.
Home Depot and Lowes are his 2 closest competitors. They sold trees at his cost for several years. This forced him to lower his markup. In addition the costs of goods such as stands, flock, etc. has risen significantly. Also, competition from wholesale Christmas tree accessory suppliers has forced him to lower it.
In the long run, by keeping his customers loyal and happy he will again survive this cycle of rising costs. The farms will be able to sustain themselves. The laws of supply and demand will determine what the market will bear. Eventually, the supply will again exceed the demand. A new buyer’s market will born.