2022 State of the Industry: Can supply meet demand?
Supply chain issues, rising costs and more - revisiting 2021 provides a glimpse of what’s to come in 2022.
By Greta Chiu
Just when greenhouse operators were becoming more familiar with COVID-related issues, the latter half of 2021 brought about some memorable hurdles that will likely have an impact on 2022 and plans for 2023. From supply chain issues to flooding, here’s where the previous year left off and the new year begins.
Flooding in B.C.
Torrential rainfall followed by flooding and landslides impacted British Columbia’s agriculturally rich areas in mid-November. The resulting road closures led to significant delays in shipments.
As Stan Vander Waal, owner of floriculture producer Rainbow Greenhouses based in Chilliwack, B.C. explains, it’s the Sumas Prairie area just west of Abbotsford where the flooding took place. He estimates that this has happened about five times over the past 25 years, “but this year has just been unbelievable compared to others. We got 10 inches of water in two days.”
Unable to ship the vast majority of the product, his team unpacked 30 trailers’ worth of goods. As roads opened and shut over subsequent weeks due to changing road and environmental conditions, the team shipped as much as possible but was restricted to slower moving routes. On one trip, Vander Waal personally transported a shipment into the Okanagan area, driving at 40 km/h on a 77 km road. “We had many, many late deliveries into the stores.” Routing through the U.S. has been another alternative, but this too has been met with high levels of congestion.
Though strong demand had been forecasted for Christmas, product shortages and delayed deliveries may result in a hit to the bottom line.
“A lot of Lower Mainland farms have been unable to ship to Alberta or further east without leaving Canada,” says Andrew Morse, executive director of Flowers Canada Growers. Many of their members in B.C. were impacted by the washed-out roads, unable to ship product or receive supplies.
“No one is going to know how bad the impact of this will be to the industry for years,” he adds. Not being able to fulfill contracts may have consequences going forward, in addition to potential impacts on insurance coverage, soil health and other areas of production.
With most greenhouse vegetable producers in B.C. cleaning out their facilities near the end of the year, the impact of the floods was mixed. Linda Delli Santi, executive director of BC Greenhouse Growers Association (BCGGA), estimates that four or five of her members were more severely impacted by water damage and flooding in their facilities, but the main impact was in moving product to customers. Roadblocks going eastward led to some producers closing up a few weeks earlier than usual, but normal sales to the U.S. and within the Lower Mainland area were generally fulfilled. Product unable to be delivered east of BC were sold in secondary markets. Sector losses will be in delayed plantings as well as sales and marketing difficulties, she says. Plus, with many living in the valley, labour has also been an issue.
Supplies and pricing
It was around mid-summer that challenges in the supply chain became increasingly apparent. “Especially when it came time for the members to start planning for their 2022 season,” says Delli Santi. “It’s not just costs. It’s delays and availability.”
Even before B.C. was affected by the floods, production costs were rising due to a combination of supply shortages, transportation issues and general inflation. A survey conducted by the BCGGA identified increases in key expenses, which included fertilizer at 28 per cent, cardboard boxes at seven per cent, plastics at 15 per cent, propagative materials at 12 per cent, insurance at 23 per cent, and growing media at 18 per cent.
“The cost of shipping a 20-foot container from China went from being $800 to $1,200 USD per container two years ago, to anywhere from $12,000 to $15,000 USD right now.” With some industries slowed down, still recovering or unable to find enough workers, Delli Santi notes that many transport containers are sitting empty and not being shipped back to their origins, making them unavailable for pick-up of additional supplies offshore, such as fertilizers and plastics.
Already congested ports in Vancouver shut down briefly in December as floods prevented ground transport from reaching and receiving goods.
Plastics and pots for ornamental producers are in particularly short supply, and many items come from off-shore. “Suppliers were booked very early, the demand was higher, and with that you had shortages of resins, increased costs, [and] huge shortages of labour in these factories,” says Vander Waal.
“In general, we’re seeing delays of two to three months. We’ve generally tried to get ahead of this by ordering very much ahead,” he adds. In fact, the operation will be booking hardgoods for 2023 right about now.
For Melhem Sawaya, a long-time greenhouse consultant in Ontario, he’s noticed that the cost of 4-inch pots have gone up from 4 cents to 9 cents. Hanging baskets have risen from 60 cents to 90 cents. “Shipping is the worst one,” he says, which is projected to increase by an average of 30 per cent among his customers. Meanwhile, the minimum wage will be increasing to $15 in Ontario.
“Prices are going up. So for the greenhouse industry, natural gas is a huge concern,” says Albert Cramer, owner of Rolling Acres Greenhouses, Alta. and president of the Alberta Greenhouse Growers’ Association. Electricity costs have greatly risen in the province over the past year as well, increasing by about 15 to 25 per cent. “It’s big for us because we have year-round production now,” he says of their business’ lit acres. “That becomes a huge cost. More so than even natural gas.”
As Cramer notes, there are many gas wells being shut down in Alberta and investments in re-drilling have not appeared. However, greenhouse producers in the province have benefited from very low costs over the past few years at around $2 per GJ. “It could be five dollars [per GJ] as a new normal, and then we would have to adjust to make it work.”
With inflation, all of the supplies and expenses are coming in higher, he says. “It costs you more to live, too. So theoretically, wages have to go back up again to make up for it.”
Opportunities in Bloom
“There’s great momentum in the industry right now – something that we haven’t seen in years,” says Vander Waal. The demand remained strong for hanging baskets, potted plants and garden products. “Our retailers closed off the year with an excellent spring season.
“The one thing that didn’t go as well as we had hoped was vegetables,” he adds. They had anticipated far greater demand than what was actually sold. “All of our buyers were saying we’ll need more vegetables than ever before.” But in the end, they found they had grown too many. “Consumers were worried from the year before where [retailers] ran out of seeds, and they were buying them en masse,” he says. With seeds already planted, consumers may not have needed the starter plants as much.
While foliage plants remained strong, interest seems to be levelling off. Looking at BC floriculture in particular, he sees an abundance of opportunity for the cut flower market, particularly as product levels arriving from South America remain lower on average.
For spring 2022, Vander Waal anticipates strong demand once again, including for potted crops, but costs and supplies will be an issue.
In Ontario, Morse who also serves as executive director of provincial association Flowers Canada (Ontario) Inc., reported sustained growth and export throughout 2021. According to his report presented at the organization’s annual general meeting in December 2021, “Ontario exported over $353 million in flowers and plants in 2020 – a modest jump from 341 million in 2019, an increase of 31 per cent since 2016. That’s really remarkable considering how the beginning of 2020 started and the impact that it had on members.”
However, the past year wasn’t rosy for all producers. During the AGM, Morse noted that there were “changes in what businesses and activities were considered essential, resulting in some members again, seeing lost sales opportunities through the spring season.”
With many member relying on access to the U.S. markets, the FCO team placed much of their efforts on keeping product moving across the border, working with the CFIA to address ongoing delays and to come up with solutions to common challenges.
“One major barrier to this has been the ongoing transition to the new GCP training program,” said Morse, who explained that it is the most critical trade program currently affecting their members. “Despite the value of the program, many members have struggled with the time crunch to change over operations and get approved for the new program deadline.” So far, their online GCP training program has seen success, with over 320 users across Canada and in the U.S. “Our standardized modules have become widely adopted and CFIA now recognizes them when they get submitted.” Over the past year, they’ve continued to address changes in policy around pests, including strawberry blossom weevil, box tree moth, and Ralstonia, to name a few.
Because of the rising costs of supplies, shipping and production, Rainbow Greenhouses has increased their prices by 10 per cent, which will likely be passed onto the consumer. “We know that has a volume impact,” Vander Waal says. There’s no question in his mind that there will be additional price increases for the 2023 season, but he hopes that the jump won’t be nearly as high.
“People are going to start making decisions [about] what they want from the dollar that they spend at the garden centre,” he says. Ensuring a value-add component as well as high quality products can help make them more appealing to the consumer.
“Consumers are really not scared off by the higher prices,” he says, particularly if there can be good value added. However, this proposition may be more applicable to the Western Canadian consumer. “When we move more eastward, we see that moderates a little bit. Particularly when we get into our Manitoba marketplace, we start seeing a little bit of softening [in] the amount of money a consumer would offer for a specific value-added product.”
While Rainbow Greenhouses usually aims to increase their unit growth by 10 per cent in an average year, Vander Waal says they’re simply hoping for a two to three per cent growth this coming year as the consumer adjusts to cost increases.
“As a business owner, the critical part is to make sure that we’re not afraid to raise those prices to match the costs,” says Vander Waal. Their price increase will simply help them cover their own costs and won’t be adding to their bottom line.
“It’s not easy to go to your customer and say, ‘I’ve done the math and I need 10 per cent more.’ That’s a tough discussion. But if you can go in there with a full account of what you’re seeing driving those costs…? You can get it.” Because of widespread supply chain issues, he felt that both sides were more open to pricing discussions compared to other years when the ask was almost 10 times less.
“As growers, we’re often afraid that when we raise the price too much, we might not be able to sell everything… or that’s going to make it too expensive.” He likens it to the rise in costs at coffee chains where consumers continue to pay for the product because they enjoy it.
“As growers we have to believe in our product, too. Don’t try to take the product down in spec to meet that low price point. Go the opposite way. You’re better off to sell fewer units at a higher dollar than you are to sell more product.”
Swings in produce markets
Pricing-wise, Cramer says prices for their own greenhouse’s vegetable products have remained fairly stable in Alberta. “If anything good can come out the pandemic, it’s that everybody looks a little bit closer to local. [A lot of] what we produce is staying in our area.” That, as it turns out, is good for logistics, as trucking product from outside of Canada has become a growing issue. Last winter, they had a tough time sourcing from Mexico, citing delays at the border.
For greenhouse vegetable producers in Ontario, 2021 was generally trickier compared to the year before. As Glen Snoek, marketing and economic policy analyst at Ontario Greenhouse Vegetable Growers (OGVG) explains, 2020 saw an estimated 30 per cent bump in retail sales for greenhouse vegetables, likely due to the transition away from food service. “That did not repeat as much this year although we still saw some fairly decent pricing at times, and volumes held up fairly well,” he says.
“We saw some increase in exports from Mexico into Canada in the latter part of the summer this year. And that was primarily due to some disease pressure issues that the sector was having at the time, especially with tomatoes.” As restaurants reopened in Canada and the U.S., produce swayed back towards food service and the varieties that cater to those uses. As a result, some growers had a rougher year in 2021.
Peppers seemed to finish the year at an acceptable price albeit a rough patch in the summer. Some growers were hit hard by the heat, leading to smaller sizes and lower yields. “There was some relatively strong pricing for larger calibre peppers, but that’s because no one had any for the better part of two months…the plants were dropping blossoms and it was just a real struggle for pepper growers at the latter part of August,” says Snoek.
In 2021, cucumbers displayed a volatility that the markets had never seen before. Pricing started at levels much lower than they were historically before ramping up, plateauing and then unfortunately plummeting. Snoek calls it the ‘bullwhip effect,’ where retailers tried their best to estimate quantities for orders, but when consumers started eating out more often, the retail demand suddenly dropped and grocers were left with too much product. This, in turn, likely lowered retail order volumes and the rest of the supply chain reacted accordingly. “It was a very unpredictable market this year,” he observes.
As for supply chain issues, OGVG and fresh produce experts don’t foresee the situation changing for the better in 2022. There will likely remain another year of strong increases in input cost pressures. “I hope I’m wrong,” Snoek says, but even if things start flowing now, it will likely take anywhere from six months to two years to recover from the congestion and recurring ripple effects at the ports. “The BC flood recovery is another wild-card as are trucking dilemmas that threaten cross-border movement. There is much fluidity with a lot of moving pieces.”
Catching up on expansions
Supply chain issues haven’t barred operators from expanding this past year, though rising costs and scarcity in supply are catching up.
Delli Santi knows of a few B.C. growers who initially had plans to build this winter, but have delayed them due to issues in obtaining structural parts arriving from Europe.
Rainbow Greenhouses was able to expand by 10 acres in B.C. and by another 15 acres in Alberta in 2021, albeit some slowdowns around COVID. This year, they’re working on a new 15-acre block set to come online for the 2023 season. “The cost of this facility is close to 20 per cent over previous builds,” Vander Waal says. “I wouldn’t be surprised, if I were pricing now, to find that it could be considerably higher than that.”
In Ontario, Snoek has noted an acceleration in new vegetable acreage over the past couple years, with a 10 per cent increase in 2021 over the previous year. “It was a sizeable amount. Historically, we increase about five to six per cent a year,” says Snoek. He surmises that they’re now seeing builds which were planned four or five years ago, likely delayed initially by cannabis via shortages in building material and construction crews.
“A huge portion of the new builds are lighted acres,” he adds.
The province currently sits at 630 lit acres and with this continued growth comes new possibilities, says Joe Sbrocchi, OGVG Executive Director. “We’re seeing a lot of staggered production. Some replants occur in August or September or even earlier, taking advantage of more suitable market conditions, not having to compete with the field growers, and then the ability to stagger sizes throughout the year …so you can meet all size requirements. Growers are finding ways to make it economical and are finding markets to make it worthwhile.”
“For many, many years, the only lit crops we had were tomatoes. This growth over the last couple of years is in large part due to the increase in cucumbers. We do have some growers experimenting with peppers, but that’s still [in the] very early stages,” says Snoek.
Looking ahead to 2022, OGVG encourages retailers not to look at their previous year or promotional activities, but to work directly with marketers to set prices appropriate for the sector.
“I’m optimistic that the growth in the American market and on the retail side outside of our traditional stomping grounds will continue. I’m hopeful that both has enough to absorb the increase in acreage that we’re seeing, so that pricing remains reasonable for growers,” says George Gilvesy, OGVG Chair.
Editor’s note: This article was written near the beginning of Dec 2021 and published in the 2022 Jan edition of Greenhouse Canada.