Production Costs and Profitability for Selected Greenhouse Grown Annual and Perennial Crops: Partial Enterprise Budgeting and Sensitivity Analysis

Abstract

In recent years, growers in the ornamental horticulture industry have experienced declining revenue and shrinking profit margins due to increased consumer spending captured by wholesale stores bypass, price competition at the retail level, as well as relatively low consumer demand. Maintaining cost-effective production practices is critical for nursery and greenhouse growers to stay profitable. However, a recent trend to impose more restrictive labeling polices on pesticide use (i.e., disclosing the use of neonicotinoids) may impact growers’ already tightening production costs. A better understanding of the cost structure and production decision-making can provide insights for profitable operation. Using a partial enterprise budgeting approach, this research aims to evaluate production costs and profitability for 20 individual greenhouse annual and perennial crop production systems. Three primary economic performance indicators (net income, gross margin, and profit margin) were calculated and a sensitivity analysis was conducted to account for potential risks in production. Our results suggest that production costs vary significantly among different crops, thus implying that producers may have different profitability levels depending on the combination of crops grown. Our partial enterprise budgeting estimates serve as a reference point and can assist producers with reducing costs in specific areas, and aids in selecting and adjusting crop combinations to maximize potential profits. Sensitivity analysis scenarios provide insights to producers for evaluation of their entire operations and aid in making decisions on adopting alternative practices.