Knowledge Exchange Partner
2022 Outlook for the Green Industry
Volume 16, Issue 3
2022 Outlook for the Green Industry
Written by Dr. Charlie Hall, Texas A&M University
As in other agricultural sectors, widespread labor shortages are continuing to hamper the ability of green industry companies to capitalize on the surge in lawn and garden spending that is expanding as the country continues to recover from the devastating COVID-19 pandemic, though it’s clear the labor markets will not return to the way they were before the pandemic. The retirement of baby boomers, lingering challenges associated with the pandemic for women in the workforce and career revaluation among many younger workers are driving a long-term structural shift in the labor market that is affecting all sectors of the economy, including the green industry.
Employers are wooing workers with improved pay, flexible work arrangements, access to state-of-the-art technology, and better employee perquisites overall, and these changes are just the beginning of what is a significant shift in the workforce. Firms across the green industry continue to find themselves on the challenging end of the labor issue as they try to figure out how to navigate the shocks unleashed by the pandemic.
Nonetheless, consumer spending has been strong and continues to expand at a robust pace, and this has increased pressure on the supply chain and exacerbated inflation. The surge in goods spending, which has helped lift the economy out of the depths of the pandemic recession, now appears to be retreating and giving way to a faster pace of spending on services. That noted, the increase in services spending will likely not be enough to keep overall consumer spending growing at the rapid rates seen recently, as the impact of government stimulus dwindles.
The pervasive supply chain wrinkles that have been hampering many parts of the economy are likely to continue to be ironed out over the course of 2022. One silver lining of the moderation in consumer goods spending is that a thinning flow of goods will help alleviate port congestion and jammed distribution channels. Furthermore, the growing deployment of COVID treatments and vaccines should help reduce unplanned factory closures and port disruptions within the major trading partners of the United States. Keeping this in mind, green industry supply chains should be functioning closer to normal by late 2022.
Inflation on goods has been the primary contributor to the historically high rates of inflation experienced this year and will likely remain at elevated levels through mid-to-late 2022. The unwinding of the Fed's asset purchases, known as “quantitative easing,” which was widely expected, will likely support modestly higher long-term interest rates in coming years and the Fed has already signaled several rate hikes may be coming this year.
In the Index of Prices Paid by Growers, I estimate that grower input costs increased 8.8% in 2021 and currently forecast another 4.7% in 2022. Inflationary pressures should start to subside around the fourth quarter as many of the supply side issues wrinkling the green industry supply chain begin to get ironed out. While rising input costs won’t likely subside until 2023, there has been less price sensitivity throughout the retail and landscape portion of the supply chain and growers across the industry have been able to raise prices and increase their working capital. With the additional cash flow, firms have either paid down debt, invested in CAPEX or increased inventory (if they could source the inputs). This build-up in inventory will inevitably lead to future surpluses of certain plant material, however this bell-whip effect will not likely occur until 2023 or beyond. In the interim, firms should focus on the experience, convenience and other elements of their value proposition to warrant the higher prices throughout the supply chain.
The next two years will likely bring more merger and acquisition activity since venture capital firms are starting to show interest in the industry again. More B2B vertical coordination tools will be used with more standing orders, increased lead times, greater use of web shops and online platforms, and more virtual sales contacts/demos. Strengthening vendor and customer relationships will be even more critical. Innovation will lead to alternatives to plastics and a more sustainable mindset throughout the supply chain (e.g., less weight, less waste, lower carbon footprint). E-commerce applications will expand, and the use of technology will continue to disrupt (e.g., artificial intelligence applications, order management, personalization, warehouse automation, and big data analytics).
Bolstered consumer demand will likely continue this year and into 2023, though there may be a short-term constriction in customer palette in that certain plants will be in short supply. There may even be fewer new plant introductions in the near term. Numerous firm-level marketing efforts are underway and now is the time to emphasize plant benefits and sustainability initiatives in marketing programs.
There is one question that I cannot answer, however, and that is: Will consumers continue to spend on lawn and garden products and services at the same elevated rate as they have during the pandemic? Historically, their “consumption” has retreated to trend levels as the industry not been successful in retaining many of the new consumers that engaged in gardening and landscaping when they stayed at home more during periods of downturns (or now pandemics). While there has been greater emphasis on the health and well-being benefits of plants, the jury is still out as to whether we have moved the needle in getting them to view the industry as “essential” and something they need in their lives daily.
Editor: Chris Laughton
Contributors: Dr. Charlie Hall and Chris Laughton
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