March 2016 Newsletter

March 2016 Newsletter

Green Express Spring 2016

As I sit at my desk penning this update, I take note of the fact that the concept of spring is an interesting one in The Pacific Northwest. Cold east winds, rain, and hail are probably my main reminders that spring is in the air; not surprisingly, many people head for warmer climates even during this time of year. Having said all of that, I still must say that spring in this part of the country has its share of very special, uniquely Oregon, beautiful moments. Kind of an arcane, esoteric realization, yet a little secret that most Oregonians know beyond a doubt…

While some things retain a sense of “quasi normal,” expected, and somewhat predictable like spring weather in Oregon, our industry is certainly now in the throes of the “abnormal” with major change and evolving dynamics. In many ways it reminds me a little of what is happening in our unprecedented, yet fascinating political environment. I know that it may seem odd to compare the Christmas tree industry with the national political environment yet bear with me, as I believe that I can make a strong case for some parallel themes.

By this point in time, we have all heard pundit after pundit initially tell us that Donald Trump was a flash in the pan who would fade in popularity with time and then the landscape would return to ways of the recent past. Likewise, many saw no reason to believe that cheap, abundant trees were there for the taking as far as the eye could see. Well, in both cases, conventional wisdom proved to be dead wrong. Donald Trump is here to stay and is the odds on favorite to become the Republican nominee and Christmas trees are now faced with a demand that greatly surpasses supply; this situation looks as though it will be the new normal for the foreseeable future (barriers to entry are truly formidable).

Consider some of these hard realities; it takes six to ten years to grow a “market tree.” Additionally seedlings are in short supply as attrition has occurred within those ranks as well. Smart money now has other (and in many ways more attractive) options such as wine grapes and hazel nuts. In short, Christmas trees are “high risk” comparatively, long term capital intensive, labor intensive, and have a recent track record that displays only a marginal return on investment. A quick turnaround that leads to supply that satisfies current demand is simply not reality.

Returning to my political analogy, I remember the early days of the political campaign when close to twenty prospective candidates filled the stage for the initial Republican debates. They all had lots to say and many reasons as to why they should be the one that gets your respective vote. After a difficult and often bitter process, we are now faced with two gentlemen with a legitimate shot at winning the nomination. At one point in the recent past the Christmas tree industry had many, many players (some with no plan as to whom they would sell their trees!) vying to supply the demand that remained constant and steady despite threats from an aging baby boom generation, artificial trees out of China, and a new generation of millennials who are increasingly difficult to pigeon hole (they don’t seem to need cars!). The number of large scale wholesale Christmas tree operations that operated on 100 plus acres and could boast of one million dollars in sales has been cut in half since 2002. Where there were once many, there are now very few. Excess Supply is a cruel and unmitigated foe as we have discussed in recent updates.

Bernie Sanders and Hillary Clinton see a much different path to prosperity and good times than their Republican counterparts. The opposing parties don’t agree on much, yet where they do agree is that “we the people” will ultimately decide their fate. As a result, there is a willingness and in fact a historical precedence to promise much and worry about the details later. Christmas tree growers have done a great deal of that (worry about the details later) in the recent past as the excess supply of trees predicated that little details like adequate margins, free cash flow that enabled tree maintenance and replanting, and lines of credit that were in force far in advance of Harvest (the time in which credit should be utilized in a healthy environment). The surviving Christmas tree growers buoyed by supply / winds that are now blowing strongly at their collective backs are starting to think like reasonable business people operating in a difficult niche industry rather than overwhelmed farmers awash in excess inventory.

The path has been long and hard and we have learned a great deal. We need to remember the mistakes of the past and work hard to cooperate with our retail partners in a world in which a happy satisfied consumer is our shared goal. Our retailing customers have simply used the forces of supply and demand in a way that dictates that excess supply means abundant choices and lower pricing. Nothing remains the same forever and the very forces that swing the pendulum sharply in one direction often sow the seeds of the correction that often happens in dramatic, startling fashion. As an industry, that is where we are; as for the politicians, I’m not sure where “we the people” stand yet I’m anxious and hopeful.