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Holiday Greenery Enterprise | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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More publications about Holiday Greenery Enterprise from University of Maryland Extension:
SPF-1
Holiday Greenery
Natural Resource Income Opportunities Series
Special Forest
Product Enterprises: A Decorative Product Example INTRODUCTION
For
generations, many forest landowners have supplemented their income by gathering
or cultivating special forest products (SFP) or non‑timber forest
products (NTFP) from forestlands. These
products offer numerous new opportunities for increased income generation for
forest landowners. However, without
adequate planning these enterprises may have risks and may foster economic
growth without assurances that forest resources are managed in a sustainable
fashion. Before
exploring new business opportunities, there is an urgent need to examine the
markets for these products and to integrate these products into forest
stewardship plans. Native Americans
traditionally used plants and plant products for food and medicine, and shared
this knowledge with early settlers. These traditional forest products had
become an integral part of rural economies.
But for the most part, this knowledge has been ignored or forgotten. In the 1990s, there has been a dramatic increase in demand for natural products. Processing and marketing often requires low capital investment, but can employ or give partial support to many at the local level.
MAJOR CATEGORIES OF SPECIAL
FOREST PRODUCTS (SFP’s) Special
forest products (also known as non-timber forest products) are found in nature,
but many times they are cultivated in the forest environment. They are not a
traditional timber product measured in board feet and sold through commercial
timber buyers. Collected or cultivated
in forests, these products are usually harvested on a small‑scale. These products fall within five general
categories: 1) edibles; 2) medicinal and dietary supplements; 3) decorative or
floral products; 4) specialty wood products; and 5) native wild plants. Visit
the special website on special forest products for more information on
producing and marketing these types of products at: www.sfp.forprod.vt.edu/special_fp.htm
. |
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Table 1. NINE-YEAR ENTERPRISE BUDGET for: White
Pine Holiday Wreaths |
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Developed by Dylan H. Jenkins & A. L. Hammett |
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ITEM |
Unit |
Qty |
Price |
Average per year |
Net Present Value |
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GROSS REVENUE (3 year
average for years 7,8,9) |
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sale of wreaths, retail
(16" wreath) |
pieces |
250 |
$ 20.00 |
$ 5,000.00 |
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sale of wreaths, wholesale
(16" wreath) |
pieces |
150 |
$ 6.50 |
$ 975.00 |
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Total Gross Revenue |
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$ 5,975.00 |
$11,259.10 |
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VARIABLE COSTS (3 year
average for years 7,8,9) |
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transportation to market |
miles |
500 |
$ 0.27 |
$ 135.00 |
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packaging (boxes) |
per 25 lb. |
293 |
$ 0.50 |
$ 146.50 |
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labor - tip harvesting |
hours |
63 |
$ 6.00 |
$ 378.00 |
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labor - hauling |
hours |
12.5 |
$ 6.00 |
$ 75.00 |
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equipment maintenance |
hours |
10 |
$ 6.00 |
$ 60.00 |
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wreath rings |
12" ring |
300 |
$ 1.00 |
$ 300.00 |
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bundling wire, 24 gauge,
galvanized steel |
250' roll |
3 |
$ 4.50 |
$ 13.50 |
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advertising costs |
hour |
70 |
$ 6.00 |
$ 420.00 |
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equipment maintenance
costs |
acre |
3 |
$ 70.00 |
$ 210.00 |
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Subtotal Variable Costs
(Years 7,8,9) |
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$(1,738.00) |
$(3,275.03) |
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VARIABLE COSTS (yearly
average for years 1-9) |
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yearly maintenance costs
(stand) |
acre |
3 |
$ 25.00 |
$ 75.00 |
$ 510.13 |
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labor - maintenance
(stand) |
hours |
50 |
$ 6.00 |
$ 300.00 |
$ 2,040.50 |
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Subtotal Variable Costs
(years 1-9) |
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$ (375.00) |
$(2,550.63) |
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Total Variable Costs |
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$(5,825.66) |
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FIXED (1st year
establishment) COSTS |
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building (10-year life) |
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2500 |
10% |
$ 250.00 |
$ 250.00 |
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site preparation costs |
acre |
3 |
$ 100.00 |
$ 300.00 |
$ 300.00 |
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trees (assume 500 trees
per acre @ $45/ acre) |
trees |
3 |
$ 45.00 |
$ 135.00 |
$ 135.00 |
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planting costs |
acre |
3 |
$ 50.00 |
$ 150.00 |
$ 150.00 |
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tools (clippers, etc.) |
pairs |
3 |
$ 25.00 |
$ 75.00 |
$ 75.00 |
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misc. equipment |
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1 |
$ 100.00 |
$ 100.00 |
$ 100.00 |
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Subtotal Fixed Costs
(1st year establishment) |
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$(1,010.00) |
$(1,010.00) |
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FIXED (6th year
establishment) COSTS |
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wreath-making machine
(purchase in year 6) |
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1 |
$ 200.00 |
$ 200.00 |
$ 140.99 |
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storage space (cool box) |
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1 |
$ 250.00 |
$ 250.00 |
$ 176.24 |
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Subtotal Fixed Costs
(6th year establishment) |
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$ (450.00) |
$ (317.23) |
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Total Fixed Costs |
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$(1,327.23) |
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Net present value of
variable and fixed costs |
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$(7,152.89) |
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Net present value of
revenue |
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$11,259.10 |
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Net present value of
revenues minus variable and fixed costs |
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$ 4,106.21 |
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(This assumes a 7% annual
interest rate, a 1% annual inflation rate, and equal revenue/year) |
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Assumptions for
Enterprise Analysis: |
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1 |
All costs and revenues
were averaged over the 3 year production of wreaths |
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2 |
Wreath revenues occurred
in years 7,8,and 9 |
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3 |
All variable costs occur in
years 7,8, and 9, except stand maintenance/labor which occurs every year |
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4 |
The volume of tips
produced were based on a 3-acre white pine plantation |
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5 |
6 pounds of tips are
needed for each wreath. The plantation will produce 4,000lbs tips/acre/year
(x 60% cull rate) |
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6 |
All tips gathered from
landowner's Christmas tree farm. None are purchased. |
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7 |
Calculations do not
account for cost share payments or taxes |
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Tip revenues - The price landowners
receive for their tips depends primarily on who harvests them. Landowners will
receive the most for their tips if they harvest the tips themselves, but must
figure this price against their own cost of labor and transportation costs.
Also, tips must be fresh and free of large stems to receive top dollar. On
average, white pines produce between 10-13 pounds of tips per tree per year,
which translates into 3,000 to 4,000 pounds of tips per acre per year (assuming
trees are planted on a 9’ x 9’ spacing, but only 60 percent of trees have
quality tips). Also, on average, any given tree will only be tipped twice,
hence a “tipping rotation” equals 2 years.
Given
the above assumptions, prices received for tips in the southern Appalachians
averaged $1,000 to $1,400 per acre per tipping rotation or $0.18 per pound
harvested and delivered to the production facility. However, the price may be
as low as $0.04 per pound ($240 to $320 per acre per rotation) for poor quality
tips. Contract prices for buyer-harvested tips from landowner-planted and grown
trees varied between $300 to $450 per acre per tipping rotation, or $0.05 to
$0.08 per pound depending on distance of site from production facility and tree
quality. Contract prices for buyer-harvested tips from buyer-planted trees were
about $100 per acre per tipping rotation, with the landowner keeping the trees
and no further obligations to the tip buyer who planted the trees. From the
above figures, it is obvious that even small variations in site productivity
and price will have a large effect on tip revenue.
Greenery Revenues - Retail prices for wreaths
vary depending on size, decoration, and freshness. Assuming the wreath is
fresh, a simple 16-inch white pine wreath may be sold for $10 to $15. However,
highly decorated 16- to 18-inch wreaths can bring as much as $40. Simple white
pine wreaths may be sold wholesale for about $6 to $7. Retail prices in
Virginia and North Carolina during the 1998 season averaged $0.22/foot (75 foot
white pine rope) and $0.40/foot (75-foot Fraser fir rope).
You
will need to carefully examine the actual cost of running your greenery
business to determine if the enterprise is profitable and sustainable. The
simplest financial analysis tool is the
enterprise budget. You simply add up all the costs of operation for a
typical period of production (in this case 9 years to grow pine trees) and
compare this figure to potential sales (which take place in years 7, 8, and 9).
Table 1 provides an example of a
nine-year enterprise budget for a wreath-making operation in Virginia. This
budget is based on certain assumptions, and your situation may be different.
This layout can be used with any computer spreadsheet program, such as Excel,
Quattro Pro, or Lotus. Calculating net present value can be challenging. For
more information on developing an enterprise budget, ask for a copy of
“Enterprise Budgets in Farm Management Decision-Making (Fact Sheet) 545 from a
Maryland Cooperative Extension county office or from the website www.agnr.umd.edu/ces/pubs.
Cost
will usually be of two types – variable
costs that take place each year, and overhead
or fixed costs such as buildings, equipment, signs, road, long-term
improvements, and other costs, which can be expensed over the number of years
of useful life. Variable costs consist of items such as purchasing wreath
rings, wire, advertising, packaging, and yearly maintenance of the plantation
and can be put directly into an enterprise budget. However, overhead costs such
as constructing a $2,500 shed, may be spread out over 10 years, so only 10
percent of the cost, or $250 would be included in an annual enterprise budget.
Deciding whether establishing a white pine plantation and producing wreaths is a good investment will require a careful consideration of production costs, expected returns, and how much your time is worth. Trees take much longer to grow than traditional crops, and your money will be invested for 9 years in this example. The returns you receive from wreaths in years 7, 8, and 9 will come from trees planted and maintained in year 0. Therefore, the income and costs must be discounted because a dollar received tomorrow is not worth the same as a dollar received today. Whether “a bird in the hand today is worth than two (or even three) in the bush tomorrow” depends on your time preference for money and your risk evaluation.
Net present value (NPV) is used in this enterprise
analysis to take into account the effect of time on the money invested and
revenues received. NPV is similar to “profit.” The use of NPV removes the
effect of inflation on expected returns over costs, and returns are discounted
to the present. An investment with an NPV greater than zero is profitable. In
our example, we assume an interest rate of 7 percent and an inflation rate of 1
percent per year.
The
cash flow analysis breaks a business
down into monthly or yearly increments to assess when additional capital is
required for expenses and when revenues can be expected. Lack of adequate cash
flow is one of the greatest problems with small businesses. For more
information on cash flow analysis, ask for a copy of “Assessing and Improving
Your Farm Cash Flow (Fact Sheet 541) using the same ordering information
provided in the prior paragraph.
In our example, all costs and revenues are averaged over a 3-year period when the operation is producing wreaths. Assumptions on tip volumes are based on a 3-acre white pine plantation. All wreath revenues take place in years in 7, 8, and9 and all variable costs occur in years 7, 8, and 9, except stand maintenance and labor which occur every year. No tips are purchased and the calculations do not account for reimbursements from cost-share programs that may assist with tree planting. Taxes are not considered in this example. The sample enterprise budget could be simplified if you purchased tips each year from a landowner with a pine plantation.
After
developing an enterprise budget you can make the decision to start, abandon, or
alter your idea based on good information.
INFORMATION SOURCES:
A. Publications:
·
Virginia
Department of Forestry. 1998. Forest Products
for the Holidays: The Impact on Virginia’s Economy. High Mountain Ranger
Service Team. 6 pp.
·
Virginia
Department of Forestry. 1999. Forest
Products for the Holidays: The Roping Industry. Virginia Forests. Fall
1999. pp. 7-9.
·
Hammett, T., and D.H. Jenkins. 1999. Non-Timber Forest Products Offer New
Opportunities for Alternative Forest-Bsed Incomes. Forest Landowner's
Manual: 33rd Edition 58(2).
·
A.W.
Hauslohner. 1999. Cash Bough: Money Grows
on White Pine Trees. Virginia Forests. Fall 1999. pp. 10-11.
·
Virginia
Department of Forestry. Tip Your White
Pines: Early Cash Crop. High Mountain Ranger Service Team. Brochure.
·
Yankee
Woodlot. So You Want To Grow Christmas
Trees? University of Maine Bulletin # 7048. March 1999. 2 p.
·
Cercone,
Mark, and William D. Lilley. 1995. Balsam
Fir Tip Gathering. Christmas Tree
Notes – Fact Sheet #1, Bulletin #7011. University of Maine Cooperative
Extension. 4 p.
·
Cercone,
Mark, and William D. Lilley. 1994. Making
Balsam Fir Wreaths. Christmas Tree
Notes – Fact Sheet #2, Bulletin #7012. University of Maine Cooperative
Extension. 4 p.
·
Cercone,
Mark, and William D. Lilley. 1998. Making
Wreaths for Profit. Christmas Tree
Notes – Fact Sheet #3, Bulletin #7013. University of Maine Cooperative
Extension. 2 p.
·
Lilley,
William D. and Vivian J. Holmes. 1991. Growing
a Continuous Supply of Balsam Fir Tip Brush. Christmas Tree Notes – Fact Sheet #4, Bulletin #7089. University of Maine Cooperative
Extension. 4 p.
·
McConnon,
James C. and William D. Lilley. 1993. Marketing
Maine Christmas Wreaths. University of Maine Cooperative Extension Bulletin
# 3019. March 1999. 2 p.
B. Resources:
·
National
Christmas Tree Association, 1000 Executive Parkway, Suite 220, St. Louis, MO
63141-6372. Phone: 314/205-0944 Fax: 314/576-7989. Website: http://www.christree.org/newsite/
. Contacts for individual state associations are available on the website. The
National Christmas Tree Association, and many other state and regional trade
associations will help growers find markets, and learn about the processing and
handling of greenery products.
·
Contact
your local Cooperative Extension office or your state Extension forester for
more information on publications and assistance. A list of state Extension contacts
is available on the website of the USDA Cooperative State, Research, Education,
and Extension Service at http://www.reeusda.gov/1700/statepartners/usa.htm
. By clicking on your state you can access information on local extension
contacts, publications, and other resources.
·
Contact
your state forester for assistance on tree planting. A list of state forest
agency contacts is available on the website http://www.stateforesters.org/SFlist.html
.
C. Examples of greenery
products for sale on the Internet:
www.maine.rr.com/Around_Town/features/christmas98/holiday.asp
– listing of Maine tree farm and wreath companies that have web sites.
MileAway
Farm Christmas Wreaths
R.R.
#1, Box 4965, Lincolnville, ME 04849
(800)
305-0938
http://members.aol.com/mileaway1/wreaths.html
Central
Maine Wreath Company
330
North Avenue
Skohegan
Maine 04976
(800)
342-4076
www.centralmainewreath.com/
Edwards’
Trees and Wreaths
338
Jacobstown-Cookstown Road
Wrightstown,
NJ 08562.
(609)
758-7729.
www.edwardstrees.com/
Wilson’s
Tree Farm
25
Millbrook Road, Putney, Vermont 05346
(802)
387-4409
www.wilsonstreefarm.com/
Sluder
Floral Company
6900
Linville Falls, Hwy.,
Newland,
NC 28657
(800)
438-6047
Carolina
Wreath Company
442
S. Church Street, P.O. Box 4364
Rocky Mount, NC 27803
800-786-5905
D. Authors & Reviewers:
Dylan
H. Jenkins, Extension Associate-Forestry, Virginia Tech
Jonathan
S. Kays, Regional Extension Specialist-Natural Resources, Maryland Cooperative
Extension
A.
L. Hammett, Assistant Professor-Forestry, Virginia Tech
Reviewed by Charlie Conner, Senior Extension Agent and
Christmas Tree Specialist, Smyth County, Virginia Cooperative Extension.
E. Acknowledgements:
Special
thanks to the USDA Forest Service Northeast State and Private Forestry for
providing the funding to develop and print this publication.
Special
thanks to the following persons and organizations for their assistance:
·
Brian
Murphy, Cricket Hill Christmas Tree Farm. New Castle, Virginia
·
Roger
Roberts, Roberts Evergreens. Independence, Virginia
·
Virginia
Department of Forestry, High Mountain Ranger Team. Hillsville, Virginia
·
Milo
Crawford, Chestnut Creek Forestry. Galax, Virginia
University of Maryland Extension programs are open to all citizens without regard to
race, color, gender, disability, religion, age, sexual orientation, marital or parental
status, or national origin.
For more information about this website, please contact Andrew Kling
Last Updated:
November 26, 2012