Nurseries struggle with lagging economy

[February 15, 2010]  PORTLAND, Ore. (AP) -- Like his father, grandfather and great-grandfather, David Niklas feels the quickening of spring as the season ramps up at his wholesale nursery in a farming community south of Portland. Niklas and his workers busily package plants for shipment.

These days, his flowers and vegetable seedlings have fewer places to go, as the housing bubble burst and the state and national economies flatlined.

Just three years after reaching a record high of almost $1 billion in sales, Oregon's nursery industry has plummeted into an historic slump. Nurseries are laying off employees, cutting costs and foregoing new buildings and equipment.

A few, like Niklas' Clackamas Greenhouses, have gone bankrupt.

"The family has poured money into it as we tried to restructure it and make new markets," said Niklas, who had to file bankruptcy after losing almost half his sales when his primary retailer was bought out. "Commercial lenders aren't talking to me because I'm coming out of bankruptcy.

"They aren't even talking to GM, so why would they talk to a little nursery?"

Across the country, the nursery and landscaping trades are also facing tough times.

"You have to eat, but you don't have to plant ornamentals," said Terry McElroy, a spokesman at the Florida Department of Agriculture.

Florida, which produces 80 percent of the house plants grown in the United States, had about $844 million in sales of nursery stock in 2007 -- the last year figures were available. California, the second-largest producer, reported $1.6 billion in nursery stock sales in 2007.

Both states did not have more recent figures, but officials said they had seen a decline in business. They expect the industry to slowly recover -- but they also expect the belt-tightening will remain, with fewer purchases, less expansion and fewer employees.

"We know, just by tracking sales in general, that it's down but we don't know how down," said Jennifer Nelis, spokeswoman for the Florida Nursery Growers Association. "It's the life cycle of home construction. Plants are some of the last to go in, so the industry is the last to bounce back.

"Things are starting to get a little better, but it will always lag."

In Oregon, the third-ranked producer, the downturn was swift and stunning.

The rich soil and mild climate of Oregon's Willamette Valley is ideal for growing plants. And for 18 years, starting in 1990, the nursery industry steadily grew, reaching $988 million in sales in 2007. The nursery commodity outpaced cattle, then ranked second, by as much as $500 million that year.

Then the industry slammed into a swarm of trouble: the halt of home and business construction, high transportation costs, financial lending woes and a depressed national economy. Sales plunged 17 percent, to $820 million, in 2008. State leaders expect a similar drop for 2009.

Back in the heady days, Niklas could count on $4 million in annual sales at his nursery in Aurora. Bankruptcy knocked him down and, just as the nursery began to recover under Chapter 12 restructuring, the nation's economic downturn landed a sucker punch.

Niklas' annual sales plummeted to under $2 million. He hasn't found a commercial lender to help him refinance. He and other nursery owners worry that two tax measures passed by Oregon voters earlier this year -- raising the state income tax on upper income individuals, and hiking the corporate minimum tax and taxes on corporate net income greater than $10 million -- will push them closer to the financial edge.

"If the financial system doesn't get fixed, it's going to be extremely hard for agriculture to get back on its feet," Niklas said.

David Van Essen, whose Van Essen Nursery in the community of Lebanon is one of the largest container growers in the state, had never seen such a precipitous swing. The 300-acre nursery had to cut back. About 35 full-time employees were laid off.

Like many others, Van Essen had to become more efficient.

"This is a benchmark year," Van Essen said. "If things continue to decline, it's going to be very difficult to weather this storm. We can only withstand so many years of down sales."

Growers also are having a hard time finding loans.

"It's a very tough lending environment for a nursery," said John Aguirre, executive director of the Oregon Association of Nurseries. "In most typical downturns, things would have been fine. But given the severity of this, where banks have been quite aggressive, even brutal in their response, people just can't refinance."

A few Oregon nurseries have gone bankrupt. More have quietly gone out of business.

Not all is gloom. Nurseries that specialized in edibles -- vegetables, fruit trees and berries -- didn't fall as far thanks to the interest in grow-your-own food. Nurseries that produce native and drought-tolerant plants for restoration work also have fared better.

J. Frank Schmidt & Son, which sells about 1.2 million trees yearly, saw its sales fall about 10 percent. It has laid off workers and cut back production. But the company's cooler warehouse in Boring is full of trees bundled for shipment. Crews are busy grafting, trimming roots and branches, caring for cuttings.

"We're down to the bare bones," said Nancy Buley, a spokeswoman for the company. "But we're excited for the recovery -- it's going to come.

"Nothing happens very quickly in the tree business. It will probably take us longer to recover. But we've seen some bright spots already."

Niklas and his Clackamas Greenhouses are equally resilient.

"I'm a farmer," he said. "I have to have optimism."

[Associated Press; By ABBY HAIGHT]

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