Starting a Greenhouse BusinessThe production of greenhouse plants is one of the most specialized and intensive forms of agricultural production. Unlike agronomic crops, which base costs on an acre basis, greenhouse crop costs are calculated on a per square foot or per plant basis.
Individuals desiring to enter the greenhouse business need a basic knowledge of the various facets of plant production. This knowledge is indispensable in the propagation, potting, and marketing of greenhouse crops.
In addition to production knowledge, geographic location is an important consideration in making a greenhouse purchase decision. Some greenhouse crops may not be produced in some locations because of the expense involved in heating and/or cooling the greenhouse. A reliable source of good quality water is also a deciding factor in considering the location of a greenhouse.
Who Is the customer?As in all businesses, marketing is crucial to the success of a greenhouse operation. Knowing who the customer is and what his or her product preferences are will dictate not only the mix of plants grown, but perhaps the location of the greenhouse as well. Location is a determining factor if the greenhouse will be a retail center as well as a production center. A retail establishment must be convenient and accessible to customers. Since much of the retail trade depends on "impulse purchases," it is extremely important to provide an aesthetically pleasing environment for the customer. Providing the right mix of product types and sizes is also key to generating retail sales. At retail, larger container sizes of seasonal pot crops, bedding plants, hanging plants such as ferns, color plants, and accessories usually will be the best sellers. The market potential for various types and sizes can be determined by visiting florists and garden centers within a specific radius of a proposed greenhouse site. Recommendations from area landscapers and landscape maintenance services also should be considered.
Producing for wholesale trade is not as location dependent as producing for retail trade. Wholesale producers normally grow several different types and sizes of "prefinished" plants, such as bedding plants, seasonal pot crops, and foliage plants. Bedding plants are typically grown in cell packs, 4-inch pots, and 1-gallon pots. The larger sizes are marketed as "instant color." Since all products are produced for resale, a variety of crops and sizes is necessary. Emphasis should be placed on producing different cultivars within a crop-for example, different varieties of tomatoes or colors of poinsettias. A good evaluation of the market being targeted should provide some indication of the types and quantities of plants to be grown.
Wholesale producers will not want to overlook opportunities to pursue "contract growing." Growing under contract for someone else assures the wholesale producer a buyer before the plant crop is started. Usually prices and quantities are agreed upon before seed and other supplies are purchased. This type of production includes plugs, transplants, and prefinished seasonal crops. Contract growing allows the grower to concentrate on a few crops. However, it narrows the market considerably, with the grower being dependent on only a few customers. Potential customers for contract growing include landscapers, maintenance businesses, and vegetable farmers.
Selecting a GreenhouseThe quonset-type greenhouse is the least expensive to construct, making it the choice of most growers, including those in Mississippi. The quonset-style structure has few crossmembers, which interfere with light.
Several different types of coverings exist, including acrylic sheets, polycarbonate plastic, and fiberglass. Each of these coverings has its advantages; however, all are more expensive than polyethylene.
With polyethylene, two layers cover the structure and are inflated with air to separate the sheets of plastic. Air is forced between the two layers of plastic to form a 4- to 6-inch air space, forming an excellent insulation barrier to prevent heat from escaping. This type of covering should be treated with an ultra violet (UV) inhibitor to slow the breakdown from UV light rays. A double layer of polyethylene can decrease light transmission. Polyethylene with an antidrip agent added can be purchased that resists condensation. Remember, every chemical treatment added to the polyethylene increases its cost.
Construction CostsTo provide adequate gross income for a one-person business, approximately 6,000 square feet of greenhouse space is recommended. Construction costs vary from $3.25 to $7.60 per square foot of total covered ground space, depending on the amount of work contracted.
Costs vary greatly, depending on the materials and equipment selected when constructing a greenhouse. When selecting construction materials, be careful not to sacrifice quality of construction as a tradeoff for low cost. The same caution should be used to protect against overspending or buying more greenhouse than needed.
Table 1 lists cost estimates for the construction of a quonset-style greenhouse covered with two layers of polyethylene, the style typically found in Mississippi. The dimensions of the greenhouse are 30 feet by 96 feet, for a total of 2,880 square feet. The greenhouse provides approximately 1,843 square feet of bench space, or 64 percent of total floor space. The construction cost in 1993 for this type of greenhouse, fully assembled, was $14,395 or $5 per square foot. The growing space provided by a greenhouse of this size is below the 6,000-square foot minimum considered necessary to be economically viable. Therefore, a grower needs to plan for at least two greenhouses of the size described in Table 1.
Areas for Cost VarianceThe greenhouse frame should be purchased with consideration of its load-bearing strength and useful life expectancy. Galvanized steel tubing and aluminum tubing offer strong economical choices for greenhouse frame construction.
Greenhouse flooring can substantially affect cost. The floor of the style referred to in Table 1 uses a ground cloth with gravel on walkways. Other floor choices are bare ground, completely covered with gravel, or concrete, depending on the availability of capital resources and owner preference.
The example in Table 1 assumes that water and natural gas are available to the greenhouse. Some greenhouse locations may require additional investment for the drilling of a water well and the purchase of LP gas storage tanks if water and gas are not available.
Benches for growing plants can also increase costs substantially, depending on the type of material used to construct the benches. Wooden frames with coated wire mesh surfaces, as estimated in this example, are reasonably inexpensive, while metal frame benches with moveable metal surfaces can cost more than triple the wooden frame benches.
The grower must also consider the advantages and disadvantages of buying automated equipment for the greenhouse. Labor can be reduced, depending on the level of automation a grower can afford to purchase. A grower must determine if the labor skills needed to operate the greenhouse are available or if labor will be difficult to hire. The lack of reliable labor may cause the grower to consider investing in more automated equipment to eliminate potential labor difficulties.
Operating Costs and Cash FlowThe capital expenditure on construction of a greenhouse and equipment is not the only factor influencing a grower's decision to start a greenhouse business. Operating costs associated with producing the plants and fixed overhead costs must be considered. Business mistakes account for more failures than lack of technical knowledge. The grower needs to construct and use operating budgets to establish and maintain financial control of the business.
Will the business's cash flow? This question is important to the grower and to the lending agency if the venture is financed with borrowed capital. Because of the nature of most wholesale greenhouse operations, the time period between growing and selling the crop and the actual receipt of cash for the sale is critical to the cash flow of the business. Greenhouse crops may require a year or more from the planting date until the crop is ready for sale. Costs associated with production will be incurred long before the crop produces returns to the business. The grower must consider the amount of operating capital needed to carry a crop through its full cycle and must plan for any cash shortfalls. This information can be derived from the operating budgets. The grower needs to have sufficient cash reserves to cover expenses until cash receipts are collected on sales.
Table 1. Estimated investment required for a 30-ft by 96-ft double-layered polyethylene, quonset-styled greenhouse (2,880 ft2), 1993. *
Land was not estimated in this example.
This information sheet provides an overview of factors to be considered by the greenhouse business. The cost estimates used are intended for informational purposes only, since costs vary depending on the supplier and crop mix selected. For more information or assistance, please contact your county Extension office.
By Dr. David Tatum, Extension Horticulturist, Department of Plant and Soil Sciences, and Dr. Ken Hood, Economist, Food and Fiber Center.
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