An Update to the Index of Prices Paid by Growers
In an age of tight margins, it is essential for firms to have full and accurate information about inflationary trends so that they can better understand the cost of operating their business for managerial decision-making such as SKU rationalization, customer profitability analyses, and determining the need for price increases. The use of the standard Producers Price Index (PPI) and Consumer Price Index (CPI) for this purpose is insufficient because wholesale growers purchase different goods and services from those used for calculating these indexes. The National Agricultural Statistics Service also calculates an Index of Prices Paid by Farmers for the inputs they use during production. However, these indices also fall short in that they contain (or exclude) many items that are not applicable to nursery and greenhouse growers.
To overcome this issue, an Index of Prices Paid by Growers was developed that reflects inflationary pressures on the most important inputs used by green industry growers. This index reflects the differences in the prices of goods and services purchased by growers during the last several years. Each cost-related line item is weighted by its relative share of the total of the typical assortment of goods and services purchased by growers for producing, marketing, and shipping plants. Using this methodology, a weighted average rate of inflation in the prices of these grower inputs is estimated, where the weights used to aggregate these individual inputs are the average proportions of grower budgets allocated to each input category.
The purpose of this annual study is to document the costs of inputs used to produce plants. Results from this analysis indicate that the summary weighted Index of Prices Paid by Growers ranges from 100 in 2007 to a high of 129.6 in 2019. This means that the overall cost of producing nursery and greenhouse crops is almost 30% higher in 2019 than it was in 2007, with labor experiencing the largest increase (41.6% higher in 2019). The year-over-year (YOY) increases are also presented, reflecting the inflationary pressures of costs over time. YOY costs associated with the tracked expenses in 2019 increased about 2.5% over what they were in 2018.
It is important to note that this is a national index and certain factors of production (e.g. labor) may vary depending on the region of the country. This index also serves to document the cost-price squeeze for the green industry, specifically the rising costs of inputs. Armed with such information, firms will be in a much better position to understand the inflationary pressures on their relative costs of production and use these data in making more informed pricing decisions (since total costs represent the price floor and willingness to pay on the part of the customer represents the price ceiling).
Click here for a printable version of the table below.