Field Notes: Initial Insights on the Nursery Landscape
The nights are long and the last few days of the year are ticking away, which means it’s time to reflect on the year behind and plan for the one ahead. We have been spending the last weeks of 2022 visiting some fantastic nursery operations across the country. This outreach has us excited to share New Leaf’s early insights on the U.S. nursery landscape.
Background: A Diverse Landscape
The landscape of nurseries has wide spectrums of operation size, geographies, species offerings, end customer needs, and many other metrics. We’ve found it useful to consider three simplified types of nursery operations: industrial, independent, and government-run nurseries:
Industrial nurseries are the core of the timber industry, mostly concentrated in the South and Pacific Northwest and each producing seedlings in multi-million unit increments for essential commercial applications such as home framing, pulp and paper production, furniture manufacturing, and building materials. Some nurseries are vertically integrated into the timber or paper companies, while others remain independent but count industry and private landowners among their biggest customers.
Independent nurseries, including private, non-profit, and tribal, typically work in smaller volumes to provide a variety of seedlings, among other plants and products, for restoration, reforestation/afforestation, landscaping. Trees are sold alongside other plants - native forbs, grasses, shrubs, wetland species.
Public nurseries have a long history of providing reforestation/afforestation products at quantities between the small independents and large industrials, but have scaled back output since the 1980’s through closures and underproduction. The tax dollars supporting public operations have reduced seedling prices and underpin global tree improvement/genetic research.
As we have come to appreciate unique aspects of individual operations through site visits (a big “thank you” to all those who have taken time to meet with us and answer our questions!), we have looked to make connections and similarities across operations. Production has declined just as we should ramp up (see post here); our findings below elaborate on the threads behind the story:
Insight #1: There is a trade-off between total volume and diversity
It is surreal to look out over a field of 50 million seedlings and appreciate that you are viewing +/- 4% of total U.S. production in one operation. Decades of refinement has made these large-scale nurseries impressively efficient. Small teams - single-digit full-time employees supplemented by contract employees during harvest and packing season - use limited, highly specialized equipment - one for planting, one for harvesting alongside space for packing and storage.
On the other hand, small independent nurseries, occupying a fraction of the land, may be growing hundreds of species in numerous plots, across open-air bare root and greenhouse-bound container methods. Often the labor requirements for these nurseries equal or even outstrip their larger industrial counterparts, especially on a per-seedling basis. The broader species array at independents typically includes more hardwoods and a portfolio of natively adapted species that allow for customers – wetland mitigation and restoration developers, DOT operators, and landscaping providers – to balance plantings to mirror the original ecosystem . This cannot solely be achieved with large quantities of industrial softwood, thanks to its importance to industry and ability to store carbon, is produced in massive volume today.
We need to increase both scale and diversity of production to meet our future restoration needs. New financial and operational solutions will be critical to help nurseries to not simply survive in a market that has seen declines, but ramp up production to meet the coming wave of demand.
Insight #2: Labor is a bottleneck to expansion
Nurseries are struggling to sustainably manage an aging pool of highly experienced employees. When the senior team retires, small independent nurseries typically shut down for good. This cycle into closures is an increasingly frustrating story.
Current business owners want the scale, type of production and business ethos to continue - especially given that the same owners often own and live adjacent to the nursery property. Often, the new management team currently work for the nursery, and are trained and ready to pick up that mantle. The barrier for a transition is largely financial - new teams can’t afford to buyout the current owner, and the current owner can’t move on without a liquidity event.
We are exploring how innovative financing can facilitate these transitions. Our reforestation goals will require more and more diverse nurseries, and retaining the wealth of experience in the system rather than losing it to time will likely be a key focus going forward.
Insight 3: Supply is limited by a lack of clear demand signals
Nurseries, regardless of scale or type, are risk-averse in their production strategy. Almost every plant or tree seen growing at a site has been spoken for, with a portion of the purchase paid up front and the rest on delivery.
This is highly understandable given the risk ‘on-spec’ growing carries thanks to the unique nature of a living “product.” An unwanted seedling cannot indefinitely sit on a refrigerated warehouse shelf, and keeping it in the field or in a greenhouse taking up space from a future contracted sale may eat into future profits. This isn’t the seedling’s fault – it didn’t get the memo on the fickle nature of humans and markets yet. This is where we can do better. Nursery operators may be able to expand production, putting aside capital and labor needs, but many of them aren’t receiving purchase orders to do so.
Given the contract nature of nursery sales, greater production can be achieved through larger projects or through more market transparency – planning growing and planting for 1-2 or 5-10 years out, rather than next season, especially when older or slower growing trees are desired.
Conclusion
Nursery operators and operations differ, but every grower will play a crucial role in producing the seedlings necessary to restore swaths of land, drawdown carbon, improve ecosystem resilience, develop critical forestry products, and preserve biodiversity. The different players will feel the impacts of tradeoffs of scale and species variety, labor availability, purchaser behavior, and many other market complexities in unique ways. All can benefit from novel solutions, financial and otherwise, to optimize their businesses for changing times. We are excited to explore where and how we can be most impactful within these measures and look forward to the trail ahead.