The Dollar$ and Cents of $ustainable Production

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1 The Dollar$ and Cents of $ustainable Production Roberto G. Lopez Department of Horticulture and Landscape Architecture Purdue University Stephanie Burnett Assistant professor University of Maine Jennifer Dennis Assistant professor Purdue University Brian Krug Extension specialist greenhouse/floriculture University of New Hampshire Roberto Lopez Assistant professor and floriculture extension specialist Purdue University Neil Mattson Assistant professor and floriculture extension specialist Cornell University What is Sustainable Floriculture? Sustainable floriculture production aims to reduce environmental degradation, maintain productivity, promote economic viability, conserve resources and energy, and maintain stable communities and quality of life. Energy Audit Case Studies in Sustainability 1) Implementing Energy Audit Recommendations Midwest Greenhouse Operation Seven polycarbonate greenhouse ranges (42 30 ft = 8,820 ft 2 ) Forced air heaters and hot water for heat ($8.5/MBtu for natural gas and $0.07/kWh for electricity) 1

2 Thermal Energy Curtains LS Svensson XLS Firebreak Screen 52% energy savings 56% light transmission Insulate Hot Water Pipes 3/4 pipe - $5.00/ft 2 pipe - $11.00/ft 3 pipe - $16.00/ft Figures from John Bartok Figure from Somik Ghose Insulate North Facing Walls and Unused Fans Rigid foam boards on north side Use HID Lights only when Needed Fan louvers should be kept in optimal working order. It is estimated that a 1 inch gap in the louver of a 48 inch fan will lose 23,000 Btu/hour, which translates into 100 Mbtus during one heating season. At a cost of $8.5/Mbtu, this one inch gap costs an extra $850. Energy Audit Economic Analysis Sustainable Improvements Capital Investment Savings (dollars/yr.) Payback Period (yrs.) Install thermal curtains $22,432 $26, Improve insulation i on north walls $2,025 $2, Improve foundation and sidewall insulation $1,400 $1, Insulate hot water pipes and heaters Unknown Unknown Unknown Use HID lamps only when needed $0 $2,508 Immediate Decrease energy consumption by motors Unknown Unknown Unknown Total $25,857 $31, Energy Audit Environmental Analysis Sustainable Air Emission Reductions (lbs/yr.) Improvements CO 2 NO x SO x Total Install thermal curtains 377, <1 378,081 Improve insulation i on north walls 40, <1 40,727 Improve foundation and sidewall insulation 27, <1 27,752 Insulate hot water pipes and heaters Unknown Unknown Unknown Unknown Use HID lamps only when needed 64, ,596 Decrease energy consumption by motors Unknown Unknown Unknown Unknown 2

3 Greenhouse Environmental Control, Structures and Coverings For more information, please see an article in Gm Pro or visit: Case Studies in Sustainability 2) Conversion from Plastic Pots to Ellepots Ellepots: A Worthy Investment? A Net Present Value and Financial Feasibility Analysis Tanya Hall, Purdue University A medium sized commercial greenhouse located in Indiana is interested in substituting plastic 4.5 inch pots with 90 mm diameter Ellepots This would require the purchase of an Ellegaard machine, specialized paper and media and trays for the pots, and an air dryer. The grower wants to evaluate the purchase of an Ellegaard machine for the production of 130,000 pots. Although interested in the Ellepots capabilities, this grower is uncertain if investing into an Ellegaard machine would be a profitable venture. $38,200 for a new semiautomatic H201 Ellegaard machine $27,500 for a used machine Therefore, the grower has four options: purchase new Ellegaard machine and recommended substrate purchase new Ellegaard machine and use current substrate purchase used Ellegaard machine and recommended purchase used Ellegaard machine and use current substrate 3

4 Net Present Value (profitable venture) and financial feasibility analyses were e conducted. c A NPV is defined as the discounted sum of the projected series of net cash flows for an investment, including the initial investment requirements and the terminal value of the investment at the end of the planning horizon. Labor Plastic/Paper Pot Current Potting Machine Ellegaard Machine Savings 5 employees at $8.50/hr 2 employees at $8.50/hr 130,000 pots in hrs 130,000 pots in 40.6 to 43.3 hrs assumed d19h hrs assumed d45h hrs $85 cost: $ /pot cost: $ /pot each roll: $255.71/1000 m; $9,581 for 130,000 pots 1400 m of paper cost: $0.0737/pot Need 8.36 rolls 1 assumed 9 rolls $6, cost: $ /pot ($3,221.95) 1 Rolls calculated as following: (130,000/(1400/0.09)) Plastic trays Substrate Current Potting machine Ellegaard Machine Savings $9,620 for 13,000 trays trays can be used twice (10 pots/tray) assumed one use $4,420 cost: $0.0740/tray/pot 0740/tray/pot $0.04/pot04/pot $185/bag each bag fills 3,093 pots $7,955 for 43 bags cost: $ per pot Recommended substrate option: $91.26/m 3 each bag fills1,248 pots $9, for bags cost: $ /pot Current substrate option: $185/bag each bag fills 7, pots $3,145 for 17 bags cost: $ /pot ($1,551.25) $4, Estimated life expectancy of a new machine is 20 years and 16 years for the used machine Additional expenses: $2,500 for training and set-up of new machine $1,000/year for maintenance $1,000 air dryer $1,000 air compressor electricity, depreciation, and taxes. Options Positive NPV Net Present Value Internal Rate of Return New Ellegaard machine w/ rec. substrate 100% $27,826 18% New Ellegaard machine w/ current substrate 100% $73,460 29% Used Ellegaard machine w/ rec. substrate 100% $36,243 25% Used Ellegaard machine w/ current substrate 100% $79,729 41% After analyzing the expenses for the Ellegaard machine, the grower had a positive annual net cash flow for all years of the machine and dfor all ll4 options. All four options had positive net present values. The used Ellegaard machine with current substrate had the highest net present value followed by the new Ellegaard machine with the current substrate 4

5 For more information,,please see the October 2009 issue of Greenhouse Grower or visit: Case Studies in Sustainability 3) Poinsettia Cold Finishing Poinsettia Economics Materials and Methods Poinsettias are the most valuable potted-flowering crop in the U.S. with a wholesale value of $181 million (USDA, 2008). The average price of natural gas sold to commercial growers in the U.S. was $19.38 per 100 m 3 in 1998, and in 2008, the average price was $44.48 per 100 m 3 (EIA, 1999; EIA, 2009). The average wholesale price received by U.S. greenhouse growers for 5 or larger potted poinsettias has only increased by 10% from $4.21 to $4.64 (USDA, 1998; USDA 2006). Breeder Dummen Ecke Florema Selecta Syngenta Cultivars EarlyGlory Viking Prestige Early Red Advent Red Alreddy Red Saturnus Red Christmas Feelings Christmas Eve Orion Early Orion Planting Week Materials and Methods Temperature was 75/67 F (day/ night) (12 h/12 h) until 15 October. Day & night cold finishing temperatures (12 h/12 h) were initiated on 15 October. Cold Finish Average Daily Positive Temperature ( F) Temperature DIF (day/night) (ADT)( F) 61/ / / / / / Poinsettia Cold Finishing: Is it Sustainable? Height (inches) Plant Target heights 'Advent Red' 'Alreddy Red' 'Christmas Eve' 'Christmas Feelings' 'EarlyGlory' ' 'Early Orion' 'Orion' 'Prestige Early Red' 'Saturnus Red' 'Viking' Pinch Short Days 6 08/11 08/25 09/08 09/22 10/06 10/20 11/03 11/17 12/01 Date Cold Fi inish 68/56 ºF 5

6 Planted Week 33 Short Days started 10/1/08 Cold Finish 10/15/08 62 F 68/ 56 F 75/ 67 F 4 weeks after start of cold finish 8 weeks after start of cold finish Virtual Grower Decision making tool PC/Windows based Sorry Mac users Produced by USDA Free Download nload.htm?softwareid=108 Google Virtual Grower Poinsettia Cold Finishing: Is it Sustainable? Estimated Heating Cost to Maintain 75/67 F or cold finish at 68/56 F or Constant 62 F in a Greenhouse located in Indianapolis, IN Assumptions: $1.3/therm E/W double-poly house 10,000 sq. ft 5 spans, 100 x 20 3 side walls 45% heater efficiency Arched roof, 9 edge, 12 middle NO Energy curtains Day 7:00 am to 7:00 pm Early Orion Finishing at 75/ 67 F Finishing at 68 /56 F Finishing at 62 F August $220 $220 $220 September $751 $751 $751 October $2,458 $1,665 $1,856 November $3,436 $2,936 $3,110 December $0 $236 $340 Total $6,866 $5,808 (15% Energy savings) $6,267 (9% Energy savings) Estimated Heating Cost to Maintain 75/67 F or cold finish at 68/56 F or Constant 62 F in a Greenhouse located in Greenville, SC Early Orion Finishing at 75/ 67 F Finishing at 68 /56 F Finishing at 62 F August $39 $39 $39 September $277 $277 $277 October $1,655 $986 $1,200 November $2,299 $1,600 $1,894 December $0 $134 $233 Total $4,270 $3,036 (29% Energy savings) $3,643 (15% Energy savings) Poinsettia Cold Finishing: Is it Sustainable? For more information,,please see the July 2009 issue of Greenhouse Grower or visit: 6

7 Case Studies in Sustainability 4) Reducing Shrinkage What is Shrinkage? Any plant that you produce that isn t sold Types of Shrinkage Plants lost in propagation Plants lost in production Plants lost in post-production Plant Losses In Propagation Poor quality propagules Disease Insect damage Improper fertility Improper environment Over-grown Under-grown Over production Scheduling? Mis-managed? Plants Losses In Production Disease Insect damage Mechanical damage Improper fertility Improper environment Over-grown Under-grown Over production Scheduling? Mis-managed? The Real Definition Shrink age - (shrin-kij) n: The act of losing gp profits,, in most cases without the grower/owner/salesperson realizing it, and often times at large amounts. 7

8 Dollars and Sense Examples: (5% shrink) Grow 1,000-4 ½ annuals Selling price = $3.99 Gross revenue = $3, Cost of growing = $2,650 Net profit = $1, Profits reduced by $ or 17% Dollars and Sense Examples: (10% shrink) Grow 1,000-4 ½ annuals Selling price = $3.99 Gross revenue = $3,591 Cost of growing = $2,650 Net profit = $941 Profits reduced by $399 or 42% Dollars and Sense Examples: (15% shrink) Grow 1,000-4 ½ annuals Selling price = $3.99 Gross revenue = $3, Cost of growing = $2,650 Net profit = $ Profits reduced by $598.5 or 81% Avoiding Shrink Proper scheduling Keep records Identify problems: zones/crops/ seasons Manage fertility Manage height Don t cut corners! Reducing Post-harvest Shrinkage Post-Production Plants Losses Market date not achieved Ethylene exposure Plants are not hardened-off Improper care at retail Plants are past their prime Over production Bad weather Shdli Scheduling? Mis-managed? 8

9 Benefits of Reduced Post-harvest Shrinkage Increased revenue (by reducing pay-by-scan losses) Increased consumer satisfaction/repeat sales Sustainable productivity- reducing shrinkage reduces input losses (energy, water, fertilizers, pesticides, growth regulators, pots, etc.) Reducing Crop Shrinkage For more information, please see the May 2009 issue of Greenhouse Grower or visit: p Government Grants/Loans/Incentives Rural Energy For America Program Grants/Renewable Energy Systems/Energy Efficiency Improvement Program (REAP/RES/EEI) Contact your Local Rural Development Office: USDA Rural Development - REAP/RES/EEI Examples of Grants Awarded: Neal Mast & Son Greenhouses, Inc., Grand Rapids MI - Greenhouse Energy Curtain Wenke Greenhouses, Inc., Kalamazoo, MI - Greenhouse Energy Efficient Boilers Green Circle Growers, Oberlin, OH - $227,500 for Greenhouse Retractable Energy Curtains Who is Eligible? Demonstrated financial need (for grants) Must directly engage g in production of agricultural products. At least 50% of gross income must be from their agriculture business. 9

10 What Small Businesses are Eligible? Headquarters in a rural area. Proposed project in a rural area. Demonstrated financial need (grants only) Meets the definition of a small business according to SBA ( use the NAICS search option) A private entity including a sole proprietorship, partnership, corporation, a cooperative, and an electric utility Non-profit organizations and public entities are not eligible. What Projects are Eligible? The project must be for the purchase of a renewable energy system or energy efficiency improvement. Pre-commercial or commercially available and replicable technology. Technically feasible Located in a rural area Applicant must be owner of the system Adequate revenues for O&M Renewable Energy Projects Energy Efficiency Improvements Projects Renewable Energy Projects Energy Efficiency Improvements Projects Description Minimum grant (no more than 25% of total eligible project costs) Maximum grant (no more than 25% of total eligible project costs) A process that PRODUCES energy from a renewable energy source. Improvements to a facility or process that REDUCE energy consumption. $2,500 $1,500 $500,000 $250,000 Energy audit required? Feasibility Study required? Professional Engineer required? Categories of projects (All projects must be located in a rural area.) NO For grant requests exceeding $50,000 For grant requests exceeding $50,000 Biomass, Anaerobic Digester, Geothermal electric generation, direct use, Hydrogen, Small and Large Wind, Small and Large Solar Required for all energy efficiency projects over $50,000 NO For grant requests exceeding $50,000 Energy Efficiency Improvements verified by an energy audit or assessment. What are Eligible Costs? Post application purchase & installation of equipment, except agricultural tillage equipment and vehicles. Post application construction or project improvements, except residential. Energy audits or assessments Permit fees Professional service fees, except for application preparation. Feasibility studies Business plans Retrofitting Construction of a new facility same purpose, same size, provides more energy savings than improving an existing facility Mid American Growers, Granville, IL Alternative Energy Sources 10

11 Neal Mast & Son Greenhouses, Grand Rapids MI - received USDA Grant for Greenhouse Energy Curtain Alternative Energy Sources Elzinga and Hoeksema Greenhouses, Kalamazoo, MI Alternative Energy Sources USDA Rural Development - REAP/RES/EEI Grants Details: The application deadline for loans or loan and grant combinations is July 31, In FY '09, the mandatory funding as specified in the new Farm Bill is $55,000,000. In 2010, the USDA will make REAP program benefits available to all agricultural producers regardless of location. Federal and State Energy Tax Incentives A grower who installs energy saving technologies that reduce energy costs by 50% or more qualifies for federal tax deductions Energy saving technologies include anything that reduces heating, cooling, lighting, and ventilation costs Each state may offer additional exemptions (for descriptions of all the specific state and county tax incentives, visit Federal and State Energy Tax Incentives 11

12 SARE Farmer/Rancher Grant Program The North Central Region (NCR) SARE program of the USDA allocated $400,000 for the 2008 Farmer/Rancher Grant Program. Competitive grants of up to $6,000 are available for individual farmers and ranchers, and grants up to $18,000 are available for groups of three or more farmers from separate operations who are interested in exploring sustainable agriculture. The 2009 Farmer/ Rancher Grant Call for Proposals will be available in August 2009 for NCR. SARE Farmer/Rancher Grant Program Examples of Grants Awarded: Radiant Heated Hoop House for Spring Perennial Production, $5,838 The Suitability of Flexible Fuel Biomass Heating for the Greenhouse Crop Environment and the Effect of Crop Profitability When Compared to Propane Heating, $5,560 Reducing Heating Costs in Greenhouses, $5,000 Year-Round Renewably Heated and Powered Greenhouse, $4,997 The Use of Ethylene as a Chemical Pinching Agent on Floricultural Crops, $5,000 Acknowledgments Thank You Fred C. Gloeckner Foundation Purdue Mission Orientated Grant Ball Horticultural Company Ecke, Dümmen, Florema, Selecta, Syngenta Undergraduate greenhouse crew Tanya Hall, Diane Camberato, Jessie Heller, Rob Eddy, Dan Hahn 12