A0111 Plant Nurseries in Australia Industry Report.pdf

2 About this Industry2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance4 Executive Summary

4 Key External Drivers

5 Current Performance

7 Industry Outlook

11 Industry Life Cycle

13 Products & Markets13 Supply Chain

13 Products & Services

14 Demand Determinants

15 Major Markets

16 International Trade

18 Business Locations

20 Competitive Landscape20 Market Share Concentration

20 Key Success Factors

20 Cost Structure Benchmarks

22 Basis of Competition

23 Barriers to Entry

23 Industry Globalisation

25 Major Companies

28 Operating Conditions28 Capital Intensity

29 Technology & Systems

29 Revenue Volatility

31 Regulation & Policy

31 Industry Assistance

32 Key Statistics32 Industry Data

32 Annual Change

32 Key Ratios

33 Jargon & Glossary

IBISWorld Industry Report A0111Plant Nurseries in AustraliaDecember 2011 Paul Lyons

Blossoming: Demand for plants returns as extreme drought conditions ease

www.ibisworld.com.au | (03) 9655 3881 | [email protected]

www.IbISwOrLD.COM.Au Plant Nurseries in Australia December 2011 2

The industry consists of businesses growing and propagating ornamental plants, bulbs and turf to be transplanted into gardens. Businesses sell to retail or

wholesale establishments, as well as landscapers, local government and councils, and production horticulturalists, such as orchardists.

The primary activities of this industry are

Bulb propagating

Fruit tree nursery operation

Ornamental plant growing

Plant stock growing

Seedling growing

Turf growing

Vine stock nursery operation

Industry Definition

Main Activities

Similar Industries

Additional resources

The major products and services in this industry are

Bedding plants and coloured foliage

Bulbs and seeds

Indoor and patio plants

Other plants

Propagation stock

Trees and shrubs

Turf

About this Industry

A0112 Cut Flower Growing in AustraliaCompanies in this industry grow flowers and foliage for cutting and displaying, as well as for seed collection.

A0169 Hay and Other Crop Growing in AustraliaThis industry grows a variety of crops, including mushrooms, tobacco and fodder crops.

A0303 Forestry Services in AustraliaFirms in this industry provide reafforestation, conservation or plantation-maintenance services, operate forest nurseries and provide forest firefighting services.

For additional information on this industry

www.daff.gov.au Department of Agriculture, Fisheries and Forestry

horticulture.com.au Horticulture Australia Limited

www.ngia.com.au Nursery and Garden Industry Australia


Market ShareThere are no major players in this industry

Key External DriversDemand from garden supplies retailingGardening participationLevel of annual rainfallDwelling commencements

Key Statistics Snapshot

Industry at a GlancePlant Nurseries in 2011-12

revenue

$1.5bnProfit

$177.2mExports

$7.6mbusinesses

2,201

Annual Growth 12-17

2.6%Annual Growth 07-12

-2.4%

Industry Structure Life Cycle Stage Decline

Revenue Volatility Medium

Capital Intensity Medium

Industry Assistance Low

Concentration Level Low

Regulation Level Medium

Technology Change Medium

Barriers to Entry Low

Industry Globalisation Low

Competition Level Medium

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIx ON PAGE 32

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Demand from garden supplies retailing

SOURCE: WWW.IBISWORLD.COM.AU

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Revenue vs. employment growth

Business locations

33.9%NSW

3.2%TAS

22.2%QLD

1%NT 0.2%

ACT

20%VIC

11.2%WA

8.3%SA


p. 25

p. 4



Key External Drivers Gardening participationThe popularity of gardening as a leisure activity influences demand. Home improvement and do-it-yourself (DIY) TV programs have stimulated consumer spending, while the changes made to general living conditions (i.e. the expansion in apartment or unit

dwellings without gardens) has had a negative influence.

Dwelling commencementsThe number of dwellings built per year has a positive effect on demand for nursery products, as new homes are generally finished with plants and tree

Executive Summary

It has been dry times for plant nurseries in Australia over the past decade, as both producers and consumers have faced drought conditions and constrained water supply. For producers, this resulted in increasing focus on water conservation and efficient irrigation. On the demand side, more than 12% of household consumers have installed water tanks, facilitating continued gardening activity, while other consumers have cut back on their plant and garden product expenditure.

The industry is highly fragmented and in a decline phase of its life cycle. Water restrictions and falling average garden sizes have contributed to the industry’s decline, partly offset by a general rise in dwelling approvals and disposable incomes. Producers in the industry grow plants for sale by retail nurseries as well as garden and hardware stores. They also sell plant stocks to horticulture primary producers, such as fruit and vegetable farms, and to local governments and councils for planting in public spaces. The

broad range of downstream users has mitigated the effect of reduced demand from urban households on the industry.

Overall, the negative effect of the recent global financial crisis, coupled with the drought, severely dampened industry growth over the past five years, as revenue declined at an average annual rate of 2.4%. Thankfully, conditions for the industry are expected to improve this year due to good rainfall across eastern parts of Australia combined with the ongoing recovery from the global economic downturn. Revenue is expected to rise by 1.3% from the previous year to total $1.54 billion at the conclusion of 2011-12. The future looks even brighter, with earnings anticipated to grow consistently over the five years through 2016-17. Although this will be a recovery of the lost revenue from the past decade, it has been some time since the industry posted stable revenue growth. Over the next five years, revenue is expected to grow at an average 2.6% per annum to total $1.75 billion.

Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

$

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Gardening participation


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Industry Performance

Downstream demand The industry has been affected by lower demand from retailers as domestic gardens become smaller. However, there has certainly been an expansion in the number of channels offering nursery products. Although revenue for this industry generally refers to sales of plants propagated at nurseries, which are sold in bulk to other nurseries, shops or direct to the public, the growth of

home improvement garden centres has affected the profitability and market share of traditional plant nurseries in Australia. The impact of the rapid growth of home improvement and hardware stores started around the mid-1990s, and their growing share of the green-life market over the past 20 years has been remarkable. The Wesfarmers acquisition of Bunnings

Current Performance

Poor water availability stemming from the extreme drought conditions of the past decade has been the biggest impediment for growth in the industry, both in terms of production and revenue. As a result of the drought, which began in 2003, industry production fell considerably and water scarcity dampened interest and demand in gardening products. Over the five years through 2011-12, industry revenue is expected to fall at an average rate of 2.4% per annum to total $1.54 billion, after 2011-12 produced a 1.3% year-on-year growth rate. Reduced margins have led to strong pressure to reduce costs and achieve economies of scale. These competitive pressures have forced the withdrawal of a number of smaller business enterprises and related establishments. The remaining nurseries are struggling for viable revenue levels.

The industry is concentrated in New South Wales, Victoria and Queensland, which were all affected to varying extents by historically low levels of rainfall. There has been some shift in the product mix of plants sold towards more drought-resistant native plants and products

designed to help plants retain water. This has offset some of the decline in overall production volumes. Producers have also adapted by installing water-saving infrastructure, including more efficient irrigation, water tanks and water recycling systems. Since 2008-09, the drought conditions have eased in many parts of Australia thanks to above average rainfall during the spring of 2010. Assuming these positive conditions hold, a more positive outlook for the industry is expected.

Key External Driverscontinued

life. This goes hand in hand with overall construction levels, as many construction sectors hold strong demand for industry products.

Demand from garden supplies retailingGarden and equipment retailing is the major seller of the industry’s products to

consumers. Retailing is largely affected by consumer spending levels.

Level of annual rainfallDuring times of drought, demand for industry products falls due to water restrictions, which make it more difficult to care for a wide variety of plants.

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Downstream demandcontinued

during the 1990s sparked the rise in popularity of warehouse-style hardware stores offering a wide range of products for bathrooms, kitchens, building and renovation, flooring, outdoor living, electrical, paint, storage and tools. The most important feature of these stores is the incorporation of retail garden centres competing directly and stealing market share from independent nurseries that traditionally dominated the selling and growing of plants and other green life in Australia. For example, in the past decade home improvement and hardware stores doubled their market share for green-life sales, which grew from 15% in 2004-05 to 30.6% in 2008-09. Although plant nurseries still dominate the industry, their market share fell from 85% in 2004-05 to 69.4% in 2008-09.

A positive factor for the industry has been the trend towards homes installing rainwater tanks. This is largely a response to water restrictions, but has been facilitated by state governments. Currently, between 13% and 15% of households have rainwater tanks installed. Demand from propagators has declined marginally, due to poor growing conditions in fruit and vegetable produce industries (which purchase seedlings and young plants from nurseries). Over the past two years, there has been some decline in investment in fruit growing due to the removal of favourable tax treatment for investment in certain managed investments. Previously, managed investment schemes had seen investment rise strongly in plantings of olives and citrus groves.

Demand for turf, which accounts for an estimated 22% of industry revenue, grew over the past five years due to strong demand from sporting venues. There is a positive correlation between the performance of sporting competitions, major sporting events and the value of turf production, which in turn boosts revenue for the industry. Overall, the demand for new turf comes from horseracing, golf, AFL, rugby and cricket clubs. The A-league soccer

competition has also become very popular over the past six years and had a new major stadium built as a result. When growing conditions are difficult, the condition of turf in many sports grounds must be maintained and in some cases is replaced regularly, generating demand. However, like other segments of the industry, turf is also affected by drought and may in some cases be replaced by a synthetic version.

Demand for the industry’s products is also sensitive to activity in the Construction division. Growth in the housing market means higher demand for plant nurseries, as homes are generally packaged with gardens. Housing trends, such as the incorporation of an outdoor room in new homes, lead to increased demand for nursery products. The collapse of the Residential Building Construction sector from 2008 was a major contributor to the fall in revenue in 2007-08 and 2008-09, when revenue plunged by 5.4% and 14.4% respectively. These conditions eased somewhat over the last year with the ongoing recovery since the global economic crisis. The global financial crisis was a double edged sword for the industry overall. Spending on plants suffered during and in the immediate wake, yet as the economy recovered, consumers became more inclined to invest time and effort in their existing properties rather than relocate, often spending vast amounts of money on garden supplies. The improving conditions along with a raft of government incentives also resulted in a major upswing in the number of new homes being constructed, driving demand for garden materials from both new home owners and estate builders, trying to attract new residents.

There is a positive correlation between the performance of sports events and turf production



Downstream demandcontinued

The ability to grow foreign plant life given Australia’s extremes in climate has caused a decline in import penetration. This is supported by the slight decline in imports across the five years through 2011-12, at an average annual rate of 1.6% and also in their decline as a percentage of domestic demand. Exports currently account for only 0.5% of

revenue, expecting a total of $7.6 million for 2011-12. The considerable reduction in production over the past five years has led to a considerable fall in exports. Australian exports head to the Netherlands, United Kingdom and the United States. Over the five years through 2011-12, exports are expected to decline at an average rate of 6.4% per year.

Industry Outlook

The future performance of plant nurseries will be determined by changes in downstream demand, growing conditions and prices of production inputs. The demand for nursery products will be affected by changing approaches to urban planning, housing market trends, water

restrictions and rainwater tank uptake. It is expected that overall industry revenue will improve moderately over the five years through 2016-17, with earnings increasing at an average rate of 2.6% per annum to total $1.75 billion, kick started by strong 3.7% growth in 2012-13.

Industry structure Labour skill levels have been identified by the industry as a significant concern. The perception of nursery workers as unskilled undermines employers’ abilities to retain and upskill existing employees. The Certified Nursery Professional program was developed in 2001 to address some of these concerns. The program is intended to encourage continuous learning and to recognise the skills and achievements of nursery staff. Since 2006-07, employment is expected to have dropped at an annualised rate of 3.8%. The most dramatic year-on-year fall in employment occurred in 2008-09, when the financial pressure across all industries flowing from the credit crisis caused an 11.9% drop in employment. For 2011-12, the industry can expect a further decline in employment of 0.8%. Yet many agricultural industries will see some improvement this year because of improved rainfall, which will boost production. Added to this will be the gradual improvement in household disposable income, which bodes well for industry demand and revenue given the discretionary nature of plants purchasing.

The profit margin in plant nurseries has

declined from 15% of revenue in 2006-07 to 11.5% of revenue in 2011-12. This is a result of soft demand conditions, input price growth and difficult growing conditions. Investments in water-saving technologies have had a negative effect on industry revenue over the past few years, but are expected to facilitate future profitability. Prices of certain inputs have risen strongly, which has adversely affected industry profit margins. In particular, transportation and fertiliser costs rose significantly in 2007-08, before stabilising (and marginally correcting) in 2008-09. The increase in both of these inputs was driven by rising energy prices. The price of fertiliser rose most dramatically, as it is tied to the price of natural gas that generates nitrogen used in fertiliser production. Lower fertiliser prices in international markets have been slow to filter through to domestic users due to high stocks held by distributors, which were purchased at higher prices. While these input costs were stable during 2011-12, profitability will be under higher pressure from the slow growth in downstream demand, as household income levels gradually improve.



Forecast downstream demand

Town planning in major population centres is expected to focus more on high-density living with shared green spaces. Such trends are expected to result in a change in the composition of demand for the industry’s products. Producers may benefit from shifting production and marketing practices to target councils and local governments as a source of demand rather than households. While households are expected to remain the primary end consumers for the products of the industry, they will account for a smaller share of total nursery sales.

Constrained water availability in major population centres will have some effect on the extent of downstream demand and on the volume of industry products. Increasingly, consumers are expected to favour drought-resistant or drought-tolerant plants. More efficient water use and uptake of recycled water are expected to mitigate some of the influence water restrictions will have on garden produce demand. Rainwater tanks will allow some consumers to engage in gardening activities despite water restrictions.

Activity in the housing market is expected to have some influence on the industry, since new homes are often finished with gardens. Furthermore, town and property development beautification leads to demand from both households and professional landscapers. This form of demand is most strongly associated with development of houses (as opposed to units or apartments) and will depend on the location and availability of new land. Queensland is a good example of a location with a strong future in property development, given its strong population growth and expanse of undeveloped area close to major business centres. More generally, demand will shift towards growing towns, centres and urban fringes.

Specialist nurseries supplying fruit trees are expected to be affected by reduced demand from the Horticulture and Fruit Growing sector. Although a number of fruit producers are highlighting the importance of replanting and maintaining high-yielding trees,

growers will be constrained by their inability to undertake orchard upgrades. The difficulties encountered by citrus growers as a result of cheap imports are likely to continue to depress sales.

As hardware stores like Bunnings Warehouse (and shortly Masters, the Woolworths hardware competitor) continue to position themselves as DIY and home renovation one-stop shops, their gardening demands and market shares are expected to expand over the next five years. The most recent indication of this trend is Woolworths’ partnership with US-based Lowe’s Companies to acquire Danks Holdings Limited, a major supplier to leading hardware stores such as Home Timber & Hardware, Thrifty-Link Hardware, Plants Plus Garden Centre and many smaller independent stores across Australia. Over the next five years, Woolworths intends to establish 150 sites for its new home improvement stores, which will compete directly with the 160 Bunnings Warehouse stores as well as the 450 Mitre 10 and True Value Hardware stores across Australia. From the perspective of plant nurseries, the entrance of Woolworths into the home improvement market is expected to trigger downstream consolidation among hardware retailers. This is expected to increase competition for plant nurseries, and possibly dampen profit margins given the capacity of major home improvement chains to sell bulk gardening items at lower prices than independent nurseries.

New business opportunities are also expected to arise from growing concern over climate change coupled with the gradual recovery from the global credit crisis. According to industry bodies, plant nurseries will be a critical component to tackling the onset of global warming, and

Producers may benefit from targeting councils and local governments as a source of demand



Changing structure In the short term, favourable climate conditions are likely to contribute positively to industry growth from the latter half of 2011-12. The above average rainfall across Victoria, New South Wales and Queensland during spring of 2010 significantly eased drought conditions and water restrictions across the country, which is likely to boost water allocations for irrigation and revive interest in home gardening in the immediate future. In the long term, however, growers are expected to adapt to lower water availability. There has already been an increase in efficient water use and water recycling, which has facilitated a marginal increase in production. Water conservation will become an essential aspect of performance for operators in areas affected by water restrictions. The geographic spread of producers is expected to move towards regions of higher rainfall. There will be an emphasis on players to operate with high economies of scale to compete.

The number of establishments in the industry is expected to continue to decline. While consolidation in the industry will reduce the number of participants, employment is expected to at least maintain its current level over the long term. There will be a slight shift in the skills required for this type of employment in the future. This will be due to more specialised roles and increased involvement with industry technology. Additionally, as the industry has consolidated over the past five years, the roles carried out by employees have expanded with the increasing size of remaining establishments.

The bottom line A major concern for profit levels will be increasing land values, which lead to higher rates payment and land tax payments. Land tax arrangements vary by state but are generally an annual payment based on the value of the land. As land values rise, these payments increase. However, operators do not realise a gain

associated with increased land value unless they sell the land. Relocation generally results in further costs incurred. Thus, expansion on urban fringes resulting in higher land values is expected to have some negative effect on the profitability of some operations and put downward pressure on average industry profit levels.

in promoting environmental sustainability. Plants and trees will naturally help reduce carbon dioxide levels in the atmosphere and can provide an alternative means to save energy – for example, trees that provide shade to rooms or parts of buildings can reduce some need for air-conditioning. Moreover, nurseries will be a vital source for consumers seeking information and advice on water management and strategies for adapting to changing climate conditions. Business opportunities already gaining popularity, which stems from these factors include

urban greening (the inclusion of rooftop or wall greenery in office buildings); the cultivation of edible gardens at school and home; environmental education; and sustainable water usage. The adoption of these activities will boost demand and revenue for the industry.

Forecast downstream demandcontinued

Specialist nurseries supplying fruit trees are expected to be affected by reduced demand

The number of establishments in the industry is expected to continue to decline



The bottom linecontinued

Overall, despite some difficult conditions, growth facilitated by higher demand from local governments and councils as they maintain common green areas is expected. Some marginal growth will stem from households. Producers in the industry are expected to experience an increase in the capital intensity of production, as irrigation systems become increasingly important. This will have a

negative effect on industry profit levels in both 2010-11 and the first half of 2011-12 but will facilitate a lift in profitability in later years. More mechanisation will also be reflected in the wage costs, which are expected to decline as a percentage of revenue over the next five years. Profitability will increase from 2013-14, due to lower costs for certain inputs, such as planting materials and packaging.


Industry PerformanceThe industry is characterised by a stable product range, while the technology to create more variety is still largely in development

Some establishments left the industry over the past five years due to reduced demand and squeezed profit margins

The overall economy averaged growth of 27% over the past five years, while industry gross product contracted 75% annually

Life Cycle Stage


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DeclineCrash or Grow?

Potential Hidden GemsFuture Industries

Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets

Time wastersHobby Industries

MaturityCompany consolidation;level of economic importance stable

Shakeout

Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change

Key Features of a Decline Industry

Revenue grows slower than economyFalling company numbers; large fi rms dominateLittle technology & process changeDeclining per capita consumption of goodStable & clearly segmented products & brands

Cut Flower GrowingApple and Pear Growing

Chemical wholesaling

Hay and Other Crop Growing

Stone Fruit Growing

Plant Nurseries



Industry Life Cycle The industry is in the decline phase of its life cycle, indicated by the declining value of the industry’s contribution to GDP along with slowly decreasing enterprise numbers. Compared with the growth in the overall economy over the past five years, the growth rate of industry gross product (IGP) has fallen at an average annual rate of 4.8%. This illustrates how poorly plant nurseries are performing compared with the overall economy. The difficult growing conditions over the five years through 2011-12 are the principal cause of decline in IGP. This strong decline reflects a fall in industry revenue, while some costs of production have continued to increase. Over the past five years, the number of nurseries has declined, as unprofitable operators were forced to withdraw from the industry. Over the five years, establishment and enterprise numbers have fallen at an average compound rate of about 2.4% and 2.3% respectively.

Looking ahead, the industry is likely to see the emergence of new business opportunities, coupled with sustained growth in IGP flowing from the effects of global warming. For example, demand for plant nursery products and services are likely to increase, as they are viewed as playing an important role in mitigating climate change. Plants and trees sold in nurseries will be increasingly recognised as useful tools to naturally reduce carbon footprints and energy costs. Moreover, nurseries will be a platform for discussion of, and information on, sustainable water usage and strategies for adapting to changing climate conditions. Business opportunities already gaining popularity, which stem from these factors, include urban greening, edible gardens, environmental education and sustainable water usage. In the long term, the adoption of these activities will gradually boost revenue for the industry.

This industry is Declining


Products & Services When measured according to dollar value, trees and shrubs account for the greatest proportion of output. They make up such a large component of total revenue because of the high unit value of these plant products and their widespread use in most garden variations. Landscapers use these

products more extensively in their activities, thus the high value of landscaping has a flow-on effect to the value of trees and shrubs. In addition, these products generally take a longer period of time to grow and are sold at higher prices.

Propagation stock is predominantly

KEy buyING INDuSTrIES

A0115 Apple and Pear Growing in Australia Apple and pear growers purchase new fruit trees to replace old growing stock or to expand their orchards.

A0116 Stone Fruit Growing in Australia Stone fruit growers purchase new fruit trees to replace old trees or to expand their orchards.

A0119 Citrus, banana and Other Fruit Growing in Australia These fruit growers purchase fruit trees and nut trees to replace older plantations or to establish new orchards, plantations or citrus groves.

F4519 Livestock and Other Farm Supplies wholesaling in Australia Sales made to fruit growers or municipal authorities may be undertaken through this wholesaling industry.

G5210 Department Stores in Australia Department stores with garden centres may purchase nursery stock directly from plant nurseries.

G523b Hardware retailing in Australia Large hardware stores with garden centres sometime bypass wholesalers and purchase directly from plant nurseries.

G5253 Garden Supplies retailing in Australia Large garden supply retailers sometimes bypass wholesalers and purchase directly from plant nurseries.

KEy SELLING INDuSTrIES

F4523 Chemical wholesaling in Australia The Plant Nurseries industry derives its major raw materials from chemical wholesalers.

Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | business Locations

Supply Chain

Products and services segmentation (2011-12)

Total $1.5bn

48.3%Trees and shrubs

3.1%Bulbs and

seeds

22%Turf

0.7%Other plants

11.6%Propagation stock

8.3%Bedding plants and

coloured foliage

6%Indoor and patio plants



Products & Markets

DemandDeterminants

The demand for plants is predominantly affected by price. Nursery products can be replaced by homegrown seedlings and demand is often discretionary. Thus demand is responsive to changes in income, especially the demand for ornamental trees. Taste and lifestyle are also important in determining the demand for potted plants and shrubs. For example, the increase in the relative importance of apartment accommodation in recent years has adversely affected the demand for the products in this industry.

Product differentiation in this industry is enhanced through increased marketing. Media relating to gardening and home and garden improvements has a significant role in stimulating demand and can influence trends within particular product segments. This is supported by the popularity of home improvement and renovation TV programs such as The Block; Location, Location, Location; Backyard Blitz; Changing Rooms; and Better Homes and Gardens -- all of which have revived interest in home gardening, outdoor landscaping and design. In addition to this have been the successful advertising campaigns from major discount hardware stores such as Bunnings Warehouse, which is a leading retailer for

plant and seedling products. Moreover, there has been growing popularity and acceptance of the internet as a major source of industry information and sales.

Given that a substantial portion of industry output is used to supply commercial fruit growers, demand also depends on the prospects for the fruit-growing industries. Demand from these industries is affected by growing conditions and the extent of import competition. Demand from professional landscapers is affected by the rate at which new homes and buildings are constructed. Turf sales in particular are sensitive to the rate of new construction. The industry is also affected by trends in urban planning, which determine the extent of demand from local governments. The fiscal position of these institutions also affects their expenditure on planting in public areas. Demand for exports depends on the nature of the product, prices on world markets (i.e. the exchange rate) and competition from other suppliers.

Recent improvements in the national economy are expected to translate into increased demand from 2011-12 onwards. The gradual recovery since the 2008 global economic crisis has significantly improved demand side factors for this

Products & Servicescontinued

seedlings, but also includes plants generated from cuttings. This produce actually accounts for the highest portion of sales in terms of quantity, though low-unit value means that the product segment accounts for only 11.6% of total earnings.

The bedding plant and coloured foliage segment includes plants used on median strips, parks and gardens, office fronts, other ornamental gardens and home garden beds. The segment includes plants with highly coloured foliage and flowering plants. The sale of these plants has declined since 2003 given their high water requirement. Also, the high maintenance associated with these plants means the market is more targeted.

Turf growing is quite specialised and is dominated by two major companies, Anco Seed and Turf and StrathAyr. Other larger operators tend to use contract growers. Many operators supply similar types of domestic turf including couch, Tifgreen and Sea Isle. Specialist turf grass varieties are available for landscaping and sports turf applications. Turf accounts for the second largest contribution to total revenue, and demand for turf has grown over the past five years due to strong demand from sporting venues. There is a positive correlation between the performance of sporting competitions, major sporting events and the value of turf production, which boosts revenue for the industry.


Products & Markets

Major Markets Market segmentation within the industry is particularly multidimensional, involving a vast array of downstream demand and niche markets. Broadly, segments can be broken down into amenity (accounting for 41.3% of industry sales), retail (48.8%) and propagator (9.9%) channels. Amenity channels are those that use plant products for beautification of public and private places. These segments include the use by landscapers, local governments and sports venues, as well as for revegetation and hiring of plants. Retail distribution channels include various outlets where green life is sold, while propagators purchase seedlings and other propagation stock to grow further then sell on.

The largest market for the products of the industry is retail nurseries. These represent nurseries that purchase plants from other nurseries to sell to the public. They are predominantly located in inner suburban areas and do not undertake a large degree of propagating, growing or other significant transformation of plant life. Similarly, garden suppliers and hardware stores are generally located in high population areas, thus accounting for a significant proportion of sales. The complementary nature of garden products (such as soil, fertiliser and garden equipment) with nursery products stimulated demand from this segment.

After retailing, the next largest market is landscapers, which are increasingly significant users of green life. As the

DemandDeterminantscontinued

industry, such as rises in discretionary and disposable income, improvements in the unemployment rate and a significant improvement in consumer sentiment since 2008. A decrease in petrol prices, coupled with lower interest rates, has also reduced the financial burden on consumers and increased the prospects for demand given the high discretionary nature of this industry.

Demand for green-life products is also expected to rise in the future, with business growth opportunities and industry exposure flowing from the onset of global warming. According to industry bodies, plant nurseries will be a critical component to tackling the onset of global warming, and promoting environmental sustainability. Plants and trees will naturally help reduce carbon-dioxide levels in the atmosphere and provide an alternative means to save energy by providing shade for example. Additionally, nurseries will be a vital source of information and advice on water management and strategies for adapting to changing climate conditions. Business opportunities already gaining popularity that stem from these factors include urban greening (the inclusion of rooftop or wall greenery in office buildings), the

cultivation of edible gardens at school and home, environmental education and sustainable water usage.

Finally, the rising presence of downstream retailers such as home improvement and hardware chains such as Bunnings Warehouse and the new Masters stores along with Mitre 10 are expected to influence consumer demand with the incentive of lower bulk prices for customers. The market share in the sale of green-life products for hardware and home improvement stores doubled in the past five years. This is likely to expand given the value-conscious consumer spending culture dominating the aftermath of the global economic downturn, also given the massive marketing campaigns deployed by leading hardware chains pushing their low prices for consumers, which smaller independent plant nurseries may find difficult to match.

Gardening and home improvement shows play a significant role in stimulating demand


Products & Markets

International Trade International trade in the industry is small, relative to total revenue. Exports account for just 0.5% of industry revenue, while imports account for 2.5% of domestic demand. Trade is low due to the difficulty of transporting nursery products and the low value-to-weight ratio of the produce. Furthermore, trade in plant nursery products is low due to strict quarantine regulations designed to prevent the spread of disease.

The main countries Australia receives imports from are the Netherlands, New Zealand, India, Thailand and China. The Netherlands is a prominent source of imports due to its significance as a centre for trade in floriculture. Much of the imports from the Netherlands are flower bulbs or other floriculture propagation material. For those involved in industry imports, some volatility would have been

experienced over the past six years, as the ability to grow foreign plant life in Australia’s drought-ridden climate caused some considerable declines. Imports over the five years through

Major Marketscontinued

number of available varieties expands and particular characteristics of plant life are enhanced after being re-engineered, landscapers increase their reliance on industry products. This category also includes the activities of property developers.

Propagators produce plants that are then sold as inputs into agricultural activities. Examples include growing fruit, olive trees, grape vines or seedlings for the Forestry industry. Propagators purchase

the young plants from nurseries and grow them sufficiently before selling them on.

The majority of products sold within the plant hire and garden services segment are to retailers and landscapers. A small proportion of the industry’s sales are direct to the public (2.0%). Other retailers (excluding retail nurseries and hardware stores) include florists, convenience stores and gift stores and account for about 8.1% of revenue.

Major market segmentation (2011-12)

Total $1.5bn

27.6%Retail nursery

6%Local government and sport venues

25.5%Landscapers

5.6%Revegetation

contractors

4.2%Plant hire and garden

services establishments

11.1%Garden supplies

and hardware

10.1%Other retailers

and wholesalers

9.9%Propagators


Level & Trend Exports in the industry are Low and Steady

Imports in the industry are Low and Steady

$ m

illio

n

20

−60

−40

−20

0

1804 06 08 10 12 14 16Year

Exports Imports Balance

Industry trade balance



Products & Markets

International Tradecontinued

2016-17 will show moderate growth, averaging 1.8% a year; although they will actually decline as a percentage of domestic demand.

Exports from the industry go to the Netherlands, United Kingdom and the United States. The prominence of the Netherlands as an export destination is again due to floriculture trade in that country. Like importers, industry exporters have witnessed high volatility. With the onset of the drought and resulting falling production volumes, exports have fallen considerably. Over the five years through 2011-12, exports

are expected to decline at an average 6.4% per year, posting $7.6 million in earnings. This downward trend looks set to continue over the next three years, before experiencing some growth in the final years leading to 2016-17.

Imports From...

Total $37.9m

65%Netherlands

5%Indonesia

10%Other

9%Thailand

7%New Zealand

5%India

Exports To...

Total $7.6m

33%Netherlands

3%Spain

31%Other

19%United Kingdom

7%United States

7%Peru

Year: 2011-12SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA SOURCE: ABS

The Netherlands is a prominent source of imports due to its significance as a centre for trade in floriculture


Products & Markets


TAS3.2

wA11.2

QLD22.2

VIC20.0

NSw33.9

NT1.0

SA8.3

ACT0.2

Establishments (%)

Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable

business Locations 2011-12


Products & Markets

business Locations The largest proportion of revenue generated is within New South Wales, Victoria and Queensland. These states account for over 75% of all establishments. Queensland currently represents considerable growth opportunity given such strong population growth and expanse of undeveloped areas close to major centres. Within states, nurseries tend to be located around capital city fringes, where soil is often fertile and the proximity to markets optimises transport costs.

The location of nurseries depends largely on the nature of their products. Establishments producing seedlings or turf for use primarily by home gardens and municipal authorities are likely to be located reasonably close to urban areas. These operations typically select land that is of above average fertility, such as mountain soils, in areas with relatively high and reliable rainfall or with access to irrigation. Land requirements vary and, except for the production of turf, are relatively modest.

Turf growing was initially concentrated around capital cities, especially Sydney

and Melbourne, but lately new activity has developed in more distant areas. For example, although the majority of commercial producers are still located in Sydney, production in New South Wales is now located in the North Coast, New England, Hunter Valley, Central Coast, South Coast, Orana, Far and Central West, Murray and Riverina regions, as well as in the Australian Capital Territory.

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EstablishmentsPopulation

Distribution of establishments vs. population



Cost Structure benchmarks

When developing the business cost structure, purchases are going to make up the most significant aspect, accounting for half of total revenue.

Collectively, farm chemicals and fertilisers are the two most significant purchases for the industry. Seeds are the third most significant purchase. A

Key Success Factors Financial position of the company (as against financial structure)Producers may need to source inputs on credit, which may be adversely affected by high levels of debt. Also they may need to extend credit to customers, necessitating a cash buffer.

Experienced work forceExtensive hands-on experience within the industry appears to be a key factor in the successful growth of family-based firms into large companies.

Appropriate climatic conditionsLocation is critical. Climatic

conditions must be appropriate to the type of product, and cheap water must be available.

Automation to reduce costs, particularly those associated with labourMinimisation of labour costs through automation is important. Automation also gives better control of the production environment.

Access to the latest available and most efficient technology and techniquesThe ability of producers to use the latest technology in minimising water usage gives them an advantage, especially in areas where water is limited.

Market Share Concentration

A common characteristic of the Agriculture subdivision is that it is highly fragmented, and nurseries are no exception. Establishments employing between one and three employees account for 60.4% of total industry operators; businesses with four to nine employees account for 27.5%; and only 4.3% of operators have more than 20 employees. Fragmentation within the industry can be attributed to low barriers to entry and the nature of predominantly family-run businesses. Low capital requirements for establishing a nursery means that industry entrants can continue to enter the industry freely.

The number of businesses operating in the industry has fallen considerably over the five years through 2010-11. The number left standing in 2010-11 is 2,226 enterprises, a fall of 11.9%. When averaged across the industry, the number of establishments, which may be plantations, farms or other growing facilities operated by one business enterprise, stands at 1.4 per enterprise.

This ratio stays fairly constant from year to year, given that the vast majority of businesses will only operate the one growing facility. It is the larger corporations that account for boosting the average to multiple farms per business. As a consequence of such poor performance in 2008-09, with earnings falling 14%, some rationalisation was displayed in the number of establishments. The number of businesses fell 4.2%, while the number of establishments operated fell 4.7% (i.e. the larger operators reduced their number of growing facilities).

A fall in revenue coincided with the number of establishments withdrawing from the industry over the past five years. In 2005-06, average revenue was $474,781 compared with average earnings per farm in 2010-11 of $463,976, a drop of 2.3% within the five years. While industry concentration will remain especially low, falling revenue is proving a strong deterrent for potential business entrants.

Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure benchmarks basis of Competition | barriers to Entry | Industry Globalisation

Level Concentration in this industry is Low

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:


Competitive Landscape

Cost Structure benchmarkscontinued

characteristic of the required purchases, particularly fertilisers, is their inclination to fluctuate in price. This was most extreme from the end of 2007 through the majority of 2008.

Because profit is revenue less all other costs, many factors combine to determine firm profitability, and these factors can vary widely from business type to business type across the industry. Owner-operators’ wages are reflected in profits, since there is significant variation in how owner-operators extract their returns from the business. Profit margins currently stand at 11.5%, slightly down on 2008 figures as input costs and consumer trends affected the industry in the wake of the global financial crisis. Over the next five years IBISWorld expects profit figures to improve as revenue continues to grow and homeowners continue to propel a higher demand for home improvement materials.

Labour is a relatively large cost component of producing plant life due to the delicate and highly perishable nature of the product. Pruning, land

preparation, weed control and disease control are all labour-intensive activities undertaken in the industry. Currently industry participants spend over 15% of total revenue on wages, a figure that has declined noticeably since 2007-08 and is expected to continue declining over the next five years as improvements in efficiency reduce the overall demand for labour in the industry.

Depreciation on capital equipment includes a range of technologies, from standard farming equipment such as tractors, to computer-controlled irrigation systems. Efficient irrigation is becoming a more important part of the production process, leading to a rise in depreciation costs.

Like most agricultural industries, rent on land is a substantial cost. Generally it is an imputed rent, or return to land ownership, as land is usually owned by the nursery enterprise rather than rented from another owner. Utilities are considerably less expensive than rent and depreciation, due to the industry now really being dependant on

Sector vs. Industry Costs

■ Profi t■ wages■ Purchases■ Depreciation■ utilities■ rent■ Other

Average costs of all industries in

sector (2011-12)Industry costs

(2011-12)

0

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60

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15.2




basis of Competition Characteristics that will always hold some influence over the performance of a business are price, quality, timeliness of delivery and the reliability of production. However, given the nature and relatively large scope of the industry, businesses will carve out a particular market to operate in within the industry. Potential markets can be segmented into household, industrial or landscape demand. Alternatively, markets may be derived from specialising in growing particular plant varieties. The high degree of potential for specialisation and market segmentation allows industry participants to largely determine their own level of competition and insulate themselves from external competition (i.e. from other industries).

As for the production of common plant varieties, downstream retail nurseries are able to substitute between producers and are motivated to seek out the lowest-cost plants as inputs into their business, thus creating price competition. Quality of produce and the number of varieties available will also create a basis of competition. Controlling variables like how seasonal the produce is and branding will give businesses the competitive edge in this respect. Plantations may also compete on their ability to bring goods to markets within a short time frame. Farms with reliable transport services and a good record of delivering as promised will be at an advantage.

Thinking outside the square, some nurseries have begun to market

themselves as more than a provider of nursery goods. For example, some nurseries also contain small cafes, or sell other goods such as gift ware, garden accessories and outdoor furniture. Additionally, some of the larger nurseries are using the popularity of the internet to advertise their products. Other nurseries have used radio and even TV advertising to gain recognition. The localised nature of the industry means that advertising in targeted geographic areas is the most cost-effective.

As genetic engineering improves, end users are increasingly demanding specific characteristics. Closely monitoring downstream demand and quickly adopting new advances in genetic engineering are expected to become the strongest bases of competition from now on, particularly in securing large project-based contracts.

Downstream competition, with the rising popularity of warehouse home improvement and hardware stores, is an important trend plant nurseries in Australia have faced over the last decade. The incorporation of garden centres into popular leading hardware chains such as Bunnings Warehouse and Mitre 10 compete directly with plant nurseries at the retail level and have progressively stolen market share over the past five years. Warehouse-style hardware stores have the advantage of big budget mass advertising of their low prices and discounts, which independent nurseries may struggle to match.

Cost Structure benchmarkscontinued

large amounts of energy, water on the other hand is required, yet most participants would have in place methods of accessing water, other than via the water mains.

Other costs, accounting for 6.3% of

industry revenue, include marketing and advertising and the costs associated with quality assurance, which are becoming increasingly important. This in part reflects the increased emphasis on export markets.

Level & Trend Competition in this industry is Medium and the trend is Steady



Industry Globalisation

There is little foreign ownership of firms within the industry. Operators generally earn moderate profit with average revenue consistently relatively low. As a result, the industry attracts little attention from foreign investors. Similarly, the share of sales generated by offshore establishments is low. Less than 3.0% of the enterprises operating within the industry have offshore establishments. The most prominent

firms in the industry operate on a strictly domestic basis.

Exports account for a very small 0.5% of industry revenue, and imports account for a small proportion of domestic demand, at only 2.5%. Over the past five years, the value of international trade was highly volatile and declining. Over this period, both exports and imports declined at an average rate of 8.7% and 0.7%

barriers to Entry There are no significant barriers to entry into the industry. Skill requirements are moderately easy to acquire and expertise can come from a range of subcontracted or consulting agents. Economies of scale can be an advantage in production, but are not significant enough within the industry to prevent new entry. Sources suggest it is necessary to retain one third of the investment amount intended for a new business given the losses incurred in the first couple of years. This is due to the variability of profit margins in the industry.

The ability to attain supply contracts may prove problematic, or at the very least is subject to careful consideration in the nursery start-up plan. Proximity to desired markets is particularly important, given the perishable nature

of some plant life and the ability to transport others. The industry generally has high initial capital costs, especially in relation to stock levels and plant breeding. Despite this, the necessary inputs are readily available. Often entry is via other agricultural activity or is complementary to other activity.

barriers to entry checklist Level

Competition MediumConcentration LowLife cycle stage DeclineCapital intensity MediumTechnology change MediumRegulation and policy MediumIndustry assistance Low


Level & Trend Barriers to Entry in this industry are Low and Steady


Trade Globalisation Going Global: Plant Nurseries 1997-2011

Expo

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200

150

100

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200

150

100

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Imports/Domestic Demand Imports/Domestic Demand0 040 4080 80120 120160 160

International trade is a major determinant of an industry’s level of globalisation.

Exports offer growth opportunities for fi rms. However there are legal, economic and political risks associated with dealing in foreign countries.

Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local fi rms would otherwise supply.

Export ExportGlobal Global

ImportLocal ImportLocalPlant Nurseries 1997

2011

Level & Trend Globalisation in this industry is Low and the trend is Decreasing



Industry Globalisationcontinued

respectively. Imports are expected to increase over the coming five years, largely because of increased discretionary spending by households

and freer credit markets allowing relevant construction projects. Exports on the other hand, are expected to decrease slightly each year.


Other Companies Industry establishments tend to be relatively small. Most enterprises are individual agricultural holdings rather than multiple site operations. Firms are generally organised on the basis of a family partnership or as a sole proprietorship. Given the role of the small family operator, there is a high degree of fragmentation within the industry. Alternatively, businesses are organised as private companies. There is considerable public sector participation in the industry, with many government and municipal nurseries, although few of these sell to the public and they account for only a small proportion of industry activity. Especially for seed propagation, growing operations may be contracted out. There are also a small number of corporate operators.

Turf growing tends to be more specialised. It is dominated by two major companies, Anco Seed and Turf and StrathAyr. Other smaller players in Victoria include HG Turf and Lilydale Instant Turf. In New South Wales, the major operators are Windsor Turf and Fairway Turf and Lawn Supplies. However, they do not grow turf themselves but outsource to contract growers. Queensland demonstrates a similar industry structure, wherein Jimboomba Turf Group is the primary supplier, employing contract growers.

Anco Seed and Turf Pty LtdEstimated market share: 2.0%Anco Seed and Turf Pty Ltd has operated in the industry for more than 25 years. It supplies instant turf to Victorian landscapers, golf courses, race tracks and households. The company grows a variety of grasses for various seasons during the year with farms located across Victoria at Lyndhurst, Clyde, Five Ways and Torquay. The company grows and sells a variety of turf surfaces that are designed for various outcomes, such as for toughness, beauty, sun or shade and durability. Varieties include tall fescue, all rounder, blue/rye, Santa Ana Couch and Kikuyu. Anco is the largest turf grower in Australia by land size.

According to company sources, the company has a 30% share of the turf industry segment, with revenue of about $18.3 million.

StrathAyr Turf Systems Pty Ltd Estimated market share: 2.0%StrathAyr Turf Systems Pty Ltd was established as a single turf farm in Tasmania. In 1972 it expanded into Victoria. In 1990, the company expanded internationally following its resurfacing of the Sha Tin Racecourse in Hong Kong. The turf was originally transported from Australia, but the company now uses a network of licensees and distributors in several countries including Egypt, the United Kingdom, the United States, Singapore, Malaysia and Hong Kong.

StrathAyr is also a developer of turf-related technology. The turf is used in commercial and domestic landscaping and sports field construction for the full range of sporting and equestrian activities. The company’s main area of operation is sports turf problem-solving. Approximately 60% of the company’s business is done overseas. In Australia, the company employs 35 staff.

The company’s main customer base is households, commercial venues and major projects. Commercially, the company provides turf to racetracks, sports grounds, golf courses, councils and schools. Internationally, StrathAyr has a number of customers for major projects including: sports ground developers, racetrack and venue managers, golf course architects, civil engineers, government bodies, licensees and distributors. The company has a 30% share of the turf industry with revenue of approximately $18 million.

Orica LimitedOrica Limited primarily operates in chemical manufacturing, mining services and agricultural products industries. Among its other activities, it is a supplier of seeds to the consumer market, and thus an important external competitor to the industry. Actual propagation of seeds is contracted out to independent enterprises.

Major CompaniesThere are no major players in this industry | Other


Major Companies

Other Companiescontinued

Arthur Yates and Co. Ltd (Yates Ltd)Arthur Yates and Co. Ltd was an Australian public listed company with operations in Australia and New Zealand. The company’s core business, its garden supplies arm (Yates Ltd), was acquired by Orica Ltd in 2003 for $45 million, and is the largest manufacturer and marketer of garden products in Australia and New Zealand. Following the sale of its core business, Arthur Yates and Co. Ltd changed its name to Ausron Ltd and began focusing on investment activities.

Yates Ltd also has operations in the Garden Supplies Retailing industry. Yates Ltd’s products include seeds, bulbs, plant health, plant food, growing media, garden merchandise, gardening services and propagated plants. The Yates brand has been in existence for over 110 years and has strong brand names, including Zero, Dynamic Lifter, Grow-Plus and Thrive. It thus has a relatively high market share compared with other producers, which is largely based on reputation.

Downstream competitorsAs hardware stores like Bunnings (and shortly Masters the Woolworths hardware competitor) continue to position themselves as a DIY and home renovation one-stop shop, their gardening demands and market share are expected to expand over the next five years.

WesfarmersWesfarmers is the parent company of Bunnings, the country’s largest home improvement store. The company sells a wide range of products for the bathroom, kitchen, garden and other household areas. It sells tools, hardware, flooring, window furnishings, lighting and electronic equipment. It operates in Australia and New Zealand through warehouse stores, small stores and trade centres. It also operates through frame and truss manufacturing locations. The company states that its strategy involves providing products at a low price and providing good-quality service.

With 192 warehouse stores, 59 smaller format-type stores and 35 trade centre stores, Bunnings has a share of about 20% of the Hardware Retailing industry, but also generates a large amount of revenue from other products, such as plants and gardening supplies, making Bunnings a fierce competitor to Australian nurseries on a retail level. Recently there have been a large number of Bunnings-branded stores opening up around the country. In 2009-10, the company opened 11 warehouses, nine trade centres and two smaller stores.

Mitre 10Mitre 10 is Australia’s second-largest hardware chain. Since the late-1950s, Mitre 10 has expanded nationwide and operates under three banners: Mitre 10 Handy, Mitre Solutions and Mitre 10 Home & Trade. The company also operates the True Value chain of hardware stores across Australia. Stores are independently owned and Mitre 10 (Australia) Ltd is the controlling company that coordinates the development of services, marketing, purchasing, distribution, store layout and design. The group has a number of private-label brands, including Accent, Grilled and Buy Right. Products include outdoor furniture, paint and power tools. Mitre 10 is undergoing a restructure and has introduced a new strategy. The group plans to place a greater focus on its core business in three stages: stabilisation, reinvigoration and growth.

In February 2007, Mitre 10 was expected to formally start a new investment vehicle to be used to purchase a number of independent Mitre 10, Home and Thrifty Link hardware stores. Mitre 10 is believed to have sought interest from a number of private equity players. In November 2006, Mitre 10 had already purchased five hardware stores in New South Wales and Victoria with the aim of gaining scale to effectively compete with Bunnings, which will increase pressure on plant nurseries at a retail level.


Major Companies

Other Companiescontinued

WoolworthsA new entrant into the Australian Hardware Retailing industry will potentially give Bunnings some serious competition. Woolworths’ takeover of Danks, as part of a joint venture with Lowe’s (the second-largest home improvement chain in the United States), is expected to make Danks a direct competitor with Bunnings over the next decade. It plans to use the target company’s supply chain as the foundation for a chain of big-box hardware stores to compete with market leader, the Wesfarmers-owned Bunnings. The takeover not only means access to the Hardware Retailing industry, but the entire hardware sector, as Danks is a vertically integrated operator. The Australian Competition and Consumer Commission approved the acquisition in late 2009, and Woolworths has now completed the purchase. This included 581 stores under the brands Home Timber & Hardware, Thrifty-Link Hardware and Plants Plus Garden Centre. Woolworths also purchased five hardware stores in Tasmania during 2009-10, through the purchase of Gunns’ retail division. It additionally acquired another hardware store brand in Tasmania, Becks Timber and Hardware.

Before its acquisition by Woolworths, Danks operated as a hardware wholesaler with limited retail outlets around Australia. Home Hardware focuses on marketing key hardware products like paint, general hardware, timber and building materials, power tools and garden products. Key consumers include tradespeople, renovators and serious DIYers. Thrifty-Link Hardware stores cater to the needs of those that purchase items occasionally. Stores were independently owned and operated, although they were serviced by Danks Limited, which purchased the promotional group of Thrifty-Link in 1982 and in 1993 created the Home Timber & Hardware group. Danks supplies products, fits out stores and offers marketing support to these independent stores.

From the perspective of plant nurseries in Australia, the entrance of Woolworths into the home improvement segment is expected to trigger downstream consolidation within the Hardware Retailing industry. This is expected to increase competition for plant nurseries and possibly dampen profit margins given the capacity of major home improvement chains to sell bulk gardening items at lower prices than independent nurseries.


Capital Intensity Almost all agricultural industries require a high level of capital intensity. This is a ratio of how production capacity is achieved between labour and equipment. High capital intensity is often a characteristic of a highly automated and mechanised industry, usually encountered in the harvesting process. Plant nurseries however, fall into a medium level of capital intensity, where the ratio is $3.05 spent on labour for every $1.00 spent on capital. Labour requirements within the industry are much higher than that of other agricultural industries.

The industry does not require high levels of capital or equipment. Although the industry requires the acquisition of land that is generally highly valued, this is not a depreciable asset and therefore is not a capital expense. Capital expenditure in the industry is primarily associated irrigation technologies, and the use of

undercover production facilities to control growing conditions and maximise quality.

Over the past decade, the labour requirement has been declining because of increased computer-assisted watering and monitoring systems. This advance has increased the capital

Operating ConditionsCapital Intensity | Technology & Systems | Industry Volatilityregulation & Policy | Industry Assistance

Tools of the trade: Growth strategies for success


Labo

ur In

tens

ive Capital Intensive

Change in Share of the Economy

New Age Economy

recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation.

Traditional Service Economy

wholesale and retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Cut Flower Growing

Apple and Pear Growing

Chemical wholesaling

Hay and Other Crop Growing

Stone Fruit Growing

Plant Nurseries

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4


Dotted line shows a high level of capital intensity

Capital units per labour unit

Plant NurseriesAgriculture, Forestry and

Fishing

Economy

Level The level of capital intensity is Medium


Operating Conditions

revenue Volatility Weather conditions have the potential to significantly influence production volumes, and this was demonstrated by the recent seven-year drought that strongly influenced production, especially in relation to plant breeding. The severity of this climatic change limited water

supply, thereby increasing the cost of production and limiting the variety of plants that can be grown. The shift towards greenhouses and more advanced production facilities has offset some of the significant reduction in production volume, though the industry remains

Technology& Systems

Only five years ago, a large number of small nurseries were using little technology, employed little capital in plant-growing facilities and were relatively inefficient. This situation however is continuing to change, especially among larger growers. Changes have occurred in irrigation systems. The introduction of micro-irrigation systems has enabled water to be trickled in predetermined amounts to individual plants or pots. In addition, the drip line can be used to feed the plants with a balanced mix of fertiliser and may be used for insecticide to combat insect attacks. The ability to determine when it is necessary to spray for pests and diseases has also improved. Additionally, given the sales aspect of plant nurseries, one of the major advances has been the installation of computer-controlled inventory management systems.

There has been a shift away from production outdoors, to production in greenhouses. The latter provides shelter from the weather and allows for controlled climatic conditions, including temperature, light and humidity to optimise ideal growing conditions. The cost of enclosure has been reduced in many cases by the use of plastic and shade-cloth rather than glass. About 4.7% of the land used for production by the industry is devoted to greenhouses, with a further 7.7% devoted to shade houses.

The most significant technological

changes affecting the industry are associated with genetic engineering. While this technology has been available for some time, it has yet to have its full effect. Recently scientists have identified the gene responsible for the development of wood in trees and this may result in the ability to speed up growth of eucalyptus and other plants.

There was increased interest in either the creation of or the discovery of plants that are easy to grow and require minimal maintenance. The flower carpet is an example of one plant that is largely immune to disease and hence requires no spraying.

Horticulture Australia Ltd (HAL) is the national research and development organisation for the horticulture industry. HAL is funded by peak industry groups and the Commonwealth Government, and works with the industry to determine research requirements, as well as preparing, funding and coordinating projects. HAL is also involved in the dissemination, adoption and commercialisation of resulting technologies.

Capital Intensitycontinued

requisite, though the reduction in labour necessity has largely offset any increase in investment requirements. Overall, labour will always remain a

necessary input for the industry, whereby there will always be a requirement for a skilled and knowledgeable workforce.

Level The level of Technology Change is Medium

The most significant industry technological changes are associated with genetic engineering

Level The level of Volatility is Medium



revenue Volatilitycontinued

largely victim to the elements. In addition to the difficult growing conditions, there have been fluctuations in downstream demand, particularly where the drought reduced overall demand due to the difficulty of maintaining plant life dependent on water. This was supported by the consistent drop in revenue in 2004-05 and 2005-06 of approximately 9.0% each year. The 2008 financial crisis also adversely affected industry revenue largely because of the fall in spending from households and the Construction division. Plants are a highly discretionary item and are among the first goods to be victim of reduced spending when consumer sentiment is low.

Recent improvements to the environment and economy are expected to translate into revenue growth for 2011-12.The gradual recovery since the 2008 global economic crisis has significantly improved demand side factors for the industry such as rises in discretionary and disposable income, improvements in the unemployment

rate and a significant improvement in consumer sentiment since 2008. Moreover, a decrease in petrol prices coupled with lower interest rates have also reduced the financial burden on consumers, and increased the prospects for demand given the high discretionary nature of the industry. Moreover, several favourable supply side factors such as above-average rainfall and an easing of drought conditions have also contributed to industry growth over 2011-12, which is expected to rise by 1.3%, totalling $1.54 billion. The future is also looking brighter, thanks to new business opportunities arising from growing concern over climate change coupled with the ongoing recovery from the global credit crisis. According to industry bodies, plant nurseries will be a critical component in tackling the onset of global warming and in promoting environmental sustainability. As a result, industry revenue is expected to rise at an average annual rate of 2.6% over the next five years.


Volatility vs Growth

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Hazardous

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* Axis is in logarithmic scale

Plant Nurseries

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.



Industry Assistance There are no tariffs imposed on the plant nursery industry, and tariffs have never been a means of protection. Protection is largely a result of isolation and the distance of the Australian market to international markets. This does force relatively high transport costs for domestic exporters. More importantly, the industry is protected by Australia’s relatively stringent quarantine restrictions, especially in relation to the importation of plants and parts of plants.

A levy is payable on nursery products to provide funding for research and development carried out by Horticulture Australia Ltd (HAL). The levy is payable on potted plants produced in Australia that are sold or used by the producer in the production of other goods. However, for ease of collection, the levy is paid on the purchase of pots by the producer. The levy is 5.0% of the purchase price of the pot or container (excluding GST). HAL publishes an annual report on projects undertaken in the preceding 12 month which benefit the industry.

In 2008, a national turf levy was

introduced, at 1.5 cents per square metre of turf produced. The federal government will match 80% of the proceeds of the levy, which is the portion to be used in research and development. The remaining 20% of levy proceeds will be used in marketing efforts. An industry advisory committee has been established to administer the funds and appoint funding.

The Nursery and Garden Industry Australia (NGIA) is the peak organisation for the industry. Producers can become a member of any of the state-based associations which fall under this umbrella group. Fees are based on the number of full-time employees working for the company. In partnership with HAL, NGIA publishes research, and has also developed a strategic plan for industry development. This includes marketing and research and development objectives.

Level & Trend The level of Industry Assistance is Low and the trend is Steady

Australia’s stringent quarantine restrictions protect the industry

regulation & Policy The most significant recent legislation affecting this industry is that relating to Plant Variety Rights Act 1987. The act was amended in 1990-91 to provide better protection for plant breeders, and to extend the coverage of the act to all general plant species. Under this legislation, the property rights of the plant breeder are recognised, and breeders acquire the right to charge others for the use of their varieties. The industry is also subject to regulations designed to restrict the spread of insects and diseases. Strict quarantine restrictions apply to the import and export of plants and parts of plants.

Though not compulsory, increasingly nursery operators are seeking or considering seeking Quality Assurance Accreditation (ISO 9002). This provides a safeguard that is both sought and

required by customers such as the supermarket chains, and is necessary for export. It also has the side benefit of necessitating improved record keeping by the business.

Although the level of regulation applying to this industry is relatively low, it is expected to be affected by public policy encouraging more efficient use of energy and water, and by changes in urban design. State governments are increasingly aiming to direct planting decisions towards higher-density housing with shared green spaces. A reflection of these policies will be an increase in the number of homes established without gardens, thereby reducing downstream demand from households. According to the Australian Garden Market Monitor (2008), 24% of NSW households do not have gardens, compared with 18.6% in 1994.

Level & Trend The level of Regulation is Medium and the trend is Steady


Key Statisticsrevenue

($m)

Industry Value Added

($m) Establishments Enterprises EmploymentExports

($m)Imports

($m)wages ($m)

Domestic Demand

($m)2002-03 2,293.5 791.3 4,059 2,841 6,686 19.9 50.4 412.8 2,324.02003-04 2,173.8 760.8 3,816 2,670 5,995 14.0 41.9 369.5 2,201.72004-05 1,975.5 721.1 3,666 2,566 5,941 16.3 43.2 355.6 2,002.42005-06 1,790.8 662.7 3,612 2,528 5,678 12.9 40.2 322.4 1,818.12006-07 1,740.6 661.4 3,534 2,473 5,780 10.6 41.0 313.3 1,771.02007-08 1,645.2 575.8 3,414 2,389 5,700 9.9 41.9 296.1 1,677.22008-09 1,408.7 510.5 3,253 2,289 5,022 8.8 39.6 266.4 1,439.52009-10 1,453.0 490.1 3,207 2,259 4,884 8.6 40.7 258.2 1,485.12010-11 1,521.0 530.2 3,159 2,226 4,800 8.1 38.6 244.9 1,551.52011-12 1,541.2 518.4 3,123 2,201 4,760 7.6 37.9 234.5 1,571.52012-13 1,597.6 532.4 3,105 2,189 4,799 7.5 38.2 236.0 1,628.32013-14 1,619.6 548.0 3,059 2,156 4,820 7.4 38.9 239.0 1,651.12014-15 1,705.6 578.5 3,039 2,140 4,890 7.4 39.4 242.0 1,737.62015-16 1,711.2 596.1 3,001 2,110 4,950 7.4 40.4 245.0 1,744.22016-17 1,752.6 623.3 2,989 2,099 5,020 7.8 41.5 249.0 1,786.3Sector rank 15/25 10/25 13/25 13/25 17/25 14/17 8/15 11/25 8/15Economy rank 365/495 339/495 152/495 145/495 342/495 199/211 162/192 353/495 143/189

IVA/revenue (%)

Imports/Demand (%)

Exports/revenue (%)

revenue per Employee

($’000)wages/revenue

(%)Employees

per Est.Average wage

($)

Share of the Economy

(%)2002-03 34.50 2.17 0.87 343.03 18.00 1.65 61,740.95 0.082003-04 35.00 1.90 0.64 362.60 17.00 1.57 61,634.70 0.072004-05 36.50 2.16 0.83 332.52 18.00 1.62 59,855.24 0.062005-06 37.01 2.21 0.72 315.39 18.00 1.57 56,780.56 0.062006-07 38.00 2.32 0.61 301.14 18.00 1.64 54,204.15 0.062007-08 35.00 2.50 0.60 288.63 18.00 1.67 51,947.37 0.052008-09 36.24 2.75 0.62 280.51 18.91 1.54 53,046.59 0.042009-10 33.73 2.74 0.59 297.50 17.77 1.52 52,866.50 0.042010-11 34.86 2.49 0.53 316.88 16.10 1.52 51,020.83 0.042011-12 33.64 2.41 0.49 323.78 15.22 1.52 49,264.71 0.042012-13 33.32 2.35 0.47 332.90 14.77 1.55 49,176.91 0.042013-14 33.84 2.36 0.46 336.02 14.76 1.58 49,585.06 0.042014-15 33.92 2.27 0.43 348.79 14.19 1.61 49,488.75 0.042015-16 34.84 2.32 0.43 345.70 14.32 1.65 49,494.95 0.042016-17 35.56 2.32 0.45 349.12 14.21 1.68 49,601.59 N/ASector rank 6/25 9/15 15/17 8/25 11/25 17/25 5/25 10/25Economy rank 211/495 149/189 191/211 250/495 265/495 467/495 282/495 339/495

Figures are inflation-adjusted 2012 dollars. Rank refers to 2012 data.

revenue (%)

Industry Value Added

(%)Establishments

(%)Enterprises

(%)Employment

(%)Exports

(%)Imports

(%)wages

(%)

Domestic Demand

(%)2003-04 -5.2 -3.9 -6.0 -6.0 -10.3 -29.6 -16.9 -10.5 -5.32004-05 -9.1 -5.2 -3.9 -3.9 -0.9 16.4 3.1 -3.8 -9.12005-06 -9.3 -8.1 -1.5 -1.5 -4.4 -20.9 -6.9 -9.3 -9.22006-07 -2.8 -0.2 -2.2 -2.2 1.8 -17.8 2.0 -2.8 -2.62007-08 -5.5 -12.9 -3.4 -3.4 -1.4 -6.6 2.2 -5.5 -5.32008-09 -14.4 -11.3 -4.7 -4.2 -11.9 -11.1 -5.5 -10.0 -14.22009-10 3.1 -4.0 -1.4 -1.3 -2.7 -2.3 2.8 -3.1 3.22010-11 4.7 8.2 -1.5 -1.5 -1.7 -5.8 -5.2 -5.2 4.52011-12 1.3 -2.2 -1.1 -1.1 -0.8 -6.2 -1.8 -4.2 1.32012-13 3.7 2.7 -0.6 -0.5 0.8 -1.3 0.8 0.6 3.62013-14 1.4 2.9 -1.5 -1.5 0.4 -1.3 1.8 1.3 1.42014-15 5.3 5.6 -0.7 -0.7 1.5 0.0 1.3 1.3 5.22015-16 0.3 3.0 -1.3 -1.4 1.2 0.0 2.5 1.2 0.42016-17 2.4 4.6 -0.4 -0.5 1.4 5.4 2.7 1.6 2.4Sector rank 11/25 10/25 15/25 13/25 15/25 12/17 8/15 19/25 4/15Economy rank 287/495 280/495 405/495 394/495 394/495 173/211 109/192 364/495 99/189

Annual Change

Key ratios

Industry Data



Jargon & Glossary

bArrIErS TO ENTry Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry.

CAPITAL/LAbOur INTENSITy An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation.

CONSTANT PrICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using 2011-12 as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the ‘real’ growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the Australian Bureau of Statistics’ implicit GDP price deflator.

DOMESTIC DEMAND The use of goods and services within Australia; the sum of imports and domestic production minus exports.

EArNINGS bEFOrE INTErEST AND TAX (EbIT) IBISWorld uses EBIT as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding tax and interest.

EMPLOyMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees.

ENTErPrISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry.

ESTAbLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates.

EXPOrTS The total sales and transfers of goods produced by an industry that are exported.

IMPOrTS The value of goods and services imported with the amount payable to non-residents.

INDuSTry CONCENTrATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 –70% of revenue; Low is less than 40%.

INDuSTry rEVENuE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDuSTry VALuE ADDED The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added).

INTErNATIONAL TrADE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%.

LIFE CyCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each.

NON-EMPLOyING ESTAbLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals.

VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than ±20%; High Volatility is between ±10% and ±20%; Moderate Volatility is between ±3% and ±10%; and Low Volatility is less than ±3%.

wAGES The gross total wages and salaries of all employees of the establishment.

Industry Jargon

IbISworld Glossary

GrEENHOuSE An enclosure designed to artificially create the ideal growing environment for the respective flower variety. Greenhouses control the climatic aspects including temperature, humidity and light.

LANDSCAPEr Someone who arranges features of the landscape or garden attractively.

PrOPAGATOr The deliberate, directed reproduction of plants using plant seeds, cells or tissue.

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Documents

A0111 Plant Nurseries in Australia Industry Report.pdf