 Hi, I'm Jeremy Pickens, an assistant professor in the horticulture department at Auburn University. If you need to find me, I'm down at the ornamental horticulture research center in Mobile. In this presentation, we're going to talk about some business considerations in greenhouse lettuce production. First, let's talk about the product. What you're looking at in a greenhouse vegetable crop is a bib or leaf type lettuce. You're not really focusing on romaine or iceberg or heading type lettuce. That's because the crop production time for these is much longer. If you want a short crop production period, it's possible when we're talking about greenhouse lettuce. That's because we're selling things based on the unit. We're selling things based on a per head basis and not on a weight basis. It really doesn't matter the weight. We are trying to get probably around a five and a half ounce head on average, but we're really focused on selling it by head so the more heads we can produce per area, per year, the more money we're going to make. On average, a 30 day crop cycle is a good benchmark. I go by transplants to harvest. I think this is a good number to use when discussing efficiency so the more times you can turn over an area within a year, the better. Some go by seedlings to harvest. I consider this number not very useful as seedlings take up a very small fraction of the greenhouse and represent a very minor cost of production. Your golden yield improvement is not to get more weight in a 30 day window, but rather to get a target weight in less than 30 days. It's fine because your greenhouse is expensive real estate. Every square foot is costing you money regardless of if a crop is growing in that area or not. So if fans are running, equipment is being depreciated and interest is being charged. So the faster you turn out a crop, the more you spread out the cost and subsequently the more money you will make. Before you even break ground, it's really important to do a little bit of homework and understand the market opportunities in your area. There are different kinds of markets out there. There's direct markets where you're selling directly to the end user like a farmer's market or a farm stand, maybe a chef and in some cases a CSA. There's also bulk or wholesale markets where you're selling a larger quantity probably at a lower price to a wholesale distributor, like maybe a distributor or a grocery store or in some cases a CSA or a food hub. The proximity to your market is really important if you're doing any sort of direct market sales. So how far is too far is a question you need to ask yourself and you need to figure that out. So you need to know at what point is a market too far away where there's no way I can break even just on my trip. So gas costs money, wear and tear on your vehicle costs money and something really important is your time. Your time is not free. So here's a little bit of math I've done in this table just to give you an idea of how far away a market might be that includes a return trip and how many heads of lettuce you'd have to sell just to break even. So just driving 10 miles, if a market is 10 miles away, you're looking at selling, having to sell 66 heads just to break even. Selling 66 heads of lettuce at a market is not always an easy thing. There's sometimes at a market you're not going to sell any heads of lettuce. It's a highly perishable product and it's not something people can just carry around with them throughout the day after they leave your market stand. So it's really important to understand how far away is too far. I often get asked what comes first, do I need a product or a market first? And that's a really hard question to answer, it's like the chicken or the egg dilemma. So I would say it's probably a little bit of both and it kind of depends on your situation. If you are really close to known markets and you do your homework, you can probably go out and go ahead and get your product and then go ahead and start selling. Now if you're far away from any potential markets and maybe your target is like a bulk or wholesale type market, you probably need to get some sort of agreement with a buyer before you break ground or at least a couple of buyers so you have some options. So it kind of depends on the situation. It's nice to have a product to go market. This is especially true if you're doing direct market sales but if you're doing a bulk wholesale type scenario and you're looking for quantity, you probably need to go out and find that market first, get some sort of commitment if you can and then break ground on your facility. Okay, I think before we talk about price, it's really important to understand what your major competition is. There could be some competition from other growers but really your biggest competition or the piece of the pie that you're after in the whole lettuce market is that of California, Arizona. They produce about 95% of the lettuce grown in the U.S. It is a high quality product. It is produced very inexpensively and can get shipped across the country in very little time. Okay, it's going to be most often for chefs, it can be available in a bag chopped product and it's already been triple rinsed. They don't have to do anything with it but open the bag and go. So that is some major competition and I don't think you need to compete head to head with those guys because you're going to lose. They can grow it so much cheaper than we can just because of their great climate and the economy of scale. So don't try to go head to head with those guys. What you need to be doing is marketing a premium product. You're selling local, you're selling fresh, you're selling flavor. And that's really where you need to be in terms of marketing your product and trying to get a premium price for it so you can cover your production cost. I think it's really important especially for a small grower not to have all your eggs in one basket. Anytime somebody says, I'll buy everything you grow, be very skeptical. It's not that they don't have good intentions but sometimes people don't really understand what a thousand heads of lettuce looks like. So don't be this guy. This is me throwing away a thousand heads of lettuce because somebody couldn't buy everything that we could grow and it's not just this one crop. It is, you know, I have three or four crops in the greenhouse at any given time. And so if I lose a market, everything's tied up in one market, then I have to pretty much eat that lettuce until I find a new market and that can be pretty costly. So what does it cost to grow a head of lettuce? Well this is sort of a breakdown and these are a little older prices and these can change based on economy of scale and your buying power. But this is, the percentages are pretty much going to stay the same where you should notice that, you know, seeds and oasis, that's the cubes you grow the lettuce transplants in, fertilizer, pretty minor expenses, not stuff you really need to worry about too much, however, labor is a huge expense, energy cost is a huge expense and a lot of the expense people don't consider at all when they're starting out is packing or packing a gene. So what does it cost for me to put that lettuce in a clamshell or crisper or a box? So here are some numbers I got from a friend who's a pretty large grower in New York State. This is based off a case of lettuce with 12 heads. So if you put them in clamshells and into a box, you're looking at 450 total in packaging for that box, whereas the whole box of lettuce in other words. So the box itself costs about a dollar, you're looking at 23 cents or more for the clamshells or crispers and 7 cents for the label, not including labor to put all that together. Now a loose box is a little cheaper, this is if you're selling in bulk, maybe to a chef, they don't really want these in crispers, again you got a dollar in the box itself and about 6 cents for that plastic liner. And you really need to pay attention to how you're packaging these and be really careful in terms of food safety. I would suggest not reusing containers, once it goes into a cooler at a restaurant you have no idea what it's sitting next to and you don't want to bring any sort of tainted packaging material back to the farm where you could contaminate your crop. So I think it's good to once it leaves the farm it does not come back. Understanding your market and your production costs, just the business aspects in general for greenhouse vegetables is really important because the infrastructure costs so much. You have really high developmental costs, way higher than if you were to do this in the field. It's easy to walk away from a field of lettuce, however, when you start building greenhouses you're talking big money. A greenhouse can cost anywhere from $20,000 to $100,000 depending on all the bells and whistles you want in it. A major element of that cost is in constructing it. It can cost anywhere from $12,000 to $15,000 to build a greenhouse if you have a contractor doing it, a greenhouse contractor doing it. So you can save a considerable amount of money building yourself. On average your greenhouse frame is going to cost anywhere from $6,000 to $9,000. Somewhere in there just depending on the cost of metal. And most of these probably are a little outdated but this is a pretty good average of cost associated with building a new greenhouse. Can you buy used greenhouse frames? Yes, you can, however, you should be really cautious in that. Just because it's cheaper and it's a greenhouse doesn't mean it's the greenhouse that you need to use. All right. A lot of the older greenhouses you find for sale are very short, squatty structures. That's because the folks used to believe in keeping that hot air close to the crop. Over in Alabama, we spend more time trying to cool a greenhouse, especially when growing less than trying to heat it. So the short, squatty greenhouses do not vent well. They get extremely hot in the summertime. And so by buying a cheaper used frame, it may end up costing you a lot of money in the future in having failed crops. So we talked about what it cost to build a greenhouse, what it cost to own a greenhouse. So again, this is a 30 by 96 greenhouse, which is an average freestanding greenhouse. And this assumes you've got a loan on it for the total amount needed. You put a little bit of money down. So you get the cost of the greenhouse, the cost of the loan and interest. You also have energy to run the fans and heaters. And so roughly you could probably count on about a quarter of a square foot per month depending on your energy needs and whether or not you got a loan. So that means you've got to come up with that fixed cost associated with that just owning that greenhouse and cover that through your crop. OK, so I had a disclaimer, full disclosure. I'm going to show you some budgets just to get some points across to you. But just keep in mind that these are older. I've based these off some numbers I got probably five or six years ago. So they're not updated nor have they been validated by a real economist. So I'm just pretending to be one. But I wanted to show you a couple of these and just some scenarios just so you get kind of a feel for how things operate in this type of business. So enterprise budgets are great tools. You can kind of think of it like a model. All right, so you can plug numbers in and you can determine what your production cost are, what your break even costs. And this is very, very important. OK, you can see, use this as a tool to improve efficiency. You know, throughout the year, you can be checking your numbers to see where you stand on goals and how you might make improvements. You can use this to set your price. They're great tools. And if you're going to get in this sort of business, considering how much it costs to get to invest, I would highly recommend getting with somebody with our farm business team. And we can help you come up with an enterprise budget for this type of facility or share some information we may already have in on that subject. So first, I want to costume you about labor. Labor is the largest variable cost associated with any sort of special crop production, especially greenhouse production of vegetables. A good benchmark, just from average that I've seen with different growers, you're looking about 20 to 25 man hours per week per 3,000 square foot or 30 by 96 greenhouse. So labor can make or break you. And here's an example of that. This is if you, here's enterprise budget or a model. So you can see, I'm only going to change the number here in blue and you can watch and see how our net return or our profit changes there in the bottom in yellow. So this is a 25 man hours per week. And I'm looking at about almost $12,000 in net returns. Now, what happens if my labor is slow? They take a lot of smoke breaks, play on their phone too much. Instead of 25 man hours per week, now I'm at 35 man hours per week. So this is such a dramatic change in our net profit. So we lost almost half of our profit just because we're not paying attention and pushing our labor to stay close to that benchmark we've already established. Yet it's really important you know your break even cost of production so you can help set prices. Because every penny counts, especially when you're dealing with selling 38,000 units. So here we have $1.50 a head versus $1.20 a head. In this scenario, maybe you were negotiating with a chef when you're thinking, oh, what's 30 cents? Well, 30 cents can be a lot when you extrapolate that over 38,271 heads of lettuce. So in this scenario, $1.50, again we're making about $12,000 in net profit. We drop our price to keep that chef a little happy. And now we're only making $400 in net profit. So that's a big deal. That's something you really need to pay attention to. It's going to be based on the scenario and your production costs. It may not be this dramatic, but you can see where it definitely has the potential to make or break you. So there is a cost associated with not selling a product. So if you're growing a product and for some reason it doesn't sell, maybe you drop a customer or something happens, you're still going to be incurring costs on that crop regardless. You're going to be incurring costs on just space in the greenhouse regardless if there's a crop there or not. So I think it's really important to understand that and to plan for it because nothing, you're never going to sell 100% of your crop. OK, so you need to be ready and have some sort of buffer in place where you know you can take that hit. So here's a scenario that we've been working with at $1.50 a head, 38,000 units, 90% crop success, and then we sold 90% of our crop where we're making about $12,000 in profit. OK, so this is what happens if we only are able to sell 75% of it. It's not exactly proportional. Now we are losing money because we are growing lettuce that's not getting sold. And so you can see we had a pretty dramatic drop in our net profit. That's because labor is being used to sow the seeds, plant the crop, check for pests, harvest the crop, even though it's going in the trash can. So there is a cost associated with not selling that product and you need to be aware of that. So I don't mean to discourage you or scare you off of growing a crop or facility for greenhouse lettuce. I just want you to understand that there are some risks and it's not just because I can grow 50,000 heads and I can sell them for a dollar a head. Doesn't mean I'm going to make $50,000 a year off of the greenhouse. OK, there are a lot of costs involved with that. If you're serious about this and you want some help on it, we're glad to help you and please reach out to us. So one thing I want you to be aware of and cautious of is novelty. OK, novelty a lot of times we get in the way of making money. You know, we all want to have our erector set in LEGOs and make something really cool and show it off. But at the end of the day, it has to make money. So don't reinvent the wheel if you don't have to. OK, there's already an established greenhouse vegetable industry out there. And just because something looks cool and it sounds cool, doesn't mean it's going to make money. OK, so focus on the established principles and production techniques that the big growers are using. You know, rap culture, NFT, you know, focus on these validated production systems. If you find a way to produce things cheaper, that's great. But try it out on a small scale first. OK, and if you're going to spend money on a system, make sure it's something that's going to work. If you're interested in getting this type of enterprise, please reach out to us. You can go to your county extension office or aces.edu. We have regional agents all over the state in commercial horticulture or farm business management. They'll be glad to help you.