A Preliminary Report on the Feasibility of the Creation of a Private

Containerized Longleaf Seedling Nursery in West Alabama

Rhett Johnson, Dean Gjerstad, and Mark Hawds

The Longleaf Alliance

Summary: There are many reasons to consider creation and placement of a longleaf pine containerized seedling nursery in West Alabama. Currently, seedling availability is a constraining factor in the re-establishment of longleaf pine in its former natural range. In addition, virtually all longleaf seedling nursery production is located from eastern Alabama through eastern Georgia., although roughly 40% of the longleaf range is west of there. Experience and research have clearly indicated the advantages of containerized seedlings despite the increased costs. In today's demand driven market, containerized nurseries can be very profitable ifproperly managed. The Longleaf Alliance has examined the current and future markets for seedlings, federal and state cost-share programs such as CRP, and the economic factors related to nursery start-up that might influence a decision to create such an enterprise.

In a second phase of the study, the west Alabama area will be evaluated as a site for such an enterprise. Technical resources, labor forces, shipping and transportation needs, and social and economic conditions will be weighed to determine the likely success of such an enterprise and the potential impact it might have on the economy ofthe region.

The nursery venture has potential to be profitable while helping to meet an immediate need. Key components are available and affordable start-up capital, available seed, adequate supervision and technical knowledge, the production of marketable seedlings in at least 70010 of planted cells, and the ability to sell all seedlings produced.

··Introduction

Longleaf pine forests once occupied vast expanses ofthe southeastern United States,

comprising perhaps the largest single forest type on the continent Estimated at nearly 90

million acres at the time ofEuropean settlement, that forest has dwindled to less than 3

million acres today. Forest ecologists have recognized the fire maintained longleaf forest

ecosystem as one ofthe most biodiverse in the world while lumbermen have long recognized

its commercial value. Several threatened and endangered species are found only in longleaf

forests and some of the most popular wildlife species in the South, like bobwhite quail and

fox squirrels, are strongly associated with it. It is a vital component in the South's cultural

and natural heritage.

The longleaf forest has declined for a number of reasons over the past 300 years, but

one contnbuting factor has been the difficulty of successfully arti£cially establishing the

species ""lth nursery grown seedlings. Advances in nursery technology and seedling

handling and planting practices have overcome most of those problems and planting is

routinely successful in all but the most unusual or harsh situations today. Longleafwas

recently designated by the Secretary of Agriculture as a Conservation Priority Area in the

Conservation Reserve Program, stimulating a unexpectedly large interest in planting the

species on agricultural lands. This demand surge, coupled with an already ongoing

groundswell of interest by private and public landowners, depleted the supply of available

seedlings. In 1997, about 45 million longleaf seedlings were produced in the region. In

1999, nearly 85 million seedlings were grown and demand probably exceeded that number

by at least 10 percent During that period, a significant shift in demand for and production

ofcontainerized seedlings has occurred. Today, nearly 75 percent of longleaf seedlings

produced are grown in containers. The advantages ofcontainerized seedlings include

increased likelihood of survival and early initiation of height growth. These advantages have

been documented in numerous studies. Conversely, containerized seedlings cost consumers

up to three times as much as traditional bareroot seedlings on today's market. Risk aversion

and the prospect ofearlier returns have fueled the container market boom. Whether or not

the additional expense is justified is still being tested and debated, but the market continues

to grow in the interim.

Because longleaf has both economic and ecological value, it appeals to a wide range

~of1andowners and managers. The Longleaf Alliance and several other private and

governmental organizations are working to assist these landowners in successfully

establishing and managing their longleaf resource to meet their own objectives.

A Rationale for Creating a Longleaf Container N ursery in West Alabama

There is a strong demand for container grown seedlings in the western part of

longleafs natural range. At this time, the only container nursery west of Alabama is the

USDA-FS nursery in Asheville, MS and it has recently closed. This nursery did not sell

seedlings on the private market. Private landowners, foresters, agency personnel, and others

must purchase the vast majority of their seedlings from Alabama and Georgia.

There are no container nurseries in west-central Alabama. The nearest nurseries are:

a. American Forest Seed Source in Brewton, AL.

b. Atkinson Tree Nursery in Theodore, AL.

c. International Forest Company in Odenville, AL.

d. Beck's Turf Farm in Tuskegee, AL.

e. Dixie Green, in Centre, AL.

West Alabama is an economically depressed area with a high proportion ofblack residents

with generally poor educational backgrounds and few technical skills. Many of the minority

citizens in this area are dependent upon agriculture and forestry industries. As the viability

ofagriculture has declined, the economy and welfare of these agriculture and natural

resource dependent communities has also declined. The location ofa longleaf container

nursery in West Alabama has the potential to create a small but viable industry in an area that

sorely needs economic development.

Additionally, a new nursery in this area could supply additional seedlings for the

CRP, enabling more acres to be planted. At present, seedling supply is a limiting constraint

for CRP longleaf plantings and many acres may be lost to other uses for want oflongleaf

seedlings.

The Current Situation and Short-term Prospects

Longleaf seedlings were in short supply in the 1998-99 planting year with all

nurseries selling out and many carrying waiting lists over into the 1999-2000 planting season.

By June of 1999, most seedlings on the market were already committed and only the Georgia

and South Carolina State Forestry Commission nurseries had trees for sale. Sales at these

nurseries were delayed until July and the trees were sold as soon as they were available, with

many potential buyers turned away. The Conservation Reserve Program alone accepted

over 104,000 acres to be planted with longleaf pine, creating a demand for over 52 million

seedlings. It appears that many acres entered into the CRP program in the 1998-99 planting

season will require either replanting or supplemental planting. It is difficult to precisely

determine demand but it is not inconceivable that the shortfall in longleaf seedling supply for

this year approaches 40 million trees. An estimated 85 million longleaf seedlings were

supplied by nurseries across the region and we anticipate that nearly 100 million will be

grown for sale in 2000. A Conservation Reserve Program sign-up, with longleaf

planting as a featured option, has been announced for January and February of2000.

Seedling demand will likely exceed supply again ifseveral factors come into play: (1) if the

CRP response this year is as large as this past year; (2) if the landowners who were

unsuccessful in locating trees last year persist in buying longleaf (e.g., CRP participants have

three years from time ofenrollment to actually plant the trees); (3) ifpartial or total planting

failures from last year are replanted in longleaf; and (4) if the number ofnon-CRP acres

planted in longleaf remains the same or increases. As evidence, the Alabama Forestry

Commission began sales of longleaf bare root seedlings from its Hauss Nursery for the 2000­

2001 season on January 3,2000 and sold out before the end of the day. Growing interest in

longleaf has resulted not only from the offer ofcost-sharing and subsidies. but as a result of

efforts by groups like The Longleaf Alliance to present longleaf as an attractive option.

New nurseries and expanding capacity in existing nurseries are not currently keeping

pace with demand. Long-term demand is uncertain and will be based on a number of factors.

One important factor is the ability of the nursery industry to supply seedlings. Landowners

are reluctant and sometimes unable to schedule reforestation or cropland conversion based on

seedling availability. If longleaf is not available in a timely fashion, other pine species may

be substituted. Another factor is the success of longleaf plantings, which is often related

directly to seedling quality as well as other factors. Significant planting failures, for

whatever reason, may discourage prospective longleaf growers. Of course, a major factor in

continued demand and growth in the longleaf seedling market is the continuance ofthe CRP

-:program. The National Conservation Priority Area designation currently enjoyed by longleaf

is good at least through 2001, with prospects for renewal currently very good. Political

winds blow fitfully in Washington, however, and there are no certainties. USDA set a target

of one million acres in longleaf for the CRP program in 1999. We are slightly more than one

tenth of the way there today.

A short-term bottleneck for increased seedling production is the limited availability of

longleaf seed, especially for new nurseries without established suppliers. Longleaf is a

sporadic seed producer and seldom produces seed in quantity across the entire region in the

same year. This can be mitigated by the fact that longleaf seed can be stored for considerable

time, buffering bad seed years with good planning. This year may be the exception, with the

unanticipated and unprecedented run-up in demand catching seed collectors and nurseries

with short reserves in a bad seed year over most of the region. Seed source origin is less

constraining for longleaf than for some other southern pines, but there are geographicallirnits

beyond which seedlings should not be planted. Coordination of seed collection with good

local seed crops and adequate reserve storage should alleviate future problems, however.

Considerations for N ursery Start-up

Site location is not as critical for a containerized longleaf nursery as it is for many

new business startups. As a quiet, "green" industry, it would fit well into almost any area

that is zoned for commercial use. There is little or no noise, no toxic wastes, no heavy

equipment, no heavy or late night traffic, and no unpleasant odors. A dependable source of

clean water and adequate space to grow the desirable number of trees are about the only site

requirements. Although a nursery would not require heavy equipment beyond a small farm

tractor, heated and cooled buildings, expensive computerized equipment, etc., there are

substantial startup costs to be considered. Trays or other containers must be purchased;

potting medium, fertilizers, and soil obtained and prepared; seed purchased; irrigation

systems purchased or built; shipping containers purchased; herbicides, fungicides, and

pesticides must at least be planned for; and various general nursery equipment such as stands,

shade cloth, hoses, trowels, work tables, shipping containers, etc. purchased or built.

Finally, a reliable source offull-time, seasonal and part-time labor must be identified and

trained. Ifquality seedlings are produced, advertising will not be necessary. At this point in

: the market, buyers will search out quality sellers without fail.

Projected Costs for Start-up and Operations

The initial outlay required to start a longleaf container can vary depending on existing

facilities. For the purpose of this study, the estimated costs are categorized as either "one­

time" or long-term periodic costs or annual costs. Significant long-term costs include

construction ofbasic infrastructure and purchases ofland, equipment, and supplies.

Necessary construction costs would include both an equipment shed and office/storage

building. excavation ofa well, installation of plumbing for irrigation, and construction of tray

stands and work tables. Major one-time purchases include a small tractor and spray boom,

office equipment, plumbing and irrigation equipment, trays, and sufficient land to house the

nursery. Annual costs include soil and potting medium; pine seed; herbicides, fungicides,

and pesticides; fertilizer; shipping containers; electricity; labor; and salaries.

Figures used in this analysis were garnered through conversations ",ith operators of

existing container nurseries and should be fairly reliable. There is room for considerable

variation in some items, such as land prices, building construction, etc., and a figure at or

slightly above the average was used for the purposes of this study. F or the purposes of this

study, it is assumed that "hard wall" seedlings will be grown and that no fewer than 1

million cells will be planted .. That production level is probably near the minimum that allows

meaningful economies of scale. As production capacity is significantly increased, further

economies should occur. The cost figures used in this analysis are based on estimates for

production at the 1 million cell level. Cost estimates and financial analyses for 2, 3, 4, and 5

million cells are derived from those figures, but the relationships are not linear for all costs.

Costs should be categorized into one of two groups, one-time or long-term start-up

costs and recuning annual operating costs. Long-term expenditures are comprised of either

construction of necessary infrastructure or major purchases of equipment or land. Ifland

must be purchased for the nursery, it is estimated that 5 acres would be sufficient to house a

one million cell nursery. Other long-tenn purchases would include a small tractor with a

spray boom, irrigation equipment, office equipment, work tables, tray stands, and trays.

Construction ofa small equipment shed and a 600 square foot storage/office building are also

included in the cost estimates. Finally, excavation ofa well capable of supplying sufficient

~ water for general work and irrigation would be necessary to start a nursery at a new site.

Annual or recurring costs would include soil and potting medium; pine seed; fertilizer;

herbicides, fungicides, and pesticides; shipping containers; electricity; labor; and salaries.

Table 1 details several estimated costs and several possible financial scenarios. Cost

estimations are just that, with an attempt made to make reasonable and conservative

projections. For instance, land values might exceed the estimated $2,000 per acre in some

areas, but rural land of the type required for a nursery could likely be purchased for that

amount or less. The sale price used in this analysis, $165 per thousand seedlings, is also

conservative. In the current market, it is possible to sell trees for up to $185 per thousand. A

relatively small and inexpensive tractor is projected since its primary use will be to spray

seedlings, not cultivation or other agricultural use. Office equipment would include a

computer, desk, and filing cabinet for basic business functions. The "walkways" item

includes edging and gravel, pine bark, sawdust or other amendment between tray stands for

access in all weather. The irrigation system and spray rigs are very important components

for successful operation ofthe nursery. Reliable, timely, and accurate application of

pesticides, some fertilizers, and water is critical. Miscellaneous items might include such

things as hand tools, shade cloth, and plastic sheeting. The most expensive long term items

are trays and tray stands. Experienced nurserymen estimate that the trays should have a

usable life of about 5 years.

Many nurserymen mix fertilizer with the soil mixture prior to potting and then inject

liquid fertilizer into irrigation systems as needed later in the growing season. Some

pesticides are applied in the same manner, but most use a boom sprayer mounted on a small

tractor for pesticide application. Pesticide costs are, ofcourse, variable depending on

occurrence of problems. The figure chosen, $3,000 per year, is just a reasonable estimate

and may be high or low. Longleaf seed supplies are very low at present and current price

reflects demand. Seed costs were calculated using a price of$100 per pound (about the

current going rate) and an average of5,000 seeds per pound. That should yield enough seed

to fill 1 million cells. Shipping containerized seedlings requires better and more packaging

than bareroot seedlings. Most nurseries pack from 200 to 250 seedlings per box and the cost

projected for shipping containers is about the industry average for 1,000.000 seedlings.

Finally, the labor required is seasonal and low-skilled, but quality is essential to success. The

-·soil mixture must be prepared in proper proportions, the cells filled, and the seeds planted

correctly. This usually takes place in the spring and it is estimated that filling cells and

planting at $6.50 per hour costs about $9,000. Weeding two or three times a year is

estimated to cost about $1,000 in labor and lifting and packing seedlings in the fall and

winter would impose labor costs of approximately $5,000. Salaried personnel are estimated

at a total of $30,000 in this analysis. This might include one supervisory person at $30,000

or a supervisor at $25,000 and a part-time clerical person at $5,000. Pay scales are for cost

analysis only.

In the first scenario described in Table 1, it is assumed that all ··one-time"

expenditures are necessary, including construction, excavation of a well, and purchase of

land and a tractor. That situation makes estimated first year total capital needs $206,000.

Experience has indicated that about 30010 of cells planted will not produce marketable

seedlings, either through non-germination of seed, loss to disease and pests, or poor qUality.

If 1 million cells can be expected to produce 700,000 trees, the total cost per tree produced in

the first year is $0.294 or $294.00 per thousand. Ifall trees are sold at $165 per thousand., a

median price for containerized seedlings, the net loss for the year is $90,500. If the

assumption is made that the long-term costs will be absorbed over a five year period (the

estimated life of the trays), then the average annual cost per thousand trees is reduced to

$159, and the average difference between annual costs and revenues is $3,900, a return on

investment of3.5%.

If the nursery is built on land already owned by the operator, no purchase costs are

incurred, although land rent or opportunity cost should realistically be considered in any

strict accounting. A land rent rate of $40 per acre per year is used in this analysis to reflect

average agricultural land rent. Ifno land purchase is necessary, but all other start up

construction and purchases are required, then Scenario IT describes unit costs and first and

five year nets for a 1 million cell nursery. The cost per tree produced in the first year of

operation drops to $0.280 or $280 per thousand. Assuming all trees are sold at $165, the net

cost for the first year is reduced to $80,740. The five year average armual return is calculated

at $5,582, a return rate of 5.3%.

Scenario ill assumes that the operator owns the land and that existing facilities

include the necessary support buildings and a well. This situation further reduced the initial

cost per tree produced to $0.245 or $245 per thousand trees. The net negative cash flow for

the initial year is calculated at $55,740 and the five year average annual return is a positive

$10,852, a return rate of 10.4%.

Scenario IV further reduces the initial long term cost by the cost of the tractor,

assuming that small tractors are often owned by farmers, gardeners and others possibly

interested in a nursery venture. Again, the cost per tree is reduced, in this case to $0.216,

and the cost per thousand trees is reduced to $216. The average cost per thousand seedlings

per year over the :first five years, assuming that the first year "one time" costs are spread over

a five-year period, is calculated at $144, yielding a net annual profit over that period of

$14,852. The calculated rate of return on investment is 14.8%. In none of these analyses is

any attempt made to calculate and incorporate the cost of start up capital, although the short

term retirement ofthat debt would mitigate that cost considerably.

The next four columns in Table 1 project costs and revenues resulting from

production expansion to 2, 3, 4, and 5 million celis. It should be noted that the projections

for costs are not necessarily linear and reflect only "best guesses" at economies of scale.

Again, no attempt is made to calculate the cost of start up capital, but it is assumed that debt

retirement will be achieved well before the five-year analysis period is over. It is notable that

although profitability more than doubles with an increase in capacity from 1 to 2 million

cells, the rate of return actually decreases with an increase to 3 million celis, although net

annual profit continues to increase. This reflects an anticipated break point in effort and

equipment required to reach production goals. For example, this analysis assumes that the

same tractor that is used to spray 1 million cells would be sufficient to spray 2 million cells,

but an increase to three million cells would require either an additional tractor or a larg~r

tractor. After that point, although costs continue to increase with increasing capacity,

revenues grow at a faster rate. At 5 million cells, mean annual net for the first 5 years is

calculated at $99,260, a return on investment ofnearly 21 %! It should also be noted that

calculated at $99,260, a return on investment of nearly 21 %! It should also be noted that

start up costs at this level are fairly large, $821,200, and the cost ofborrowing that much

money is not figured into this analysis.

'Discussion

The demand for longleaf seedlings currently exceeds supply by an appreciable margin

and should remain relatively constant or increase for at least the next several years. Seedling

supply is a limiting factor at present for the amount of acreage planted in longleaf pine.

There are no nurseries growing longleaf in the western part of its range with the exception of

nurseries in Brewton, Atmore and Mobile and they fall far short of meeting demand at this

time.

Seed availability is a concern. Although seed is expensive at present, the very

prospect of not being able to obtain it at all is a greater concern. Still, one bumper seed crop

could alleviate the shortage for several years, despite growth in demand.

A containerized nursery operation is a relatively low-tech proposition requiring little

specialized equipment and little manpower. Quality control and oversight are critical and it

is important that at least one knowledgeable and dependable supervisor be on-site daily.

Profitability will be most impacted by ability to produce quality marketable seedlings in a

high percentage of the planted cells. Most other jobs created are, unfortunately for the local

economy, seasonal and require few skills. Using the 1 million cell level as a basis for

analysis, the initial costs, if the nursery is started from scratch, are relatively high, but should

be recoverable over a five-year period. From that time forward, additional inputs should be

limited to the repurchase oftrays on about 5 year intervals, normal upkeep and maintenance,

and the calculated annual costs of no more than $88,000 per million cells. Increasing

production capacity reduces unit costs primarily by reducing the start up or "one time" costs

per unit of production. There appear to be only minor large-scale economies in annual costs

unless capacity is at least doubled. Increasing capacity to 5 million cells adds considerably

to the potential profitability of the venture, as well as to the risk. The ability to gauge the

market greatly decreases that risk and, since capital can be recovered fairly quickly in the

demand-driven market that exists today, fixed assets are paid for early on in the investment.

Annual costs are tied more directly to actual production rather than to capacity and can be

TAGLE 1. PROJECTED EXPENDITURES AND REVENUES FOR CONTAINERIZED LONGLEAF NURSERY START-UPS,.

" _1_" -.nl. 2 Million 3 Million 4 Million 5 Million

$240 $240 $240 $10,000 $15,000 $16,000 $20,000

$20,000 $0 $0 $25,000 $40,000 $50,000 $60,000

$5,000 $0 $0 $7,500 $10,000 $15,000 $18,000

$20,000 $20,000 $0 $20,000 $40,000 $50,000 $50,000

$5,000 $5,000 $5,000 $5,000 $5,000 $10,000 $10,000

$500 $500 $500 $1,000 $1,500 $2,000 $2,500

$12,500 $12,500 $12,500 $25,000 $36,000 $48,000 $60,000

$36,000 $36,000 $36,000 $72,000 $105,000 $140,000 $175,000

$3,500 $3,500 $3,500 $7,000 $10,000 $13,000 $16,000

$3,000 $3,000 $3,000 $3,500 $4,000 $5,000 $6,000

$2,000 $2,000 $2,000 $4,000 $6,000 $8,000 $10,000

$500 $500 $500 $600 $800 $1,000 $1,200

$9,000 $9,000 $9,000 $18,000 $27,000 $36,000 $45,000

$2,000 $2,000 $2,000 $4,000 $6,000 $8,000 $10,000

$3,000 $3,000 $3,000 $6,000 $8,500 $10,000 $12,500

$20,000 $20,000 $20,000 $40,000 $60,000 $80,000 $100,000

$6,000 $6,000 $6,000 $11,750 $17,000 $22,500 $28,000

$1,000 $1,000 $1,000 $1,500 $1,800 $2,000 $3,000

$15,000 $15,000 $15,000 $30,000 $45,000 $60,000 $75,000

$30,000 $30,000 $30,000 $50,000 $80,000 $100,000 $110,000

$2,000 $2,000 $2,000 $3,000 $4,500 $6,000 $9,000

700 700 700 1400 2100 2800 3500

$115,500 $115,500 $115,500 $231,000 $346,500 $462,000 $577,500

$108,240 $83,240 $63,240 $180,600 $273,300 $358,000 $428,700

$88,000 $88,000 $88,000 $164,250 $249,800 $324,500 $392,500

$196,240 $171,240 $151,240 $344,850 $523,100 $682,500 $821,200

$280.34 $244.63 $216.06 $246.32 $249.10 $243.75 $234.63

$156.64 $149.50 $143.78 $143.12 $144.98 $141.46 $136.64

-$80,740 -$55,740 -$35,740 -$113,850 -$176,600 -$220,500 -$243,700

$5,852 $10,852 $14,852 $30,630 $42,040 $65,900 $99,260

5.3% 10.4% 14.8% 15.3% 13.8% 16.6% 20.8%

Costs/Capacity Land @ $2,OOO/A Building/Shed Well Excavation Tractor Spray Rig Work Benches TRails Trays Plumbingllrrigation Office E:quipment Walkways Miscellaneous Tools Soil Fertilizer Chemicals Seed Shipping Containers Electricity Labor Salaries Maintenance

Seedling Production (Thousands) Revenue @$165IThousand Seedlings $115,500

1 Million $10,000 $20,000 $5,000

$20,000 $5,000

$500 $12,500 $36,000 $3,500 $3,000 $2,000

$500 $9,000 $2,000 $3,000

$20,000 $6,000 $1,000

$15,000 $30,000

$2,000

700

Total Long Term Costs Total Annual Costs Total First Year Cost First Year CostIThousand Seedlings Five Year Avg. CostIThousand Trees First Year Net Five Year Avg. Net Return Rate

$118,000 $88,000

$206,000

$294.29 $159.43

-$90,500

$3,900 3.5%

Arguments For and Against Establishment of a Containerized Longleaf Nursery in West

Alabama

Pros

. ) No other nurseries in the western portion of the longleaf region.

) Supply lags far behind demand.

~ Low tech "green" industry.

) Relatively low startup costs (No heavy machinery, heating and cooling,

computerized equipment, substantial building construction, etc.)

) Can use relatively low skilled labor.

) Annual sales, return on investment.

,. Boost economy/create jobs

CODS

,. Uncertain long term market.

,. Western market underdeveloped.

,. Start-up capital availability.

,. Skilled nurseryman to set up and run nursery.

) Availability of seed, particularly for western region.

,. Most jobs created are low skilled, seasonal, and/or part-time.