A0111 Plant Nurseries in Australia Industry Report PDF
A0111 Plant Nurseries in Australia Industry Report PDF
32 Key Statistics
32 Industry Data 32 Annual Change 32 Key Ratios
20 Competitive Landscape
20 Market Share Concentration 20 Key Success Factors
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Main Activities
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
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
Similar Industries
A0112 Cut Flower Growing in Australia Companies in this industry grow owers and foliage for cutting and displaying, as well as for seed collection. A0169 Hay and Other Crop Growing in Australia This industry grows a variety of crops, including mushrooms, tobacco and fodder crops. A0303 Forestry Services in Australia Firms in this industry provide reafforestation, conservation or plantation-maintenance services, operate forest nurseries and provide forest reghting services.
Additional Resources
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
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Industry at a Glance
Plant Nurseries in 2011-12 Key Statistics Snapshot
Revenue
$1.5bn
Prot
-2.4%
Exports
$177.2m $7.6m
Market Share
Revenue vs. employment growth
10 5
2.6% 2,201
Businesses
5 10 15
% change
5 0 5 10
Year 04 Revenue
p. 25
20
06
08
10
12
14
16
18
Year
05
07
09
11
13
15
17
Employment
SOURCE: WWW.IBISWORLD.COM.AU
Business locations
8.3%
SA
3.2% 1% NT
TAS
0.2%
ACT
11.2%
WA
33.9%
NSW
20%
VIC
p. 4
22.2%
QLD
Industry Structure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level
Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level
For additional statistics and time series see the appendiX on page 32
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Industry Performance
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 industrys 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
Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
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.
Gardening participation The 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
Demand from garden supplies retailing
15 10
dwellings without gardens) has had a negative influence. Dwelling commencements The 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
Gardening participation
145 140 135 130 125
% change
5 0 5 10
Year
05
07
09
11
13
15
17
Year 99
01
03
05
07
09
11
13
SOURCE: WWW.IBISWORLD.COM.AU
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Industry Performance
life. This goes hand in hand with overall construction levels, as many construction sectors hold strong demand for industry products. Demand from garden supplies retailing Garden and equipment retailing is the major seller of the industrys products to
consumers. Retailing is largely affected by consumer spending levels. Level of annual rainfall During 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.
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 droughtresistant native plants and products
Industry revenue
10 5
% change
0 5 10 15
Year 04
20
06
08
10
12
14
16
18
SOURCE: WWW.IBISWORLD.COM.AU
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.
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
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Industry Performance
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
There
is a positive correlation between the performance of sports events and turf production
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 industrys 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.
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Industry Performance
The ability to grow foreign plant life given Australias 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 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.
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.
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Industry Performance
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 industrys 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 droughttolerant 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,
Producers
may benefit from targeting councils and local governments as a source of demand
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 Lowes 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
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Industry Performance
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
Specialist
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
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.
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Industry Performance
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.
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Industry Performance
Life Cycle Stage
The 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
% Growth of prot/GDP
30
25
Maturity
Quality Growth
High growth in economic importance; weaker companies close down; developed technology and markets
Key Features of a Decline Industry Revenue grows slower than economy Falling company numbers; large rms dominate Little technology & process change Declining per capita consumption of good Stable & clearly segmented products & brands
20
15
Quantity Growth
10
Many new companies; minor growth in economic importance; substantial technology change
Chemical Wholesaling
0
Shakeout
Plant Nurseries
Cut Flower Growing Apple and Pear Growing
Decline
10 10 5
Crash or Grow? 0
Time Wasters
Hobby Industries 25 15 20 30
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Industry Performance
The industry is in the decline phase of its life cycle, indicated by the declining value of the industrys 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.
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Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
Apple and Pear Growing in Australia Apple and pear growers purchase new fruit trees to replace old growing stock or to expand their orchards. Stone Fruit Growing in Australia Stone fruit growers purchase new fruit trees to replace old trees or to expand their orchards. 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. Livestock and Other Farm Supplies Wholesaling in Australia Sales made to fruit growers or municipal authorities may be undertaken through this wholesaling industry. Department Stores in Australia Department stores with garden centres may purchase nursery stock directly from plant nurseries. Hardware Retailing in Australia Large hardware stores with garden centres sometime bypass wholesalers and purchase directly from plant nurseries. Garden Supplies Retailing in Australia Large garden supply retailers sometimes bypass wholesalers and purchase directly from plant nurseries.
A0116 A0119
F4519
G5210
G523b
G5253
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
6%
3.1%
8.3%
Other plants
0.7%
Propagation stock
11.6%
48.3%
22%
Turf
Total $1.5bn
SOURCE: WWW.IBISWORLD.COM.AU
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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.
Demand Determinants
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 fruitgrowing 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
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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
Gardening
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
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number of available varieties expands and particular characteristics of plant life are enhanced after being reengineered, 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 Major market segmentation (2011-12)
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 industrys 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.
6%
5.6%
4.2%
27.6%
Retail nursery
Propagators
9.9%
10.1%
Total $1.5bn
International Trade
Level & Trend xports in the E
11.1%
Landscapers
SOURCE: WWW.IBISWORLD.COM.AU
25.5%
$ million
industry are Low and Steady Imports in the industry are Low and Steady
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
Year 04 Exports
06
08
10
12
14
16
18
Imports
Balance
SOURCE: WWW.IBISWORLD.COM.AU
experienced over the past six years, as the ability to grow foreign plant life in Australias drought-ridden climate caused some considerable declines. Imports over the five years through
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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 Exports To...
The
Netherlands is a prominent source of imports due to its significance as a centre for trade in floriculture
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...
India New Zealand
5%
Indonesia
5%
Netherlands
65%
7%
7%
United States
7%
Peru
Spain
3%
Netherlands
33%
Thailand
9%
United Kingdom
19%
10%
Other
31%
Other
Year: 2011-12
SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA
Total $7.6m
Total $37.9m
SOURCE: ABS
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NT
1.0
QLD
22.2
WA
11.2
SA
8.3
NSW
33.9
ACT
0.2
VIC
20.0
Establishments (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
TAS
3.2
SOURCE: WWW.IBISWORLD.COM.AU
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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
Percentage
Establishments Population
SOURCE: WWW.IBISWORLD.COM.AU
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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Competitive Landscape
Market Share Concentration
Level 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.
Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalisation
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.
Key Success Factors IBISWorld identies 250 Key Success Factors for a business. The most important for this industry are:
Financial position of the company (as against nancial 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 force Extensive hands-on experience within the industry appears to be a key factor in the successful growth offamily-based firms into largecompanies. Appropriate climatic conditions Location is critical. Climatic
conditions must be appropriate to the type of product, and cheap water mustbe available. Automation to reduce costs, particularly those associated with labour Minimisation of labour costs through automation is important. Automation also gives better control of the production environment. Access to the latest available and most efcient technology and techniques The ability of producers to use the latest technology in minimising water usage gives them an advantage, especially in areas where water is limited.
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
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Competitive Landscape
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 Sector vs. Industry Costs
Average costs of all industries in sector (2011-12) 100
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
7.1 9.7
11.5 15.2
80
Percentage of revenue
60
55.8
50.0
40
20
5.5
1.4 18.2
2.3
2.0
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Competitive Landscape
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.
Basis of Competition
Level & Trend ompetition C
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 projectbased 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.
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Competitive Landscape
Barriers to Entry
Level & Trend arriers to Entry B
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. Sourcessuggest 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
Barriers to entry checklist Competition Concentration Life cycle stage Capital intensity Technology change Regulation and policy Industry assistance
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.
Industry Globalisation
Level & Trend lobalisation G
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
Trade Globalisation
200 150 100 50 0 Local 0
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%. Overthe 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%
Going Global: Plant Nurseries 1997-2011
International trade is a major determinant of an industrys level of globalisation. Exports offer growth opportunities for 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 rms would otherwise supply.
Export
Global
Exports/Revenue
Global
Exports/Revenue
Plant Nurseries
40 80 120
Import
160
1997
Import
80 120 160
Imports/Domestic Demand
Imports/Domestic Demand
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Competitive Landscape
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.
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Major Companies
There are no major players in this industry | Other 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. According to company sources, the company has a 30% share of the turf industry segment, with revenue of about $18.3 million.
Estimated 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.
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 companys main area of operation is sports turf problem-solving. Approximately 60% of the companys business is done overseas. In Australia, the company employs 35 staff. The companys 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 Limited
Orica 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.
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Major Companies
Arthur Yates and Co. Ltd was an Australian public listed company with operations in Australia and New Zealand. The companys 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 Ltds 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.
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 10
Downstream competitors
As 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.
Wesfarmers
Wesfarmers is the parent company of Bunnings, the countrys 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.
Mitre 10 is Australias 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.
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Major Companies
Woolworths
A 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 Lowes (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 companys 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.
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Operating Conditions
Capital Intensity
Level The level 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
Capital Intensity | Technology & Systems | Industry Volatility Regulation & Policy | Industry Assistance
Capital units per labour unit 0.5 0.4 0.3 0.2 0.1 0.0 Economy Agriculture, Forestry and Fishing Plant Nurseries
Capital intensity
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
Capital Intensive
Labour Intensive
Plant Nurseries
Traditional Service Economy Wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore rms must use new technology or improve staff training to increase revenue growth.
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Operating Conditions
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.
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
The
most significant industry technological changes are associated with genetic engineering
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.
Revenue Volatility
Level The level
of Volatility is Medium
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
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Operating Conditions
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
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 rm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.
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
1000
Hazardous
Rollercoaster
100 10 1 0.1
Plant Nurseries
Stagnant
30 10 10 30 50
Blue Chip
70
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Operating Conditions
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.
Industry Assistance
Level & Trend he level of T
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 Australias 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
Australias
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Key Statistics
Industry Data
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector Rank Economy Rank Revenue ($m) 2,293.5 2,173.8 1,975.5 1,790.8 1,740.6 1,645.2 1,408.7 1,453.0 1,521.0 1,541.2 1,597.6 1,619.6 1,705.6 1,711.2 1,752.6 15/25 365/495 Industry Value Added ($m) Establishments 791.3 4,059 760.8 3,816 721.1 3,666 662.7 3,612 661.4 3,534 575.8 3,414 510.5 3,253 490.1 3,207 530.2 3,159 518.4 3,123 532.4 3,105 548.0 3,059 578.5 3,039 596.1 3,001 623.3 2,989 10/25 13/25 339/495 152/495 Enterprises 2,841 2,670 2,566 2,528 2,473 2,389 2,289 2,259 2,226 2,201 2,189 2,156 2,140 2,110 2,099 13/25 145/495 Employment 6,686 5,995 5,941 5,678 5,780 5,700 5,022 4,884 4,800 4,760 4,799 4,820 4,890 4,950 5,020 17/25 342/495 Exports ($m) 19.9 14.0 16.3 12.9 10.6 9.9 8.8 8.6 8.1 7.6 7.5 7.4 7.4 7.4 7.8 14/17 199/211 Imports ($m) 50.4 41.9 43.2 40.2 41.0 41.9 39.6 40.7 38.6 37.9 38.2 38.9 39.4 40.4 41.5 8/15 162/192 Wages ($m) 412.8 369.5 355.6 322.4 313.3 296.1 266.4 258.2 244.9 234.5 236.0 239.0 242.0 245.0 249.0 11/25 353/495 Domestic Demand ($m) 2,324.0 2,201.7 2,002.4 1,818.1 1,771.0 1,677.2 1,439.5 1,485.1 1,551.5 1,571.5 1,628.3 1,651.1 1,737.6 1,744.2 1,786.3 8/15 143/189
Annual Change
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector Rank Economy Rank Revenue (%) -5.2 -9.1 -9.3 -2.8 -5.5 -14.4 3.1 4.7 1.3 3.7 1.4 5.3 0.3 2.4 11/25 287/495
Industry Value Added Establishments (%) (%) -3.9 -6.0 -5.2 -3.9 -8.1 -1.5 -0.2 -2.2 -12.9 -3.4 -11.3 -4.7 -4.0 -1.4 8.2 -1.5 -2.2 -1.1 2.7 -0.6 2.9 -1.5 5.6 -0.7 3.0 -1.3 4.6 -0.4 10/25 15/25 280/495 405/495
Enterprises (%) -6.0 -3.9 -1.5 -2.2 -3.4 -4.2 -1.3 -1.5 -1.1 -0.5 -1.5 -0.7 -1.4 -0.5 13/25 394/495
Employment (%) -10.3 -0.9 -4.4 1.8 -1.4 -11.9 -2.7 -1.7 -0.8 0.8 0.4 1.5 1.2 1.4 15/25 394/495
Exports (%) -29.6 16.4 -20.9 -17.8 -6.6 -11.1 -2.3 -5.8 -6.2 -1.3 -1.3 0.0 0.0 5.4 12/17 173/211
Imports (%) -16.9 3.1 -6.9 2.0 2.2 -5.5 2.8 -5.2 -1.8 0.8 1.8 1.3 2.5 2.7 8/15 109/192
Wages (%) -10.5 -3.8 -9.3 -2.8 -5.5 -10.0 -3.1 -5.2 -4.2 0.6 1.3 1.3 1.2 1.6 19/25 364/495
Domestic Demand (%) -5.3 -9.1 -9.2 -2.6 -5.3 -14.2 3.2 4.5 1.3 3.6 1.4 5.2 0.4 2.4 4/15 99/189
Key Ratios
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 Sector Rank Economy Rank IVA/Revenue (%) 34.50 35.00 36.50 37.01 38.00 35.00 36.24 33.73 34.86 33.64 33.32 33.84 33.92 34.84 35.56 6/25 211/495 Imports/Demand Exports/Revenue (%) (%) 2.17 0.87 1.90 0.64 2.16 0.83 2.21 0.72 2.32 0.61 2.50 0.60 2.75 0.62 2.74 0.59 2.49 0.53 2.41 0.49 2.35 0.47 2.36 0.46 2.27 0.43 2.32 0.43 2.32 0.45 9/15 15/17 149/189 191/211
Revenue per Employee ($000) 343.03 362.60 332.52 315.39 301.14 288.63 280.51 297.50 316.88 323.78 332.90 336.02 348.79 345.70 349.12 8/25 250/495
Wages/Revenue (%) 18.00 17.00 18.00 18.00 18.00 18.00 18.91 17.77 16.10 15.22 14.77 14.76 14.19 14.32 14.21 11/25 265/495
Employees per Est. 1.65 1.57 1.62 1.57 1.64 1.67 1.54 1.52 1.52 1.52 1.55 1.58 1.61 1.65 1.68 17/25 467/495
Average Wage ($) 61,740.95 61,634.70 59,855.24 56,780.56 54,204.15 51,947.37 53,046.59 52,866.50 51,020.83 49,264.71 49,176.91 49,585.06 49,488.75 49,494.95 49,601.59 5/25 282/495
Share of the Economy (%) 0.08 0.07 0.06 0.06 0.06 0.05 0.04 0.04 0.04 0.04 0.04 0.04 0.04 0.04 N/A 10/25 339/495
SOURCE: WWW.IBISWORLD.COM.AU
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Industry Jargon
GREENHOUSE An enclosure designed to articially create the ideal growing environment for the respective ower 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.
IBISWorld 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 rm 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 gures in the Key Statistics table, including forecasts, are adjusted for ination 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 ination adjustments in IBISWorlds reports are made using the Australian Bureau of Statistics implicit GDP price deator. 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 companys protability. 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 rms 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 rms. Concentration is identied as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 4070% 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 rms of the same business; plus subsidies on production; plus all other operating income from outside the rm (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 xed 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 ve 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.
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