PLCAA Members Provide Feedback On Fertilizer Price Increases

PLCAA’s ProPolls are an ongoing effort by the association to keep its members informed about critical issues facing the lawn care industry, as well as to show how fellow members are being affected by those issues and responding to them.

In its most recent poll, published in a February 2001 Member Bulletin, PLCAA asked regular members with fax numbers to respond to questions regarding both current and future prices of fertilizer. PLCAA received a 17 percent return rate from this poll.

As a key portion of the product provided by lawn care services, price increases in fertilizer may have a good deal more impact on profitability than perhaps those recently experienced in both gasoline and insurance.

Question #1: Has your price of fertilizer increased, and if so, by how much?
Not unexpectedly, 91 percent of respondents said that prices had increased vs. 9 percent who said they had not. Percentage of price increases ranged from as low as 2 percent to as high as 35 percent. A very common response was in the range of 20 to 25 percent.

More informative were member comments regarding not what they have already experienced, but what they expect to happen with fertilizer prices in the near future. Almost all expect even higher prices as the year moves on. Most members saw future price increases having the greatest impact on those products with high nitrogen content.

A number of respondents cited a fact that I experienced. Round One product prices, especially if "early" ordered, were not that much higher than prices in 2000. At the same time, the majority of respondents were seeing significantly higher prices for fertilizers to be used in the balance of 2001.

Question #2: Do you plan to, or have you already, increase(d) customer pricing to offset rising fertilizer prices, and if so, by how much?
Seventy-seven percent of those responding have either raised or plan to raise 2001 prices. The range here was from 1 to 12 percent, but a large number of respondents seem to feel comfortable with 3 to 4 percent over the next year.

Many different approaches were described. While most members are raising prices across the board, others take different approaches. Some are increasing prices for new customers only, while others are raising prices slightly higher for new accounts than for existing ones. Some will raise a percentage, while others have set a fixed dollar figure increase for each and every application. A number of PLCAA members already raise their prices each year and are not doing so due only to fertilizer price increases.

There is a note of concern here. When trying to match member responses to Question 1 on "have fertilizer prices increased" and Question 2 on "have you raised your prices in response to this increase," I am somewhat troubled that there may not be a correlation between the answers. What do I mean? I am concerned that a percent increase in fertilizer prices may not be actually figured as to its impact on a company’s actual costs.

This means that the size of the actual increase passed on to customers is "pulled from a hat." The answer to my concern may lie in the fact that several respondents cited their 2001 price increase as being a response to fertilizer cost increase, and gas prices, and insurance costs, etc., not just to fertilizer.

Question #3: If you don't plan to raise prices, why not, and what, if anything, do you plan to do to offset rising fertilizer prices?
Answers were all over the board here. Some respondents said that competitive factors influenced their decision not to raise prices. Some said they temporarily beat the issue by pre-ordering for at least the first two rounds. Others said they simply missed the curve and cannot change prices because of previously agreed upon contracts. Another group felt they have enough "wiggle room" to still be profitable while absorbing a price increase in cost of goods. A few respondents also said they would reduce fertilization rates to offset the increase, which I believe to be a practice that will come back to haunt those respondents.

The bottom line to the response here is that those answering "no" were also those who believe this is a very temporary increase that will self-correct.

Question #4: Have you experienced any problems ordering fertilizer supplies or found that supplies are not readily available?
Of those responding, 86 percent said "yes," while 14 percent said "no." Some respondents said suppliers had backed out of already quoted prices. What this means is that if a buyer did not agree to the price increase, there is no sale.

Others cited that suppliers were only willing to quote on product already on hand but not those products ordered for future delivery. Others said that only fertilizer with a high content of urea was in short supply but that anything else was readily available. Still others said again that any shortage had been offset by early ordering for 2001, which they believe the supplier will honor.

PROPOLL SUMMARY. This issue is almost more out of control than gasoline prices, health care increases or salary hikes necessitated by zero unemployment. It is also one that seems to have caught a lot of lawn care operators (LCOs) off guard. It is also an issue that has, or will, impact LCOs coast to coast.

There is no excuse to not expect this. Fertilizer prices have been stable for several years, and this stability has put the industry to sleep, but it shouldn't have. Virtually every other cost of doing business has gone up - some radically. Also, we have had a full year of increased gasoline prices, which should have sent us a very strong message. Waiting until "your" costs of fertilizer go up before you raise "your" prices, simply makes no sense at all to me.

In the last year, we have seen gasoline prices raised by 40 percent. Health care costs and wages are also going up each and every year. If I can send all LCOs a strong message, it is that you should automatically have a price increase each and every year. Do not back away from it. Do not be concerned about competitive pressure. Do not apologize for it. Just do it.

And go to sleep at night knowing that while you cannot control the world, you can at least partially control your part of it.

FOR MORE INFO: For more information on fertilizers and trends visit The Fertilizer Institute web site at www.tfi.org.

For more information about the Professional Lawn Care Association of America (PLCAA) visit the organization’s web site at www.plcaa.org.