TPI President Provides 2007 Industry Perspective

In his annual state of the industry report, Arthur Milberger, president of Turfgrass Producers International, (TPI) provided his perspective on the industry and offered his thoughts on what the New Year might have in store for turfgrass sod producers and other green industry-related business owners. 
 
“Back in late October 2006, USA Today reported that 53 economists participated in a survey regarding the nation’s economy," Milberger says. "As one might guess, their outlook for the coming year varied."

He explains that 55 percent of the participants thought home prices would not decline in 2007, while 45 percent predicted a nationwide price drop in 2007. Three-quarters of the economists expected inflation to fall in the next six months, the others didn’t agree. And whereas two-thirds thought interest rates were “just right” the remaining third were evenly split between saying rates were too high or too low.   

David F. Seiders, Chief Economist for the National Association of Home Builders, said that 2006 saw a 7.4 percent decline in total housing starts and he forecasts some further erosion in 2007, but he also reports that the residential remodeling market is doing well and projects modest to real growth in 2007. 

The Dallas Morning News reported that even housing analysts are split over where the U.S. market is headed. The latest forecast by the National Association of Realtors’ states the worst may be over for declining home sales and prices. Associated Press reported that the White House lowered its forecast for economic growth this year and next, reflecting the drag from the housing slump.

“My reason for sharing this with you is to illustrate that even highly respected professionals have differing views on what 2007 has in store for us," Milberger says. "Since I don’t profess to be an economist, I’m not quite sure who is close to being right or who is right on. A friend of mine points out that the economy depends about as much on economists as the weather does on forecasters. George Bernard Shaw got more to the point when he said, ‘If all the economists were laid end to end, they'd never reach a conclusion.’ The reality is, and I’m sure all the economists, analysts and forecasters would agree, you make your best projection based on available information, historic trends and your own knowledge and experience.”

The general consensus is that the housing downswing is still underway but it may be stabilizing; the real gross domestic product (GDP) will likely grow by 2.7 to 3 percent; core inflation will increase a tolerable 2.2 to 2.5 percent; the next rate adjustment by the Fed will more than likely level off in 2007 and the administration expects unemployment to hold steady at around 4.6 percent.

As turfgrass sod producers and anyone else who operates a business knows, there are many factors far beyond our control that can influence the economic picture in the coming year. We can look at all the indicators, review the forecasts and consider the varied opinions of any number of reliable sources, but in the end, trying to put this mixed bag of figures and statistics, with all its assorted weaknesses and strengths, into some kind of logical order is quite a challenge even for those familiar with all the variables involved.

"Who really knows when the housing bubble is going to bust?," Milberger asks. "Energy prices have come down in recent months, but who knows where they might stop, or if they will perk back up again? How will the global economic and political picture and our presence in Iraq impact not only the U.S. economy but the economic picture of other TPI member nations around the globe? You have to admit when all these factors, known and unknown are taken into account, projecting what the next twelve months have in store for us is a somewhat challenging proposition.

“Inflation, energy prices, interest rates, new home construction, retail sales indicators, employment, unemployment, Gross Domestic Product and manufacturing production impact all of us, regardless of our business or source of income.  As for turfgrass sod producers, we also have other issues that can influence how the year ahead might unfold,” warns Milberger. 

“The conservation and proper use of water may be one of the most important issues before us in the coming year and well into the future. That includes dealing with related shortages, irrigation restrictions established by municipalities and local governments, water quality, as well as storm water runoff.”

Milberger predicts the water issue will continue to be an increasing factor impacting the economic health and sales of turfgrass throughout North America, South America, Australia, Europe, and Asia. 

“Water conservation isn’t just impacting select regions within the United States.  In recent years, Australia, Canada, the United Kingdom and Mexico have all begun to expand their water conservation practices and implemented stringent watering restrictions,” he explains.

Will this have a long term negative impact on the turfgrass industry? Milberger doesn’t necessarily think so. He believes extensive turfgrass research, the introduction of new varieties of turfgrass, product innovations, new irrigation equipment such as weather-based irrigation controllers, rain sensor shutoff devices, soil-moisture sensors, as well as educating the general public on proper irrigation will all have a positive impact on water conservation. He also believes that communicating the numerous environmental benefits of turfgrass sod to legislatures and the public sector will be helpful.
 
The turfgrass sod industry continues to prosper year after year. Turfgrass sod producers continue to learn and apply new technologies, streamline their businesses, optimize capital and labor, strive to lower their operating costs and implement new ideas that enable them to operate more cost efficiently. 
And even though the housing market is in a decline in the U.S., Milberger is quick to note that every new home (1.3 – 1.5 million units projected in 2007) translates into a new lawn. He also points out that there continues to be growth in the commercial development sector.

So although residential construction is expected to slow down over the next four quarters, it may be offset by gains in commercial development. Construction of office buildings and retail space has strengthened considerably over the past few years according to Wachovia Corp. Economics Group and we are now beginning to see strong gains in industrial development as well.

Also, although the U.S. housing market is on a decline, housing prices in Australia and the United Kingdom continue to creep up indicating the playing field for turfgrass sod producers varies regionally and internationally. 

Milberger projects 2007 will have a similar look and feel of 2006. To support his claim he referred to a recent farm equipment survey of TPI members which revealed that turfgrass sod farms are expanding in size and there is an increase in the land devoted to turfgrass production. The survey also revealed that producers not only plan to purchase new equipment, they also plan to invest in the maintenance, repair and updating of their existing equipment. 

In preparation for the coming year, Milberger suggests turfgrass sod producers and others in the green industry develop a 2007 business plan that identifies potential problems and assign appropriate solutions before they occur. Contingency plans might involve maintaining current profit margins, or being ready to adapt to a weaker economy, or taking advantage of an improving economy.

“Consumers are more knowledgeable about turfgrass sod and landscaping based on increased information that is easily accessible from numerous sources,” he says. 

But he cautions that consumers may still be influenced by erroneous information acquired from sources deemed credible but sometimes questionable such as websites, bloggers or environmental activists who may or may not be using reliable research data to support the validity of their position. 

“Today’s consumer is more demanding, can easily access information and has high expectations for the products he or she buys,” according to Milberger.

He suggests that turfgrass sod producers continue to focus on providing high quality products, timely deliveries, continue to offer responsive customer service and make an effort to educate the public on the environmental benefits of turfgrass and green space whenever possible.

“Forward planning, reducing operating costs, streamlining operations, purchasing labor-saving equipment and reviewing existing markets are some of the necessities that go hand in hand with operating a successful business in good times and especially in lean times,” he says. 

Milberger also reported that in September 2006, turfgrass leaders met with various government officials in Washington, D.C. including Mike Johanns, U.S. Secretary of Agriculture. The turfgrass representatives provided information on the size and scope of the turfgrass industry, issues facing the industry and research needs. Industry leaders thanked the United States Department of Agriculture (USDA) for its recent commitment to the turf industry and emphasized the need for more turfgrass research funding within the USDA, Agricultural Research Service (ARS). Secretary Johanns acknowledged that turf is the number one or two crop in many states and that it deserves consideration for inclusion in the research component of the 2007 Farm Bill.

For Fiscal Year 2007, both House and Senate Appropriations bills include significant funding for turfgrass research by the USDA's Agricultural Research Service (ARS). As of this writing, House and Senate versions provide anywhere from approximately $1.4 million to $1.8 million to hire ARS scientists and fund cooperative projects with university research programs.  Milberger noted that any such funding would prove extremely beneficial in serving the industry, improving the environment and serving the general public.

Milberger believes that those turfgrass sod producers who adapt, invest in their business, become active in their community, help to support on-going research and learn to control their costs will continue to prosper.

“On one hand turfgrass sod producers need to be aware of the economy, government regulations, labor issues, chemical and pesticide restrictions, operating costs, environmental concerns, advancements in technology, support on-going research and be aware of their individual market demographics to be successful," he says. "On the other hand, they continually need to fine-tune their business management skills, understand market trends, capitalize on opportunities, examine the way they do business and adapt to change. All of these issues are extremely important regardless if some economists say the glass is half empty - while other economists say the glass is half full.”