Glut of trees, Mexican tariffs depress wholesale prices
By MATEUSZ PERKOWSKI
Farmers in the Northwest continue to be haunted by the ghost of Christmas trees past.
Massive plantings of the crop earlier in the decade have been weighing on the industry, creating a sustained glut that's blamed for depressed prices.
"It was too much, too fast," said Bryan Ostlund, executive director of the Pacific Northwest Christmas Tree Association.
In 2001, farmers planted nearly 10.5 million trees in Oregon, which leads the nation in Christmas tree production.
Plantings remained strong at about 9.8 million a year before starting to drop off in 2005, according to data from USDA's National Agricultural Statistics Service.
The planting boom was prompted by healthy prices and a perceived shortage in the market. At the time, some farmers were planting trees speculatively, without securing viable sales outlets.
"You didn't have to have any market at all," said Greg Rondeau, sales manager at Holiday Tree Farms, a large producer based in Corvallis, Ore. "Trees appeared to be pretty lucrative. Word gets around."
As trees planted in the early 2000s reached maturity, it became evident that planting had greatly outpaced demand growth.
Annual tree sales from Oregon farms have risen substantially -- from about 6.1 million trees in 2001 to 7.3 million in 2008 -- but that has still left millions of surplus trees in the ground.
Prices have responded accordingly. From a peak of $17 per tree in 2003, the average price fell to $15 per tree in 2008, the most recent year for which USDA statistics are available.
This year, wholesale prices range from about $6 to $9 per tree for Douglas firs and $8 to $13 per tree for Noble firs, said Bob Schaefer, general manager of Noble Mountain Tree Farm, a major producer near Salem.
"There's a lot of liquidation pricing going on," Schaefer said. "It's very difficult to break even with the prices we're currently receiving."
On the bright side, it appears the market has been correcting itself, with Oregon farmers now planting fewer trees than they sell each year. According to USDA estimates, only about 6 million trees a year have gone in the ground since 2008.
Supply and demand are expected to balance out, since Christmas trees can't be allowed to grow indefinitely and still be salable. Trees planted during the boom years will eventually become too large for most consumers. It is possible to remove lower branches and keep trees a marketable size, but this is labor-intensive and soon becomes economically unfeasible.
"You need to move those trees. You can't keep them year after year," said Charlie Grogan, owner of Silver Bells Tree Farm in Silverton, Ore. "This could very well be the tip-over year."
Lower prices may have a longer-term positive impact if consumers become accustomed to buying more real trees, allowing farmers to take market share from artificial tree manufacturers, Schaefer said.
According to the National Christmas Tree Association, annual sales of fake trees comprised about 30 percent of the total market in 2009 -- a percentage that is generally in line with prior years.
It's still too early to sum up the 2010 marketing season, but several growers report healthy overall demand for Christmas trees.
"Indicators are great right now," Rondeau said.
Based on anecdotal evidence, the financial strain faced by many Americans can be credited with either boosting demand for Christmas trees or hindering it.
Many families tend to hunker down at home during recessions rather than traveling, which would be associated with more trees being sold. On the other hand, trees may not be a priority for people facing unemployment and foreclosure.
"If you don't have a house, you don't need a tree," Grogan said.
The National Christmas Tree Association has reviewed tree sales data from past recessions, but no positive or negative patterns have emerged, said Rick Dungey, public relations manager for the group.
"We've never been able to make a correlation between the economy and trees purchased," he said.
The economy aside, Christmas tree farmers have come up against a headwind due to Mexican trade policy.
In 2009, Mexico slapped tariffs on many agricultural goods from the U.S. in retaliation for a decision by Congress to disallow Mexican trucks from traveling on U.S. highways.
The 20 percent tariff imposed on U.S. Christmas trees apparently had a major impact on shipments to that nation. The value of Christmas tree exports to Mexico fell about 45 percent last year, from $15.7 million to $8.6 million, according to federal trade data.
Farmers have been sending fewer trees south of the border, aggravating the domestic glut. Those that continue to sell to Mexican wholesalers have had to offer steep discounts.
"They pass the cost along to us instead of absorbing it themselves," Grogan said.
Demands by major retailers have also complicated farmers' marketing plans.
Some mass merchants have adopted a "pay-by-scan" system in which growers aren't paid until Christmas trees are sold to customers. The burden of unsold inventory is shifted to farmers.
The system has somewhat backfired, though, since growers have been wary of increasing their shipments -- thereby limiting the retailers' sales potential and product selection, Schaefer said.
"That's the other side of the equation," he said. "You tend to go conservative into stores that have that program."