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FS270
RUTGERS COOPERATIVE EXTENSION
NEW JERSEY AGRICULTURAL EXPERIMENT STATION
Estimated Costs and Returns for Growing
One Acre of Douglas Fir Christmas Trees
by
Mark C. Vodak
Specialist in Forestry
Growing Christmas trees is a land management alternative that has appeal for many landowners, both ecologically and economically. But growing Christmas trees is a moderately long-term investment that is time-consuming and labor-intensive. A
successful plantation requires a full commitment by the landowner and constant attention to cultural needs. It is fairly risky with unpredictable potential for damage from insects, disease, weather, animals, weeds, pollution, fire, and theft/vandalism. Also,
with increased nationwide interest in Christmas tree production in recent years, markets are competitive and producing a high-quality tree is a must.
What are the costs of growing Christmas trees? And what kind of returns can be
expected from an investment in growing Christmas trees? Following is an example of the types of costs and retums to be expected from growing one acre of Douglas fir
Christmas trees. Basic assumptions are: the land is already owned, the taxes are paid, and the landowner expects to manage the trees. Land costs and taxes can greatly influence the investment analysis and should be considered if you do not own land, do not already have farmland assessment tax valuation, or do not intend to keep the land regardless of its use. Neglecting to manage the trees properly and failure to carry out all necessary cultural activities would greatly increase the probability of plantation failure. Or production of poor-quality trees would significantly reduce returns.
All data used in the following example are averaged from the survey responses of a small sample of New Jersey Christmas tree growers, or based on previous studies and/or the experiences of other growers. This example is designed to reflect a typical situation for a choose-and-cut, Christmas tree growing operation in New Jersey.
Production Assumptions
1. Although on most small-sized Christmas tree farms the owner and/or the owner's family perform the majority of the labor, a $5/hour cost is assumed here for all labor.
2. Equipment purchased the first year. 2 planting bars, $50; 2 backpack sprayers, $250; 1 self-propelled, "walk-behind" mower, $2100; and 1 pair of handshears, $25; total = $2425.
3. Site prepared by plowing, discing, and harrowing at $80/acre.
4. Fertilizer: 2,000 pounds of lime and 500 pounds of 10-10-10 fertilizer incorporated during site preparation for $117/acre; 500 pounds/acre applied in rows by hand in year 6 for $58/acre. (Note:Increasingly, growers are recognizing the need
for and the advantages of fertilizing Douglas fir annually.)
5. Planting stock: 1,000 3-0 Douglas fir seedlings purchased for $210/1,000.
6. Planting: 14 hours/acre by hand, $70/acre.
7. Replanting: after the first year only; assume 25 percent mortality, or 250 trees; 250 2-2 Douglas fir transplants at $0.65/tree plus 11 hours/acre to replant; total = $218/acre.
8. Mowing: 13 hours/acre, nine times/year, $1.17/hour mower-operating costs; total = $83/acre.
9. Herbicide spraying: backpack sprayer, 3 hours/acre; glyphosate, $82/gallon, applied once in the fall at .16 gallon/acre; simazine, $11/gallon, applied once in the spring at .75 gallons/acre; total = $52/acre.
10. Insect control: assume an adelgid infestation over the entire acre in years 5 and 6; spray two times/year with Sevin*, $26.40/gallon, at a rate of 1 pint/50 gallons, using a backpack sprayer, 6 hours/acre; total = $37/acre.
11. Disease control: treatment for rhabdocline needlecast in years 6 and 7 with Daconil* at a rate of 2 pints/acre; material cost $32.66/gallon; applied by backpack sprayer three times/year, 3 hours for each application; total = $94/acre.
12. Shearing: using hand shears; 15 hours/acre on trees 3 to 5 feet tall in years 3-5; total = $75/acre; 23 hours/acre on trees taller than 5 feet in years 6-9; total = $115/acre.
13. Marketing costs: $37/acre/year - average cost for materials, advertising, etc.
14. Selling costs: sell 150 trees year 7 at an approximate rate of three trees/hour= $250; 410 trees in year 8 = $685; 100 trees in year 9 = $165.
15. Other miscellaneous and management costs, including things such as membership fees = $60/acre/year.
16. Selling price: $27 per 6 to 7-foot tree.
Analysis Assumptions
1. A 9-year rotation is assumed; that is, it takes 9 years for the investment from initial planting to final harvest.
2. Planting is in year 1, harvesting in years 7, 8, and 9.
3. Plant 1,000 trees/acre.
4. Mortality after the first year is 25 percent.
5. Replant only once, in the second year, after initial planting.
6. Sixty-six (66) percent of planted trees become marketable.
7. Land is already owned.
8 . Land costs and property taxes are not included because they vary widely and exist regardless of the land use.
9. Five (5) percent real rate of interest for discounting.
10. Present net worth and internal rate of return are calculated before taxes and reflect real rates; inflation is not included.
11. As indicated in the 1989 tax guide, equipment costs are expensed in the first year.
12. All figures are rounded to the nearest dollar ($).
Table I shows the cash flows for the 9-year rotation. Note that there are no positive cash flows for the first 6 years of the investment, and even the 7th year is a net expense. In this example, it will take 7 to 8 years to break-even and to pay back the investment.
Table I. Cash Flows for Growing One Acre of Douglas Fir Christmas Trees
Product Cycle Year
Activity 1 2 3 4 5 6 7 8 9
Equipment Purchase $2425 - - - - - - - -
Site Preparation 80 - - - - - - - -
Planting Stock 210 - - - - - - - -
Planting 70 - - - - - - - -
Replanting - 218 - - - - - - -
Fertilizing 117 - - - - 58 - - -
Herbicide Spraying 52 52 52 52 52 52 52 52 52
Mowing 83 83 83 83 83 83 83 83 83
Insect Control - - - - 67 67 - - -
Disease Control - - - - - 94 94 - -
Shearing - - 75 75 75 115 115 115 115
Marketing - - - - - - 37 37 37
Selling - - - - - - 250 685 165
Overhead/Misc. 60 60 60 60 60 60 60 60 60
Total Cost: $3097 413 270 270 307 529 691 1,032 512
Revenue from
Tree Sales: 4,050 11,070 2,700
Cash Flow: $-3097 -413 -270 -270 -337 -529 3,359 10,038 2,188
Cumulative
Cash Flow: $-3097 -3510 -3780 -4050 -4387 -4916 -1,557 8,481 10,669
Analyzing the investment using the cash flows in Table I yields the investment performance measures of net present value, real internal rate of return, and equivalent annual income listed in Table II. The net present value measure shows that, in current dollars, the investment earns $6,461/acre over the required 5 percent, equaling a real internal rate of return of 21.26 percent.
The equivalent annual income measure, allows comparing investment altematives with different lives. It means the investment being examined has income equivalent to another investment having an annual income of the stated amount and interest rate. In this case, the 9-year Christmas tree investment returns are equivalent to another investment paying
$1,006/acre/year at a 5 percent real rate of interest.
Table II.
Investment Analysis Results From Growing One Acre of Douglas Fir Christmas Trees
Real Discount Rate = 5.0%
Net Present Value $ 6,461/acre
Real Internal Rate of Return 21.26%
Equivalent Annual Income $ 1,000/acre
As with most investments, growing Christmas trees can be either profitable or unprofitable. This example is realistic, and the resulting analysis indicates a favorable, profitable investment. It should be used, however, only as a guide to the types of costs and cash flows involved in growing Christmas trees. Each individual's situation will differ, and success and profitability depend on many intangibles and
risks in addition to planning, commitment, capital,
labor, time, and good management.