UGA Center for Urban Agriculture Economic Stress Continues for Georgia s Urban Agriculture

Transcription

1 UGA Center for Urban Agriculture Economic Stress Continues for Georgia s Urban Agriculture Dr. E. Bauske, Dr. W. J. Florkowski and Dr. G. Landry Center Report: CR November 7, 2008

2 Economic Stress Continues for Georgia s Urban Agriculture E. M. Bauske, W. J. Florkowski, G. Landry Last year (2007) was a difficult year for urban agriculture industry primarily as a result of drought and subsequent water restrictions (Bauske, et al. 2008). In 2008 the industry remains under duress, but the economic pressure sources negatively impacting the industry have diversified. High gasoline prices, the contraction of the housing market, rising unemployment and the heightened probability of a recession have combined with the continuing drought and lasting water restrictions to create a challenging business environment. In an effort to assess the present economic state of Urban Agriculture Industries in Georgia, a third, on-line survey was implemented using a revised questionnaire ed to member associations of the Urban Agriculture Council (UAC) following previously outlined procedures (Bauske and Landry, 2007). Between May 30 and June 26, 2008, 0 responses were received from businesses located in Georgia. The respondents represented a broad range of urban agriculture industries with landscape businesses predominating (Table ). The urban agriculture sector of Georgia s economy continues to be adversely affected by current conditions. Not surprisingly, the respondents reported sales were down the first six months of the year when compared with the same time period in 2007 (Table 2). In 2007 the average sales from January through June was $,990,70. In 2008, during the corresponding time period respondents estimated their average sales were $,580,858, a decrease of approximately $40,000 or 20%. Many of the urban agriculture sector companies are relatively small in terms of revenues. Half of the respondent reported sales of $45,000 or less during the January-June period in In 2008, one half of respondents reported sales of $300,000 or less between January and June. In response to the question How do you assess cash flow? more than one half of respondents reported cash flow was below average. Among those responding 40% answered the cash flow was weak and 3% indicated it was very weak. Lower revenues, typically implying lower profits, weaken the ability of businesses to borrow money and the ability to repay loans and to invest. Declining revenues may negatively affect the value of a firm s assets and limit the ability to access commercial credit market. The ability to sell the business is inhibited as a result of the unclear market value of tangible and intangible assets. Consequently, even well managed operations of substantial size and with industry knowledge and business experience may encounter liquidity problems and could be forced out of business. Many of this survey s respondents reported borrowing money outside the commercial banking sector. In addition, the sources of credit, selected by respondents from the list presented in the questionnaire, suggests significant economic stress. When probed for UGA Center for Urban Agriculture Page

3 answers about the credit sources using the question Within the last 2 months, have you borrowed money to support your business? thirty-seven respondents chose no and 63 answered yes. The 63 respondents that had borrowed money listed one or more of the following sources: 34 received bank credit 3 borrowed money from the Small Business Administration (five of these specified disaster loans) took out a second mortgage on their residence 9 took an informal loan from family or friends 8 borrowed money from themselves (retirement accounts, other businesses owned, credit cards, etc.,) Many respondents listed more than one source of funding and 36 % of all survey respondents listed at least one source of financing which indicates financial stress. Of the sources listed above, bank credit and non-disaster SBA loans do not indicate financial stress. All other credit sources listed (including five SBA loans named by respondents disaster loans ) suggest financial stress. The most troubling development is the use of personal assets to operate the firm. Personal assets (homes, retirement accounts, etc.) have declined in value in recent months and, therefore, their collateral value also declined. The declining personal asset values may severely limit the operation of firms. Credit card interest rates are substantial, despite the cuts in the target federal funds rate, and force borrowers to allocate an increasing portion of revenues to service the credit card balance. The respondents indicated continued erosion in their workforce. Although earlier survey results showed the decline in numbers of part-time and seasonal workers, the full-time, year-round employees are now impacted (Table 3). Survey results indicate that the average company has laid-off three full time year-round employees. Not only do employers report fewer workers in May of 2008 than in May of 2007, but the workers have worked fewer hours. When asked Have you reduced labor/man hours in May, 2008 as compared with May, 2007?, 72 % of the respondents answered yes. They reported an average of 32% less labor hours. Many of the employees in the urban agriculture sector of Georgia s economy are hourly wage earners. Currently employed workers are earning considerably less money, spending less and paying less in taxes. It is unlikely that industry conditions have improved in a meaningful way since the implementation of this survey in May-June Moreover, a prolonged weakening of demand will imply a slow recovery complicated by the seasonal nature of the urban agriculture. The overall financial condition of urban agriculture sector is likely to remain fragile in the foreseeable future. UGA Center for Urban Agriculture Page 2

4 Summary: Urban Ag Industries report a 20% reduction in sales over the first 6 months of % of Georgia s Urban Ag Industries have sought financing from sources which indicate financial stress as they struggle to stay in business. Employers are no longer able to protect their investments in human capital and the industry has shed an estimated 24,000 full-time, year-round employees and 5,600 part-time workers. Companies have cut deeply into their hours of operations, reduced the income of remaining workers and their ability to generate taxes and purchasing power. This reduction in business for one of the largest agriculture sectors in Georgia will likely have a ripple effect into the local and state economy. Table. Business activities reported by respondents to the Economic Survey. Business Type Total Percentage of Respondents Green House Production Irrigation 7 7 Landscape Architect 2 2 Landscape Contractor Other Pool/Pond 2 2 Retail Garden Center 3 3 ReWholesaler 7 7 Sod/Turf Production 6 6 Wholesale Nursery companies responded to the survey. Surveys were filled out between May 30 and June 26, 2008 and Table 2. Actual sales reported for January to June in 2007 and estimated sales for January to June in Actual sales January June, 2007 Estimated sales January June, 2008 Difference 2 Total 89,6,649 5,762,438-37,354,2 Mean,990,70,580, ,843 Median 40, ,000-0,000 Range 5,00-29,244, ,244,600 0 companies responded to the survey. Surveys were filled out between May 30 and June 26, 2008 and 2 Estimated sales January-June, 2008 minus actual sales January-June, UGA Center for Urban Agriculture Page 3

5 Table 3. Number of employees reported by urban agriculture industries responding to survey. Type of Number of employee employees Number of employees May, 2008 May, 2007 Total Mean Total Mean Difference between Years 2 Extrapolation to Industry 3 Full-time 2, , ,326 year- round Full time ,85 seasonal Part-time year- round Part time Seasonal ,980 0 companies responded to the survey. Surveys were filled out between May 30 and June 26, 2008 and 2 Number of employees in May, 2008 minus the number of employees in May, Calculated as follows: Total * (7,000/0). References: Bauske, E. M. and Landry, G Economic Impact of the Drought on Urban Agriculture Industries. Bauske, E. M., Florkowsky, W. and Landry, G Layoffs Increase and Losses Accelerate in Response to the Drought. ACKNOWLEDGEMENTS The authors would like to thank Dr. Kent Wolfe and Dr. Timothy Park for their valuable review of this manuscript. UGA Center for Urban Agriculture Page 4