2025 Outlook for the Green Industry

Volume 19, Issue 2
February 2025

Contributed by Dr. Charlie Hall, Texas A&M University

Going into 2024, green industry firms were uncertain as to how final demand was going to play out across all sectors of the industry. While end-of-year  industry-level data collection is currently underway, data from the first six months of 2024 showed that top-line sales for growers collectively followed a bell-shaped curve, with an almost equal number of growers up versus down,  year-over-year. Bottom-line net profits showed a similar distribution, but with the two tails of the bell-shaped curve being higher, meaning some firms were hitting it out of the ballpark and others, well, not so much. Overall, it was a year of very mixed performance in the grower sector.

Top-line retail sales and transaction counts were also down last year around 5%, with customer counts and basket size (units) down slightly, and the average retail ticket basically flat in most parts of the country. Even box stores experienced positive, but slower growth in sales and EBITDA than they had experienced during the pandemic.

The landscape sector remained the industry’s bright spot in 2024. This will likely remain so with the latent demand for housing that is forecasted and the projected decrease in interest rates by the Fed later in the year. That being said, sales did not come as easy for landscape firms, who faced smaller backlogs and more cost-conscious residential and commercial customers.

While there was less price sensitivity throughout the retail and landscape portion of the supply chain in 2021-2022, allowing participants across the industry to raise prices, there has been (anecdotally) more push back from B2B and B2C customers on price increases. However, those firms that continue to emphasize their value proposition should enable them to hold current price levels or perhaps increase them slightly in certain venues.

Slowing final demand and weather were again headwinds in 2024. These factors were exacerbated by the continuing labor shortages that hampered the ability of green industry companies to capitalize on the higher, but slowing surge in lawn and garden spending. Labor markets are still not what they were before the pandemic. The retirement of baby boomers, lingering challenges associated with the pandemic for women in the workforce and career revaluation among many younger workers are driving a structural shift in the labor market that continues to affect all sectors of the economy, including the green industry.

A bright spot in the industry is that the pervasive supply chain wrinkles that have been hampering many parts of the economy continued to be ironed out over the course of 2024. In 2025, the costs associated with supply chain logistics will likely continue to recede to pre-pandemic levels. De-risking of the supply chain continues with re-shoring and more intensive strategic partnering relationships being forged. Accordingly, green industry supply chains are improving and were functioning closer to normal by the time 2024 came to a close. I do not expect the supply chain to negatively impact the green industry in 2025 as it did in previous years, barring any unforeseen geopolitical or legislative black swans (e.g., overly-aggressive tariff increases or the deportation of 11 million immigrants).

In calculating last year’s Index of Prices Paid by Growers, costs for green industry inputs increased about 1%, substantially less than pandemic days, but labor costs continue to rise in the industry. While the Employment Cost Index for non-agricultural wages has risen about 18% since pre-pandemic 2019, agricultural wages have increased 35%, almost double.

The working capital situation across the green industry is also mixed. The additional cash flow obtained through PPP and other pandemic-relief programs was a shot in the arm for several firms and probably enabled more than a few to survive. However, with these funds, firms either paid down debt, invested in CAPEX or increased inventory (if they could source the inputs), and this build-up in inventory will inevitably lead to future surpluses of certain plant materials. This bull-whip effect will not likely occur until after the 2025 season (or beyond for longer-term crops like trees). In the interim, firms should focus on the unique elements of their value proposition to continue to justify the higher prices throughout the supply chain.

Lastly, as I indicated last year, the next two years will likely bring more shakeout and acquisition activity, and this has been validated in various articles in the trade press in recent months. I expect this to continue in 2025. In addition, I am seeing a little less M&A activity and there doesn’t seem to be as much black powder from venture capital firms that are showing interest in the industry as there was a couple of years ago.

The 2025 economic outlook suggests a mixed but cautiously optimistic scenario, shaped by both ongoing recovery trends and emerging challenges. Global growth is expected to moderate as the effects of post-pandemic stimulus fade, with advanced economies experiencing slower expansion compared to developing markets. Key drivers include resilient consumer spending, advancements in green energy and ongoing technological innovation.

Inflation is likely to remain a concern, particularly in sectors impacted by supply chain disruptions or energy price volatility. Central banks are anticipated to maintain tighter monetary policies, balancing inflation control with the need to sustain growth. Labor markets are expected to remain strong, but wage growth may lag inflation in some regions, pressuring household purchasing power. However, the global economy’s adaptability and investment in sustainability and innovation provide opportunities for steady, albeit cautious, growth.

Lastly, B2B vertical coordination tools will be more widely used with more standing orders, greater use of webshops and online platforms, and more virtual sales contacts. Strengthening vendor and customer relationships will be even more critical. Innovation will lead to alternatives to plastics and a more sustainable mindset throughout the supply chain. Technology usage will continue to disrupt the status quo (e.g., AI applications, order management, warehouse automation and big data analytics). It’s a very interesting time to be in the green industry with the structural changes associated with these technologies and the supply chain risk-mitigating strategies being implemented.

Editor: Chris Laughton
Contributors: Dr. Charlie Hall

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2025 Green Industry Outlook Webinar

On Tuesday, February 25, 2025, at 12:00 PM EST Farm Credit East hosts Texas A&M’s Dr. Charlie Hall for a review of the fiscal and monetary policies that are likely to be advanced over the course of 2025 and the next few years.