Evergreen Acres Christmas Tree Farm

Table of Contents

List of Figures

List of Tables

Executive Summary______

Introduction______

Operations Plan______

Marketing______

Human Resource Plan______

Financial Plan______

1.0Introduction______

1.1 Mission Statement______

1.2 Management Information______

1.3 Goals and Objectives______

2.0 The Operations Plan______

2.1 Description of Operations______

2.2Land______

2.2.1 Site Selection______

2.2.2 Building Cost and Contracting______

2.3 Desired Tree Varieties______

2.3.1 Balsam Fir______

2.3.2 White Spruce______

2.3.3 Scotch Pine______

2.3.4 Colorado (Blue) Spruce______

2.4 Christmas Tree Production Process______

2.4.1 Site Preparation______

2.4.2 Seeding Plan______

2.4.3 Shearing and Pruning______

2.4.4 Spraying______

2.4.5 Tinting______

2.4.6 Harvesting and Storage______

2.5 Environmental Conditions______

2.6 Utilities Set-Up and Consumption______

2.6.1 Power______

2.6.2 Telephone______

2.7 Transportation______

2.8 Cost of Goods manufactured and Unit Cost of Production______

2.9 Working Capital______

3.0 Marketing Plan______

3.1 The Market______

3.2 Competition______

3.3 Customers______

3.3.1 Product Customers______

3.3.2 Service Customers______

3.4 Target Markets______

3.4.1 Target Market for Product______

3.4.2 Target Market for Service______

3.5 Product/Service Features______

3.6 Sales Objectives______

3.7 Channels of Distribution______

3.8 Pricing Policy______

3.9 Selling and Advertising______

3.10 Marketing Plan Budget______

3.11 SWOT Analysis______

3.11.1 Strengths______

3.11.2 Weaknesses______

3.11.3 Opportunities______

3.11.4 Threats______

4.0 Human Resource Plan______

4.1 Owner______

4.2 Seasonal Student Workers______

5.0 Financial Plan______

5.1 Capital and Financing Budget______

5.2 Dividend Policy______

5.3 Economic Forecast______

5.4 Working Capital______

5.5 Summary of Financial Results______

5.6 Financial Analysis______

5.7 Sensitivity Analysis______

5.8 Break-even Analysis______

5.9 Scenario Analysis______

6.0 Future Considerations______

7.0 Summary of Business Plan______

8.0 References and Contacts______

9.0 Appendix 1______

List of Figures

Figure 2.1 Tree Outline______

Figure 2.2 Balsam fir______

Figure 2.3 White spruce

Figure 2.4 Scotch pine______

Figure 2.5 Colorado (Blue) spruce______

Figure 2.6 Shearing and pruning tools ______9

Figure 2.7 Christmas tree shaker______

Figure 2.8 Christmas tree bailer______

List of Tables

Table A. Cost of Goods Manufactured and Unit Cost of Production______vii

Table B: Capital and Financing Budget______viii

Table C: Summary of Financial Results______ix

Table D: Sensitivity Analysis______ix

Table E: Critical Success Variables ______x

Table 2.1 Costs of Goods Manufactured and Unit Cost of Production______12

Table 2.2 Working Capital______13

Table 2.3 Capital Budget Summary______13

Table 3.1 Selling Prices for trees______18

Table 3.2 Marketing Budget______19

Table 4.1 Owner’s Salary for Four Selected Years ______22

Table 4.2 Number of Part-time Workers and Their Wages ______22

Table 5.1: Capital and Financing Budget______23

Table 5.2: Dividends for Evergreen Acres______23

Table 5.3: Working Capital Requirements______23

Table 5.4: Summary of Financial Results______24

Table 5.5: Critical Success Variables______24

Table 5.6: Sensitivity Analysis (20% Discount Rate)______24

Table 5.7: Cost of Producing Trees______25

Table 5.8: Scenario Analysis (Year 15) ______26

Executive Summary

Introduction

Evergreen Acres is a proposed Christmas tree farm near Prince Albert, Saskatchewan. This business will start out growing four different types of trees including Balsam Fir, Scotch Pine, White Spruce and Colorado Spruce. The first three varieties will be sold as Christmas trees in the months of November and December while the Colorado Spruce will be sold for landscape purposes.

Evergreen Acres will start by growing a total of 5000 trees with 70% of them being Balsam Fir. Evergreen will sell their trees to wholesalers around the province and in Alberta as well as offer the service of a Choose and Cut that will allow customers to come to the Evergreen Acres Farm and pick out their own tree. This will be a new service offered in the Prince Albert area.

Operations Plan

Evergreen Christmas Tree Farm will be located 30 kilometers north east of Prince Albert. Production will take place on a 154-acre plot that is presently in summerfallow and hay. The site selection was based on market accessibility, climate and soil type.

There will be four different tree varieties planted on the farm which include Balsam fir, White spruce, Scotch pine and Colorado spruce. The first three varieties will be used for the wholesale and Choose and Cut Christmas tree markets while the Colorado spruce will be used for the landscaping market. The Manitoba Christmas Tree Growers Association will provide the tree seedlings.

In the first year of production only 5 acres will be planted. In year 5, production will double and 10 acres of trees will be planted. Expansion will continue and maximum production will be reached in year 15 where 15 acres will be planted each year after that.

The following shows the production process in year 13 when Evergreen Acres is in full operation:

May - Incorporate Treflan and Sencor into planting site

- Plant 15,000 seedlings

June - End of June shear and prune the Scotch pine

July - End of July shear and prune the Balsam fir, White spruce, and Colorado spruce

September - Tinting of the Scotch pine

- Weed control using Round-up

October - Harvest wholesale trees and store them as needed

November - Open the choose and cut service

There are two main concerns dealing with Christmas tree production. These include drought and pests and disease. In a bad drought year the mortality rate of the trees can be as high as 90%. Pests and disease can be a serious problem; however, the area chosen for this site has cold winters which make conditions unfavorable.

The table below shows the cost of goods and the unit cost of one tree. Differences are seen in the unit cost of production as expansion increases.

Table A. Cost of Goods Manufactured and Unit Cost of Production

Year 8 / Year 13 / Year 18
Quantity Produced (trees) / $4,125 / $8,250 / $12,375
Direct Materials Used / $15,540 / $26,078 / $38,705
Direct Labour / $33,939 / $62,016 / $94,414
Manufacturing Overhead / $5,288 / $5,412 / $4,984
Cost of Goods Manufactured / $54,766 / $93,505 / $138,103
Unit Cost of Production/Tree / $13.28 / $11.33 / $11.16

Marketing

Evergreen Acres is going to sell its Christmas trees to three groups of customers. These groups include wholesalers, charity and community groups and finally the Choose and Cut customers. The Colorado spruce will be sold to landscaping companies throughout Saskatchewan.

The key to getting and keeping these customers is good business relationships. Evergreen Acres will focus on satisfying its customers’ wants and needs when it comes to the type of Christmas tree customers want to buy. By satisfying the customers there is a greater chance they will pick Evergreen Acres to buy their Christmas tree the next year but also tell people they know about Evergreen Acres.

The setting of prices of the trees is competitive when selling to the wholesalers and community groups. Evergreen will set their price close to the competitor’s price so they will have a market for their trees. The competitors will include the retailers around the Prince Albert area with the main competitor being John’s Nursery. The Choose and Cut price will be set above the wholesaler price to make a greater profit but also to cover the hot chocolate and cookies that will be served.

Human Resource Plan

The owner will be responsible for the majority of the duties required by this business, and will be the only permanent worker on this tree farm. Requirements involve arranging transportation of necessary supplies, promoting good relations with wholesalers, recording all incomes and expenses, organizing a budget, and preparing a financial plan. This person will organize and train the seasonal workers. The owner will also be required to operate all the necessary equipment, as well as maintain the equipment.

The seasonal laborers will first be hired in the fifth year, and will grow to twenty laborers in the twentieth year. The required duties will vary throughout the year. These are the employees who will be involved in the seeding, pruning, shearing, and harvesting of the trees. When the Choose and Cut opens in year eight, these employees will be required to work with the public. Maintenance of the building and the grounds will also be part of their duties.

Financial Plan

Evergreen Acres will require $225,000 in financing in order to start their Christmas tree farm. All financing will be in the form of equity provided by the owner, as well as friends and family of the owner. The capital costs are shown below in Table B.

Table B: Capital and Financing Budget

Capital Cost

Land / 59,000
Buildings / 34,500
Equipment / 32,570
Miscellaneous / 2,730
128,800
Working Capital / 96,200
Total / 225,000

Financing Budget

Shareholders’ Equity / 225,000

Evergreen Acres’ dividend policy states that dividends will be paid out anytime that the net profit is positive. When this occurs, fifty percent of the net profit will be paid out to the shareholders.

Evergreen Acres’ internal rate of return is 17.3%, which is 2.7% less than the required rate of return. Because of this difference, the net present value is –45,614. The following table summarizes other important financial results.

Table C: Summary of Financial Results
Year / Year 5 / Year 10 / Year 15 / Year 20
Revenue
/ $22,989 / $120,800 / $256,889 / $ 426,467
Cost of Goods Manufactured / $23,385 / $ 73,635 / $112,283 / $ 149,240
Gross Profit / $ (395) / $ 47,165 / $144,606 / $ 277,227
Expenses / $ 6,010 / $ 49,462 / $ 80,259 / $ 114,598
Net Income (loss) / $ (6,406) / $ (2,297) / $ 64,348 / $ 162,629
Net Cash Flow to Equity / $ 9,856 / $ 2,069 / $ 65,689 / $1,596,899
Net Present Value (NPV) @ 15% / -45,614
Expected Rate of Return on Equity Investment (IRR) / 17.3%

The following table evaluates several scenarios, taking into account the base case, worst case, and best case scenarios. The results indicate the sensitivity of the following variables.

Table D: Sensitivity Analysis (15% Discount Rate)
Scenario #1: Growth in Selling Prices of Trees / NPV / IRR
Base Case / 2% / -45,163 / 17.3%
Worst Case / -1% / -132,398 / 7.9%
Best Case / 4% / 33,563 / 21.6%
Scenario #2: Growth in Price of Seedlings / NPV / IRR
Base Case / 2% / -45,163 / 17.3%
Worst Case / 4% / -55,734 / 16.6%
Best Case / 0% / -36,533 / 17.9%
Scenario #3: Growth in Wages and Salaries / NPV / IRR
Base Case / 2% / -45,163 / 17.3%
Worst Case / 4% / -64,312 / 15.9%
Best Case / 0% / -30,161 / 18.3%
Scenario #4: Survival Rate of Balsam Fir / NPV / IRR
Base Case / 85% / -45,163 / 17.3%
Worst Case / 50% / -129,672 / 9.3%
Best Case / 95% / -21,018 / 18.8%
Scenario #5: Survival Rate of White Spruce / NPV / IRR
Base Case / 80% / -45,163 / 17.3%
Worst Case / 45% / -55,224 / 16.6%
Best Case / 90% / -42,289 / 17.5%
Scenario #6: Survival Rate of Scotch Pine / NPV / IRR
Base Case / 70% / -45,163 / 17.3%
Worst Case / 40% / -53,356 / 16.8%
Best Case / 80% / -42,433 / 17.5%
Scenario #7: Survival Rate of Colorado Spruce / NPV / IRR
Base Case / 80% / -45,163 / 17.3%
Worst Case / 45% / -71,977 / 15.5%
Best Case / 90% / -37,502 / 17.8%

Evergreen Acres has five main critical variables. These variables are used in a sensitivity analysis to determine the best and worst case scenarios. The following table ranks the critical variables in order of importance.

Table E: Critical Success Variables
Variable / Level of Importance (1>2>3)
Quantity of Sales / 1
Yield of Trees / 1
Selling Price of Trees / 2
Cost of Seedlings / 3
Wages and Salaries / 3

The cost of producing a tree, taking into account all costs, is $14.70 in year eight and decreases as the acreage increases.

Conclusion

Evergreen Acres has shown that if a farmer in Northern Saskatchewan wanted to diversify his farm, this would be a sensible investment. However, the downside is that it takes at least eight years before any profits are seen. Also, this business is very labor intensive and time consuming.

The financial projections displayed in Appendix 1 have shown an IRR of 18.5% and a NPV of 94,635. These numbers illustrate that it would be a worthwhile investment to any family and friends that are interested. For risk-averse investors this business would not be the optimal investment due to the high risk. This business is completely dependent on weather and profits are not seen until at least year eight, so patient investors are required.

College of Agriculture and College of Commerce, University of Saskatchewan1


Evergreen Acres Christmas Tree Farm

1.0Introduction

The first Christmas tree ever recorded with religious significance was in 1521, in the German region of Alsace. Evergreens were the first choice for Christmas trees, and there were no trimmings on these trees either. The first decorated trees showed up in Strasborg, Germany. This was in 1605, and fir trees were used to brighten the homes of many families. For their decorations, they would use paper roses, apples, communion wafers, gold foil, and various sweets.

In the mid-1900’s, artificial Christmas trees came onto the market, proving to be competition for the real Christmas tree market. These artificial trees took part of the tradition out of the symbolism of the Christmas tree, because a major reason that these trees were chosen was for their scent. In recent years, there has been a shift back towards real Christmas trees, and Evergreen Acres Christmas Tree Farm wants to access this growing market.

The winter climate of Northern Saskatchewan can be cold, and harsh. But even with this down fall, this is the optimal area to grow Christmas trees. The soil of this region once bore numerous evergreen trees, and many of the Christmas trees sold are native to this area. These species thrive in these conditions, and are easy to manage.

1.1 Mission Statement

To provide high quality, Saskatchewan grown, Christmas trees to the general public in an environmentally and customer friendly atmosphere.

1.2 Management Information

This tree farm is a new business venture, and therefore has no past history. This means that there are no current owners or shareholders.

This business plan is set up for anyone to undertake, but would be easiest for a farmer who is looking to diversify his or her business. The reason that it would be easier for an established farmer is because they would already have the land, possibly enough storage, and some of the essential equipment.

1.3 Goals and Objectives

  • To produce Christmas trees of high quality.
  • To provide the public with a Choose and Cut traditional Christmas tree option.
  • To sell 600 trees from the Choose and Cut business to the public by year 13.
  • To sell 50% of the harvested crop to Saskatchewan residents by year 13.
  • To start a business that will be profitable, and extend throughout many generations.

2.0 The Operations Plan

2.1 Description of Operations

Evergreen Acres will produce 4 varieties of trees on a 154-acre plot near Meath Park, Saskatchewan. Three of the varieties include Balsam fir, White spruce and Scotch pine, which will be grown for the wholesale and Choose and Cut Christmas tree market. The fourth variety is Colorado spruce and it will be grown for the landscaping market. Of the trees grown, 70% will be Balsam fir, 10% will be White spruce, 10% will be Scotch pine and 10% will be Colorado spruce. Therefore, the operation will focus mainly on the wholesale and choose and cut area of the business. Poplars will also be grown to act as a shelterbelt to protect the Christmas trees.

Figure 2.1 Tree Outline of Planted Acres

2.2Land

The cost of the total 154-acre plot where the Christmas tree farm will be located is $59,900.00[1]. It is located near Meath Park, which is approximately 30 kilometers North East of Prince Albert. This location was chosen because of the climate of the area, the closeness to one of Saskatchewan’s larger centers, the land type and topography.

2.2.1 Site Selection

This site location was chosen mainly because its climate is suited perfectly to grow Christmas trees. Tree production requires a climate of increased precipitation, which Prince Albert has. It is also located in the black soil zone, which is highly productive soil for agro-forestry. Tree production is always more successful when they are grown in their native habitat. Meath Park is located in the Aspen Parkland where spruce and evergreen trees are native.

2.2.2 Building Cost and Contracting

There will be two main buildings on the Christmas tree farm site. The first building is the office, which serves two purposes. The first is a place for the Choose and Cut customers to warm up, drink hot chocolate and eat cookies which are supplied for them. The second purpose this building serves is as an office for the owner/operator. The building includes a main room, an office and a bathroom. This building will be heated but will not have plumbing or running water.

The office building will be bought and moved from St. Gregor. The cost of the building is $1,500[2] and the cost to transport the building on to the farm site is $8,000[3]. The costs of this building are not incurred until year eight since its primary function is to aid in the Choose and Cut system. This will offset the initial start-up costs of the business.

The second main building will be the Quonset. The main purpose of this building is to house all the farms machinery and equipment. It may also be needed to shake and bail the Choose and Cut Christmas

trees when it is too cold outside to do it. The building will not be insulated and will have a dirt floor. The Quonset will be 1500-sq. ft. and will cost $15,000[4] to build.

2.3 Desired Tree Varieties

2.3.1 Balsam Fir

At the present time Balsam fir is the number one Christmas tree in Canada. Balsam firs are native to Northeastern USA and Canada, which is why they grow best in cooler climates. This Christmas tree is well known for its soft flat needles that are always dark green. This is a very desirable Christmas tree because it is very low maintenance and has a low cull rate of only 10%. It has dark green foliage all year round and therefore does not need to be tinted. It also has short needles and does not need to be shaken before it is bailed. It has very low input costs compared to other varieties yet it sells at the highest wholesale and choose and cut price.

The cost of Balsam fir seedlings is $1.25 per mega plug. A mega plug is a seedling that has been grown in a green house for three years. Each year 70% of total seedlings put in the ground will be Balsam fir. In year one 3.5 acres of Balsam fir will be seeded and by year 15 maximum acreage will be reached at 108.5 acres. By year 15, 13,300 Balsam fir will be harvested each year.

Figure 2.2 Balsam fir

2.3.2 White Spruce

White spruce is a very adaptable Christmas tree and can grow in many diverse planting sites which makes it very desirable. When it grows it has a “natural” Christmas tree shape, which means there is minimal shearing and pruning needed. It has dark green foliage with short stiff needles, which means it does not need to be shaken or tinted. However, there is a downfall with this Christmas tree. The small short needles dry rapidly when displayed in a heated room with low humidity. This is undesirable to customers where needle retention is of high priority. This is the reason that only 10% of White spruce will be planted each year.