Tree Bien Seedling Nursery
1.0 Introduction
Saskatchewan’s cool climate is the greatest factor to overcome in setting up a plant seedling business. Greenhouses are an important factor for year round production of plants in Saskatchewan. Greenhouses are intended to optimize the control of temperature, relative humidity, carbon dioxide and air movements throughout the course of the time period to gain optimal net returns (Sask Ag and Food, 2000). Because of Saskatchewan’s lack of heat during winter months, heat costs are a major concern, representing approximately 18% of total operating costs (Sask Ag and Food, 2000).
Fuel, being the most prevalent input of a greenhouse in Saskatchewan, also is susceptible to the most fluctuations. By reducing the cost of heat in a year, the costs of operating a greenhouse can be sequentially lowered. One possible way to lower this heat requirement is to use another heat source in association with the greenhouse. Capturing the lost heat from a SaskEnergy compressor station located near Rosetown, Saskatchewan is a possibility. SaskEnergy has expressed an interest in investigating the idea of capturing this heat and using it for a greenhouse operation.
A greenhouse could be used for the production of tree seedlings or other products such as vegetables. Our main focus will be on the production of tree seedlings, thus helping to sequester carbon and reduce greenhouse gas emissions. Through capturing heat from the compressor station, SaskEnergy will be reducing its waste heat and carbon emissions, and the greenhouse will be more efficient regarding heat costs.
1.1 Organization
This greenhouse is a new business proposal; therefore there is no past history of the business. There are no present existing shareholders or owners. SaskEnergy has ownership of the heat energy that will be captured, but the building and facilities are to be built and owned by Tree Bien Seedling Nursery.
The greenhouses will be set up to run off recycled heat, captured from the Rosetown natural gas compressor station facilitated by SaskEnergy. The products will be tree seedlings, where the variety and types will be varied depending on the contracts obtained. The primary uses of the trees will be for reforestation and regeneration purposes.
1.2 Mission Statement
- To provide high quality low cost nursery products to suit customer needs while addressing environmental issues.
1.3 Goals and Objectives
- To set up a greenhouse in conjunction with recycled energy from a SaskEnergy compressor station.
- To provide a competitive number of tree seedlings to the marketplace.
- To establish and maintain contracts for the sale of 850,000 tree seedlings.
- To maintain profitability in all aspects of business management.
1.4 Direction of Business
The overall direction of the business is to set up a greenhouse while maximizing heat energy from the SaskEnergy compressor station. The capacity is approximately one million seedlings, sold on a contract basis only.
2.0 Industry Overview
2.1 Background and Literature Review
2.1.1 Forestry Trends
Saskatchewan is known for its vast amount of forested area. Over half of the province is forested (355,000 km2), with the Boreal Forest zone comprising 8% of the global forestland (Brady, 2000). Saskatchewan's forest industry is poised for rapid expansion and currently produces products with a total value exceeding $750 million per year (Saskatchewan Interactive, 2000).
Most of Saskatchewan's timber harvesting takes place in the Boreal Plain Ecozone, which is shown in Figure 2.1.1 below (Brady, 2000). The Boreal Plain region covers about 27% of the province. The bulk of this region is characterized by northern boreal forest, where the predominant hardwood tree species in this area is trembling aspen (Populus tremuloides), and the main softwood species are jack pine (Pinus banksiana), white spruce (Picea glauca), and black spruce (Picea mariana) (Brady, 2000).
Figure 2.1.1 Ecoregions of Saskatchewan (Source: Brady, 2000)
Forestry has been occurring in Saskatchewan since the late 1800's. Currently there are four major companies that hold large leases for forest tenure in the province. Listed in order of size, they are: Weyerhaeuser Canada Ltd., SaskFor MacMillan, Norsask Forest Products Inc., and L&M Wood Products Ltd (Brady, 2000). These companies, together with small operators, log approximately 20,000 hectares of forest annually.
Figure 2.1.2 Forest Management Agreement Areas (Source: Brady, 2000)
On April 26, 1999, the Saskatchewan government announced that it is doubling the forestry industry in the province within the next three years. With this large amount of timber production comes a reforestation and regeneration obligation. Each of the deforested areas must be restocked with tree seedlings to achieve complete renewal of commercial tree species on the forest areas (Brady, 2000). Through both current and increasing tree removal, reforestation is more important than ever, creating a need for more tree seedlings.
2.1.2 Environmental Trends
As environmental concerns become more prevalent in today’s society, people are becoming more sensitive to the causes and cures of the problems. Global warming is one issue we are currently dealing with. As greenhouse gas emissions are increasing, the environment is becoming more unstable and experiencing undesirable changes. One solution to this problem is the planting and reforestation of de-wooded areas. Trees are excellent instruments for the conversion of excess carbon dioxide in the atmosphere to useable oxygen.
Gas emissions and wastes are yet another impact that the environmental society is dealing with. SaskEnergy is in the process of reducing carbon emissions and has a goal to reduce carbon emissions by 6 million tonnes of carbon or 22 million tonnes CO2 equivalent (SERM, 1999). SaskEnergy is one-third through their projections and are hoping to be on target by 2005 (SERM, 1999).
By putting the waste heat from the compressor station to use, SaskEnergy can further decrease their carbon emissions and achieve their targets. The cheaper source of heat will also enable the greenhouse to be more economically feasible.
2.2 Possible Problems
The main problem to overcome with the feasibility of the greenhouse business is capturing the recycled heat. The main focus will be the economic feasibility of the greenhouse operation and the determination of whether the recycled heat is sufficient to grow tree seedlings while gaining profit. The sensitivity analysis shows the details.
Section 3.0 of this report addresses operational feasibility, and a proposed operations plan. Similarly, sections 4.0, 5.0, and 6.0, address plans for marketing, human resources, and financial, respectively.
3.0 Operations Plan
3.1 Location of Tree Bién
Tree Bien’s seven greenhouses will be located in Rosetown Saskatchewan, directly across the road to the east of the SaskEnergy compressor station. It will be built on a two-acre lot of land purchased from a local farmer, which, at the present time is under agricultural cultivation.
The compressor station at the site is continuously producing and expelling heat. The constant supply of heat is the primary reason for choosing the Rosetown location. With the transfer of a continuous flow of waste heat from the compressor station to the greenhouse, the need for additional heat sources will be minor.
3.2 Business Operations
Tree Bién is a greenhouse business that will produce tree seedlings for the purpose of reforestation by Weyerhauser Canada. The seedlings will be sold on an annual contract basis.
Weyerhauser Canada will provide the seeds. They will have been collected from the location of deforestation, ensuring a natural habitat is reforested. Saskatchewan’s forests are divided into three zones. The seeds will be gathered from one of these three zones, where the seedlings will be transplanted.
Sowing of the seedlings will take place in mid-March where they will grow in the greenhouses until October. From here they will be transported to freezer storage, paid for by the contract company. The seedlings will remain in freezer storage until May when they will be sent to their zone of origin for transplanting.
3.3 Building Plan
A 30’ x 30’ building will be built to include an office/lunch area, washrooms, and storage/work areas. The storage area will have a large overhead door for easy access to the stored materials.
Figure 3.3.1 Tree Bién Office/Storage Building Floor Plan
The greenhouses will measure 9.1m x 47.5m and will consist of metal frames covered by two layers of polycarbonate. The poly is preferred to glass because it has much better heat retention, however it must be replaced approximately every four years.
The greenhouses will include a 1.2m walkway between two strips of wire mesh benches on which the seedlings will be grown.
Figure 3.3.2 Tree Bién Greenhouse Layout
One of the greenhouses will contribute approximately 20% of its area to harbor the 1150-gallon water tank, fertilizer tank, and the climate control computer. The remaining space is left for the wire mesh benches.
3.4 Site Plan
Figure 3.4.1 Site Plan
3.5 Description of Tree Production Process
The following figure illustrates the general tree production process:
Figure 3.5.1 Tree Production Process
Seedlings will be grown in styrofoam blocks that contain either 160 cells (3cm wide X 13cm deep; 3-13’s) or 112 cells (4cm wide X 10cm deep; 4-10’s). The type of block in which they are grown depends on the contract. Seedlings grown in 4-10’s have a higher survival rate but are more expensive to grow because they take up more space in the greenhouses.
Peat moss is mixed with vermiculite. The styrofoam blocks are then filled with the peat moss/vermiculite mixture and will be ready for the seed. Seed must be soaked in water for 24 hours, dried, and stored in a cooler for approximately 21 days before seeding.
Seeds, provided by Weyerhauser, are planted in mid-March. It takes approximately three days and five people to plant one million seedlings. The automatic seeder sits above a small conveyor belt on which the styrofoam blocks are placed. As the blocks pass under the seeder, seeds are placed in the cells. The seeds are then lightly pressed into the soil.
The seeder will be programmed to seed at a rate of 2 seeds per cell to ensure a high rate of emergence. The blocks are then thinned to one seedling per cell immediately after emergence. Transplanting will not occur in cases where neither seed germinates, since the growth of those plants will be delayed so much that they will end up being discarded at harvest.
Grit, which is composed of large sand particles, will be placed on top of the seed and soil. This grit prevents the growth of algae and gray mold on the surface. Once the grit is applied, the blocks are transferred to the greenhouses where they will experience extended light throughout their growth.
A climate control computer, controlling watering is programmed to automatically water twice per day. Fertilizer is added to the water with fertilizer injectors and is applied every watering. 12-17-29 (12% N, 17% P2O5, 29% K2O) is applied when the lights are shut off and 15-5-0 (15% N, 5% P2O5) is applied while the lights are on. The fertilizers are applied alternately because they result in different responses of the plant.
Transferred heat from the compressor station will be the primary heat source. Two back-up heaters per greenhouse will be installed to provide the additional heat needed for the seedlings. Two fans per greenhouse will also be installed and will operate continuously to reduce the humidity and the growth of molds and algae.
The seedlings are grown to reach a target height or target root collar diameter, depending on the species of tree. For example, Black spruce is grown to a target height of 12- 30cm and White spruce is grown until its root collar is 2.3mm or larger in diameter. If a seedling does not fall within the target values, it is discarded.
Once the target size is attained, the lights are shut off to stimulate bud set. A sample of approximately 25 seedlings per greenhouse will be sent to a lab in Smoky Lake Alberta to be tested for frost hardiness. This is usually achieved when the seedlings have experienced approximately 200 hours of 3°C temperature. Once frost-hardiness is reached, the trees will be ready to be harvested and transported to freezer storage.
Harvesting will be completed by fifteen casual employees and will take two to three weeks to complete. The seedlings are removed from the styrofoam blocks and sorted. The trees that don’t reach the target sizes or that show signs of disease are discarded. It is expected that a loss rate of approximately 15% of the total trees planted will be discarded. The peat moss and roots of roughly 20 seedlings are wrapped with plastic wrap or plastic bags, and placed in cardboard boxes. Each box can hold 300, 3-13 seedlings or 270, 4-10 seedlings. Once in the boxes, the seedlings are ready for transport. All costs that are incurred following packaging, including transportation costs, are the contractor’s responsibility. They are sent to Dryden, Ontario, the nearest available storage, where they will be stored in a freezer. In May, they will be transplanted in the forest zone from which their seeds originated.
3.6 Quality Control Measures
Alarms will be installed throughout the greenhouses to alert the general manager by telephone of any indication of an equipment failure such as a temperature drop, a watering failure, or a power outage. This alarm will allow time for the problem to be corrected before any damage has been done.
Herbicides are not used on the seedlings therefore other weed control methods must be used. Lungworth, a common weed in tree seedling production, is often controlled by the addition of chlorine or hydrogen peroxide to the water. If methods such as this are ineffective, the casual labor staff will handpick the weeds.
Fans run continuously to prevent the growth of green mold and algae, which are damaging to the seedlings. Seedlings will be hand-sorted before packaging to remove all that are flawed.
The contractor, Weyerhauser, will perform inspections two to three times per summer to ensure the trees are being properly cared for in a safe manner.
3.7 Capacity Limit
A 30’ X 150’ greenhouse will hold approximately 180,000 seedlings planted in 3-13’s, and approximately 150,000 seedlings planted in 4-10’s. One of the seven greenhouses will contribute approximately 20% of its area to housing the water tank and watering computer. Therefore, in Tree Bién’s seven greenhouses, there is a potential to grow approximately 1.2 million seedlings all planted in 3-13’s. The actual capacity of the facility will be a function of the contract for a given year, since the ratio of the seedlings grown in each block size will be determined in the contract. One million seedlings is the projected real capacity.
3.8 Cost of Goods Manufactured
Table 3.8.1 Cost of Goods Manufactured
Year / 2001 / 2006 / 2010Direct Materials / 0 / 0 / 0
Direct Labor / 48,250 / 56,480 / 64,064
Variable Overhead / 12,141 / 14,342 / 16,404
Fixed Overhead / 25,270 / 26,995 / 19,187
Cost of Goods Manufactured / 85,661 / 97,818 / 99,655
The values in the above table have been extracted from the financial model at the end of the document – Appendix A.
3.9 Summary of Financial Results
Table 3.9.1 Summary of Financial Results
Year / 2001 / 2004 / 2007 / 2010Sales / 136,000 / 149,478 / 164,292 / 180,574
COGS / 50,382 / 59,849 / 54,669 / 54,484
Gross Profit / 85,618 / 89,629 / 109,624 / 126,091
Expenses / 46,759 / 49,399 / 51,988 / 54,416
Net Profits / 38,859 / 40,230 / 57,636 / 71,675
Income Taxes / 7,803 / 8,078 / 11,573 / 14,392
Net Income / 31,056 / 32,152 / 46,063 / 57,283
Net Cash Flow to Equity / 2,190 / 55,788 / 54,124 / 222,746
Expected Rate of Return on Equity Investment / 16.6%
The values in the above table have been extracted from the financial model at the end of the document – Appendix A. A 16.6% rate of return on investment is illustrated.
3.10 Service Providers
Table 3.10.1 Service Providers
Accountant / Meyers Norris PennyBanker / TD Bank
Insurance Company / Investors Group
Lawyer / McDermot LaMarsh
3.11 Operating Expenses
Table 3.11.1 Operating Expenses
Description / Cost ($) 2001Electricity / 5,040
Telephone Service / 800
Property Taxes / 250
Marketing / 500
Administration / 150
The above table shows estimates for the operating expenses of Tree Bien. The cost of electricity was taken from a book “Container Tree Nurseries- A Profitability Analysis” by Bradley, Susan and Perry Kinkaide. Telephone expenses are estimates given by SaskTel. Property tax is an estimate given by the RM of Rosetown. The marketing expenses include costs expected to keep in touch with Weyerhaeuser. This includes long distance calling and enough money for a few visits - hotel accommodation, meals, and transportation.
Without the heat capturing unit, annual heating costs will be about $2 per square foot, which is approximately $9,000 per greenhouse.
3.12 Capital Expenses
Table 3.12.1 Capital Expenses
Greenhouses / $183,500watering / $31,500
benches / $15,750
lights / $250
climate control board / $7,500
ventilation / $2,100
Equipment / $15,500
Land / $5,000
Set-up Costs / $9,200
electrical / $2,000
natural Gas / $1,200
water / $6,000
Total / $213,200
Table 3.12.1 shows that the total cost of the tree seedling greenhouses will be $213,200. This cost includes the greenhouse structure and equipment costs (Bradley, 1991). Every five years the plastic will be replaced at a cost of approximately $15,000. Frank Reaume, the manager at Four Seasons Greenhouse in Tisdale, SK, provided equipment costs. The costs of the carton filler, seeder and packer are all quoted from Vancouver Biomachines. Vancouver Biomachines Inc. is a company that retails specialty equipment for greenhouse applications. The cost of land will be about $5000. This will include about 8 acres of land as well as an approach off of the main road adjacent to the greenhouse site.
4.0 The Marketing Plan
4.1 Introduction
Tree Bien’s seedlings will be targeted at the reforestation sector, more specifically, Weyerhaeuser. The tree seedlings will be contracted with them for specified prices. Bid prices of fifteen cents for the 3-13 seedlings and seventeen cents for the 4-10 seedlings will be sufficient to obtain a contract for the production of one million seedlings. The marketing plan is divided into two sections: the market analysis and the marketing strategy.