The Christmas tree supply is tight — but it’s no shortage

The Christmas tree supply is tight — but it’s no shortage
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The Christmas tree industry will remember several things about 2017, but perhaps the longest lasting memory will be the tsunami of sensational headlines and articles claiming there is a “shortage” of real Christmas trees.

The reality is the supply of real Christmas trees is tight, but you can still buy a real Christmas tree almost anywhere in the country. That isn’t a shortage. 

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Real Christmas trees are a crop, farmer-planted and hand-harvested specifically for people to enjoy, they are not cut from a forest. Like any other agricultural commodity, there is an economic cycle driven by supply that affects the decisions of growers and keeps the resulting cycle going.

 

Here is how that works. When a crop is profitable for a grower he/she gets the economic signal to plant more the next season, rationalizing I made some money on this crop if I have more of it to sell next year I will make a larger profit. Those signals to plant more continue until growers plant too much and the supply is greater than the market demands.

When supply tips over to a surplus prices fall. If the supply is well in excess of demand prices often drop to unprofitable levels and growers, as price takers, are forced to sell their crop at a loss. When that occurs growers plant much less of the crop until supply declines back in balance with, or even below, demand, which then stimulates prices to rise as the market competes for the smaller supply.

In annual crops like corn or soybeans, these cycles typically last two years as growers can reduce supply in less than 12 months. For Christmas trees, which often take seven to 10 years to grow from seedling to harvestable size, the cycles are much longer. 

This cycle played out for the Christmas tree industry back in the 2000 – 2006 time frame when the supply of trees was well in excess of demand, and demand was also declining as baby boomers switched from the real Christmas tree experience when they were raising their children, to artificial Christmas trees as empty nesters.

That combination put so much downward pressure on prices growers were operating at a loss for years. Many could not survive, those who could hang on either did not see investing in planting seedlings, caring for them each year for a sale seven to 10 years off as a good economic decision at the time, or simply couldn’t cash flow it.

The result of oversupply and low prices was fewer trees were planted in that period. If that wasn’t difficult enough, along came the Great Recession in 2007 -2008 and softened demand even further as many families pulled back on discretionary spending. 

As a result of the oversupply, softening demand and the recession growers planted fewer trees seven to 10 years ago. Last year shoppers paid an average of about $75 for a real tree, compared to about $37 in 2008. Today the supply is in line with demand and prices have responded to competition in the market for the smaller supply.

However, there is not a shortage. A shortage occurs when there isn’t enough supply and buyers are unable to buy at any price. That isn’t what happened. Yes, some Christmas tree sales locations may have been unable to get all the trees they wanted and sold out, but not far down the road another location still has trees available. This tight supply situation surfaced in 2016. Prices increased in 2016 from years of low and unprofitable prices but the prices did not jump to levels that priced real trees out of the market and every consumer who wanted a real Christmas tree was able to get one.

To us, as the National Christmas Tree Association talking with growers every day, 2017 was very similar to 2016; a tight supply, reasonable price increases and every consumer who wanted a real Christmas tree was able to buy one and can still buy one. However, talking with reporters daily for weeks and reading their headlines and articles you get a completely different story of a Christmas tree shortage.

The supply of real Christmas trees will remain tight for several more years. The current supply was fixed seven to 10 years ago to the number of trees planted back then. It is not possible to increase supply without going through the growing period from seedling to harvest. Growers are receiving strong market signals that planting trees is a good business decision, and trees are being planted. Demand is on the upswing as the industry has implemented a Federal Research and Promotion program to promote the benefits of real Christmas trees.

We think 2018 will be similar to 2017, we advise to shop early in the season right after Thanksgiving to get the best choice and to follow the industry’s campaign slogan; It’s Christmas. Keep It Real.

Tim O’Connor is the executive director National Christmas Tree Association.