of Vegetable Seedlings:
By David Zimet and
Cooperative Extension Service
Institute of Food and Agncultural Sciences
t, Budg ets,
David Zimet is associate professor of Food and Resource Economics and extension economist,
North Florida Research and Education Center, Quincy, and Charles S. Vavrina is assistant professor
of Horticultural Sciences and vegetable horticulturist, Southwest Florida Research and Education
Center, immokalee, Cooperative Extension Service, Institute of Food and Agricultural Sciences,
University of Florida.
The continued profitability of the vegetable
industry in Florida depends upon the supply
of high quality seedlings. Growers have two
potential sources of seedlings: growing their
own or out-sourcing (purchasing). Growers
should answer the following questions when
deciding whether to grow their own seed-
lings or to purchase them.
*How much will it cost to establish a
*Over the long term, will it be cost
effective to produce seedlings or to
*Will the seedlings supplied by the
vegetable producer be of equal quality to
those supplied by a commercial source?
Responses to the first two questions can be
obtained through an economic analysis. The
remainder of this paper is devoted to answer-
ing those questions. The first question is
answered in the "Start-up and Assumptions"
section. The second question is answered in
the section titled "Cash Flow." Typical values
and quantities are used in the analysis. Many
production practices are learned through the
process of tnial and error. No "recipe" can be
followed in growing vegetable transplants
because each crop presents many differing
conditions. The reader is encouraged to read
An Introduction to the Prodluction of Contain-
erized Vegetable Transp~lants, UF/1FAS Bulletin
302, for more information. The individual
producer should use his or her own data to
analyze the situation or at least to ascertain
whether or not the analysis presented here is
pertinent to the individual case. Regardless of
the results of the analysis, if the individual
producer doubts his or her ability to manage
a transplant operation, the operation should
not be initiated. Tomatoes are used as the
example in this report, but the format can be
used for any crop. The start-up costs to estab-
lish a greenhouse will be the same for any
STRUCTURE AND INSTALLATIONS
Malerials and equipment
Land, 0,25 acres
Well, 20% allocation of $1,500
3-phase e lecticity
Double poly plastic
Irrigation equipment and plumbing
Planting trays (3,600)
Aprons, gloves, etc.
Tools and markers
aln ths context the concept of depreciaton is not appliable to land. A capital charge is made (see Table 3) to
account for the use of land.
"Tray liners are purchased every two years starting in ear 3. The iniia cost of $2,880 Is excluded from the table,
but is included in the cash-flow analysis and in the depreciation figures of total costs in Tables 3 and 4
Capital Expenditures for Start-Up
money is spent or obligated, the cost cannot
be varied over the production period. For
example, fertilizer costs are variable because
the amount charged to production will de-
pend upon how much is used during the
production cycle. The total amount of fertilizer
used during a cycle depends upon how many
plants are produced. In comparison, the costs
of ownership-taxes, insurance, depreciation,
and capital charges-clo not vary with the
number of plants produced and do not
change during a single production period.
Because of this characteristic the fixed costs
per unit of output decrease as output in-
creases and increase as output decreases. In
comparison, for most levels of variable inputs,
variable costs will increase or decrease pro-
portionately with output.
Depending upon crop, variable costs will
change (Table 2). The following discussion is
based upon the production of tomato seed
lings. Seed is the single most important
variable cost ($8,250) in the greenhouse
production of seedlings. It accounts for al-
most 60% of variable costs per cycle
($13,895). It is followed by labor, which, for
all of its functions, represents about 15%/
($2,052) of variable costs. The estimated
costs of soilless mix ($1,290) and of repair
($1,480) are the only other significant compo
nents of variable costs. Together, they com-
pose approximately 20%..
In the present analysis there are four com-
ponents of fixed costs (Table 3):
capital charges, and
taxes and insurance.
Depreciation is calculated on a straight-line
basis and thus is equal to the initial cost
divided by the number of years of life of the
object. An 8%b charge is made against the
average cost of each capital good (both
structure and durable items). Average cost is
Sta rt-Up a nd Assu options
The cost of establishing and operating a
seedling production facility depends upon the
location the size of the house and the charac-
teristics or operating system. The assumed
production site is southwest Florida, and
therefore a minimum of heat is required. The
structure is assumed to
be 30 x 300 feet,
*be aluminum framed,
*be covered with double polyethylene illm,
p ossess automatic side curtains,
*have concrete walkways,
*use L.P. gas heaters, and
have a semiautomated watering system.
A list of the items needed to establish the
transplant structure, with their costs and years
of economic life, is presented in Table 1. Land
(0.25 acres), a well (allocated 20%b of an
estimated $1,500 total cost), and a 3-phase
electrical installation are included because
they are necessary to produce high quality
seedlings consistently. An allocation is made
for a well because it is assumed that a single
greenhouse would not require a dedicated
well. The estimated cost for starting the
operation is $51,000. The purchase of tray
liners (for $2,880) is excluded from these
costs because their purchase would not start
until the third year. They would be purchased
biannually. Up to three production cycles
could be completed each year. The analyses
presented in this document are on a per-cycle
basis, and separate calculations are made for
one, two, and three cycles per year.
Total Costs per Cycle
Costs are separated into several categories:
variable and fixed, as well as cash and
noncash. A discussion of variable and fixed
costs and their influence on total costs is
made in this section. Cash costs are discussed
in the section dedicated to cash flow.
Variable costs vary over a single production
cycle or period according to the level of
production. In the case of fixed costs, once
equal to one half the initial cost. Eight percent
is used because it is between the cost of
borrowing money and the general inflation
rate. Neither depreciation nor capital charges
are cash expenses. They are, however, real
costs. if a business is unable to cover these
costs, it will not have generated enou h
money to purchase replacements for the
If only one cycle is produced per year, the
total annual fixed cost is approximately
$8,6715. Fixed cost per cycle decreases as
more cycles are produced each year. If two
cycles are produced, fixed costs per cycle are
reduced by 50%, and if three cycles are
produced, by 67%.
As more cycles are produced, the relative
importance of variable costs increases (Table
4). Variable costs are 66.1% of the total costs
when one cycle per year is produced, 79.6%
for two cycles, and 85.4% for three cycles.
This pattern emerges because of decreasing
fixed costs per cycle. Total costs per cycle
decrease as the number of cycles per year
increases. Because of the stabilizing effect of
variable costs, however, the decline in total
costs is relatively less marked than the de-
creases in fixed costs alone. Compared to
when one cycle per year is produced, total
costs per cycle decrease by 17.0%i and
22.6%, respectively, when two and three
cycles are produced.
Table 2. Variable Costs per Cycle
648 cu ft.
162 cu. ft.
2 00/cu, St.
growing & sanitation
$13,765 operating for 1.5 months at 1%
Inte re st
"The price of tomato seed is used because tomato is the most widely grown vegetable crop that is transplanted.
b$31,100 equals the total of the investment in structure from Table 1 ($31,300) less $200 for land.
Cost per Cycle ($)
Table 3. Fixed Costs per Cycle
Cycles per Year
Structure and Installation
TOTAL FIXED COST
"The per cycle depreciation charges for the well and electncal Installation are $100 for one cycle, $50 for
two, and $33 for three
The per cycle capital charges for the well and electrical installation are $12 for one cycle, $6 for two,
and $4for three.
"The depreciation and capital charges do not include the biannual purchase of tray kners for $2,880 starting in
year 3. The annual charges for a single cycle would be $115 for capital charges and $1,440 for depreciatio. The
charges would be $58 for depreciation and $720 for capital charges for two cycles per year and $38 tor deprecia-
tion and $480 for capital charges for three cycles per year.
d~nly a capital charge of 8% is rnade for land. No depreciation is charged.
"Taxes are based upon the cost of structure and installation, or $31,300, and a millage rate of 0,018.
'There is a $500 annual charge for insurance This is the minimum amount for which insurance can be purchased
Table 4. Total Costs per Cycle
Cycles per Year
Taxes and Insurance
Total Cost per Cycle
year starting in year 3, After
"The depreciation charge excludes tray liners
They wil be purchased every other
year 3, their depreciation charge is $1,440 per cycle, $7120 per cycle, or $480 per cycle, for one, two or three
cycles per year, respectively.
DThe capital charges for tray liners start in year 3 and are $115 per year if one cycle per year is produced
cycles per year, the capital charges are $58, for three cycles, they are $38.
Table 5. Total Annual Cash Costs, One Cycle per Year, Years 1-15
"Loan repayment is based upon a
set on an annual basis.
six year loan of $36,625 (75% of $48,300) at 10% interest
Loan payments are
bDurable good replacement is set according to the schedule in Table 1. 11ems are assumed to be purchased
during the last year of useful life of the item to be replaced.
Cash flow is a way of analyzing or evaluat-
ing cash costs and receipts. In the present
study there are no cash receipts because it is
assumed that the seedlings are to be used by
the grower and will not be sold. Thus, only
cash costs are examined. Annual cash costs
for one, two, and three cycles per year are
presented in Tables 5, 6, and 7, respectively.
Total Cash Costs
The total initial cash investment of $48,300
(Tables 5, 6, and 7) equals the start-up costs
listed in Table 1 ($50,000), less charges for
the well ($300), electrical installation
($1,200), and land ($200). Loan repayment is
based upon a loan of $36,225 (75%b of
$48,300), an interest rate of 10% and loan
payments starting in year 2 (interest on
outstanding balance of year 1 is added to the
loan) and ending in year 7 (a seven year loan
with six years of payments). Total cash costs
vary from year to year with the cost of replac-
ing durable goods. After year 7, when the
start-up loan is paid in full, cash costs decline
markedly. Because the investment is over a
long period of time, cash costs alone tell an
Discounted Cash Costs
Discounted cash costs form a more valid
criterion than simple cash costs do for decid-
ing whether or not to make the investment
(Table 8). That is, the decision as to whether
to grow or to buy seedlings should not be
based upon a simple cash flow analysis.
Discounting is the inverse of compounding.
With compounding, the future value of an
investment made today is projected. For
example, an investment of $1,000 today at
10%1 compound interest will be worth $1,594
10 years from now. In comparison, at a 10% o
discount rate, $2,594 10 years from now is
worth $1,000 today. Such an analysis is useful
when comparing investments of different
lengths of time or when there is a stream of
benefits or costs spread over time. In Table 8
the discounted values of the cash flow data of
two and three cycles per year (from Tables 6
and 7) are presented. The last line, the aver-
age cost per plant over the life of the invest-
ment, is enitical. If the projected purchase
price per seedling over the next 15 years
exceeds $0.022, serious consideration should
be given to growing rather than purchasing
seedlings. Seedling production, however, is
not recommended for those who would
produce one cycle per year or those who
project seedling production costs to be over
$0.025 per plant.
S umma ry a nd
This bulletin is oriented towards the com-
mercial vegetable producer interested in
determining whether he or she should grow
or purchase seedlings. The bulletin presents a
detailed, straightforward account of the costs
to develop a commercial style vegetable
transplant production facility. The values
provided should provide the reader with a
point of departure for making informed
choices concerning the viability of such a
facility. The costs provided form only a start-
ing place because costs vary according to
region and because of suppliers.
Estimates of the start-up costs and costs of
operating a tomato transplant production
facility are used to develop a cash flow. The
long-term cash flow cost (discounted cash
flow) is estimated to be between $0.022 and
$0.OZ5 per plant. In comparison, large-scale
operations are at present (199) charging
$25-$30 for 1,000 plants contained in a 242
unit tray ($0.025-$0.030 per plant). Thus, it
could be financially advantageous for a small
grower to provide his or her own seedlings if
it were clone efficiently and did not detract
from the focus of the entire operation.
Ultimately, the success or failure of a trans-
plant facility depends upon skilled manage-
ment and an ability to produce a quality
product. Poor quality vegetable transplants
can lead to a high percentage of transplant
loss in the field, greatly reduced yields, and
Ioss of customers. Plant production skills,
therefore, should be firmly in place before
undertaking dedicated transplant production.
*Loan repayment is based upon a six year loan of $36,625 (75% of $48,300) at 1
set on an annual basis.
bDurable good replacement is set according to the schedule in Table 1. Items are
during the last year of useful life of the item to be replaced.
'Variable costs are calculated at $13,971 per cycle.
Loan payments are
assumed tobe purchased
"Loan repayment is based upon a six year loan of $36,625 (75% of $48,300) at 10% interest. Loan payments are
set on an annual basis.
bDurable good replacement is set according to the schedule in Table 1. Items are assumed to be purchased
during the last year of useful life of the Item to be replaced.
"Variable costs are calculated at $13,971 per cycle Because year 1 is the start-up year, a maximum of two cycles
Table 6. Total Annual Cash Costs, Two Cycles per Year, Years 1-15
Table 7. Total Annual Cash Costs, Three Cycles per Year, Years 1-15
Table 8. Present Value per Year of Cash Costs, Discounted at 10%6 and Average Cost per
Seedling Over the Expected Life of the Greenhouse
Cycles per Year
Average cost per seedling
NOTE: Projected production is
750,000 seedlings per cycle.
"For 3 cycle operations only 2 cycles are produced the first year.
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