The Economics of Greenhouse Vegetables Raymond Joe Schatzer ...

The Economics of Greenhouse Vegetables 1
Raymond Joe Schatzer, Ahmed Al-Abdulkader and Harry P. Mapp
Department of Agricultural Economics
Oklahoma State University
Today, we report on a study Ahmed completed two years ago that examined the economic
feasibility of greenhouse vegetable production in Oklahoma. Our study concentrated on the
production of greenhouse tomatoes and cucumbers using two common production systems. We
analyzed the bed culture production system and the bag culture option of the production system.
There are other production systems including many options for the hydroponic system.
Greenhouse owners can produce other vegetables and plants in the greenhouse. Our study
concentrated on four greenhouse production systems:
1. Tomato production in the Spring and Fall using bed culture
2. Tomato production in the Spring and Fall using bag culture
3. Cucumber production in the Spring and Fall using bed culture
4. Cucumber production in the Spring and Fall using bag culture
Our study was an attempt to answer the following questions for each production system:
1. What are the expected total investment costs?
2. What are the expected annual costs, returns, and cash flows?
3. What is the economic feasibility under conditions of yield and price variability?
To answer these questions for each production system, we use an enterprise budget, an income
statement, a cash flow budget, and a capital budgeting analysis. We divide the costs into two
1 Paper AE-9432 of the Department of Agricultural Economics, Oklahoma State University,
presented at the Greenhouse Vegetable Growers Seminar, John Kirkpatrick Horticulture Center,
Oklahoma City, Oklahoma, July 28,1994. Revision of AE-9386.

categories, fixed costs and variable costs. Fixed costs are those costs over which you have no
control once you make the investment in the greenhouse. These fixed costs include depreciation,
interest on the investment, property taxes, and property insurance. The production of crops will
require additional costs that we label variable costs. These costs will depend upon the number of
plants used, the type of crop grown, the kind of system used, and the way the product is sold.
These costs include seed, fertilizer, water, electricity, natural gas, twine, clips, pots, labor,
management, etc.
The economic and financial feasibility of greenhouse production of vegetables depends
upon the type of greenhouse operation and the results obtained. Since each producer's operation
will likely differ, we attempted to develop a realistic greenhouse setup for Oklahoma. You can
adjust our assumptions to fit your expected operation.
We assumed the greenhouse module consists of three 30'x96' polyethylene film houses
with a total of 8,640 square feet of greenhouse space for growing plants. This size greenhouse
module would require about one-half acre of land. We located the greenhouse in an urban area
so the land costs are high. Everything except the growing medium, we assumed had no salvage
value. We used 50 percent of the purchase value as the salvage value of the growing medium.
Every two years, we assumed the replacement of the external cover, growing medium, and
battery used for backup. We assumed the evaporating cooling pad system and solenoid values
are replaced every five years. Every ten years, we assumed the thermostats, growing beds,
watering system, and minor tools and equipment are replaced. These replacement lives were
used to calculate depreciation. We estimated the interest cost at 8.75 percent of the average
investment, property taxes at 1.6 percent of the initial investment, and property insurance at 0.8
percent of the average investment. A summary of the greenhouse investment costs are provided
2

in Table 1. We estimated the bed culture system would require an investment of $51,929 and the
bag culture system would require $51,098. Our estimate of total annual fixed costs for the bed
culture system is $8,334 and for the bag culture system is $7,604. The bed culture system has
higher fixed costs because it requires a higher investment in growing medium every two years.
The bag culture system has a higher requirement in the watering system every ten years.
We assumed that the utilities, amount of twine used, clips used, insecticides used,
medium used for growing the transplants, and the management charge would not vary by crop or
culture system. The costs of these inputs, which amount to $11,625 per year, are provided in
Table 2. We assumed the rest of the variable inputs would vary by either production system or
crop.
In Tables 3 and 4 we summarize our assumptions about the schedule of operations and
planning assumptions for the four production systems. We assume the Fall yield of tomatoes per
plant per week is one-half the Spring yield and the bag culture yield in 12.5 percent higher than
the bed culture yield. We assume the Fall yield of cucumbers per plant per week is twice the
Spring yield and the bag culture yield is 27.8 percent higher than the bed culture yield.
Table 5 summarizes the variable costs of producing a Fall and Spring crop of tomatoes
and cucumbers using the bed culture system and Table 6 summarizes them for the bag culture
system. The total variable costs for producing tomatoes with the bed culture system is $22,530
and with the bag culture system is $23,397. For producing cucumbers, the total variable costs
with the bed culture system is $26,603 and with the bag culture system is $28,746. An income
statement for each production system is provide in Table 7 along with the break-even price per
pound. At the assumed base yield and prices, the expected return to risk for tomatoes for the bed
culture system is $15,544 and for the bag culture system is $20,922. The return to risk is the
3

esidual income left after paying all resources an opportunity return including all labor and
management. We estimate the total costs of producing tomatoes with the bed culture system as
70.1 cents per pound. With the bag culture system, we estimate the total costs of producing
tomatoes as 63.2 cents per pound. The expected return to risk for cucumbers under the bed
culture system is $11,719 and for the bag culture system is $23,266. The total costs of producing
cucumbers with the bed culture system is 71.9 cents per pound and with the bag culture system is
58.5 cents per pound. From an annual expected profit and lost statement it appears that
greenhouse production of tomatoes and cucumbers is feasible.
Tables 8, 9, 10, and 11 present for the four production systems the annual cash flows for
the assumed twenty year life of the greenhouse structure and an estimate of the present value of
each years net cash flow. We calculated the present value using a twelve percent discount rate.
The expected net present value of growing tomatoes with the bed culture system is $91,493. For
the bag culture system, the net present value is $139,723. The expected net present value of
growing cucumbers with the bed culture system is $63,332. For the bag culture system, the net
present value is $154,969. The net present value is greater than zero after five years for growing
tomatoes with the bed culture system and after four years with the bag culture system. For
growing cucumbers, the net present value is greater than zero after six years with the bed culture
system and after four years with the bag culture system. The bag culture systems have the higher
net present value because less growing medium has to be purchased every two years. Another
measure of the long term feasibility of the investment is the internal rate of return. The internal
rate of return is the discount rate that makes the net present value zero. The internal rate of
return is 38.76 percent for bed culture tomatoes, 52.29 percent for bag culture tomatoes, 30.93
percent for bed culture cucumbers, and 56.45 percent for bag culture cucumbers. Table 12 shows
4

the net present value for alternative discount rates for each production system.
We examined the sensitivity of the net present value to changes in the yield and the
product price. Results of this analysis are provided in Tables 13 and 14. Since part of the costs
are a function of the yield, the net present value is more sensitive to changes in prices than
changes in yields. Price (less than 20 percent) and yield (less than 25 percent) can change the
least amount for cucumbers with the bed culture system before the net present value goes
negative, while price and yield can drop more than 30 percent before tomatoes and cucumbers
with the bag culture system. The bag culture system is less risky than the bed culture system
from an long term investment viewpoint.
Greenhouse production of tomatoes or cucumbers can provide a producer with a positive
net return in Oklahoma. Potential greenhouse producers must recognize that the potential
income is very sensitive to the prices and yields that they receive. The potential greenhouse
producer must have a market that can take his or her production at a price higher than that
received for field grown imports from other regions.
Reference
Al-Abdulkader, Ahmed. Economic Feasibility of Greenhouse Vegetable Production in
Oklahoma, M.S. Thesis, Oklahoma State University, May, 1992, 139 pp.
Schatzer, Raymond Joe, Ahmed Al-Abdulkader, and Harry P. Mapp. Economics of Greenhouse
and Cucumber Growing. Paper AE-9386 of the Department of Agricultural Economics,
Okalhoma State University, Stillwater, July 1993, 17 pp.
5

Table 1. Green House Module Investment Assumptions.
Item
Land
Structure and external cover
Heating, cooling, and ventilating system
Tools and equipment
Growing medium, beds, and watering
system
Total investment
Bed Culture
Dollars
5,500
14,025
19,067
2,795
10,542
51,929
Table 2. Summary of Variable Cost Not Influenced
by Crop or System.
Item
Water
Natural Gas
Electricity
Clips
Twine
Medium for
growing transplants
Insecticides
Management
Total
Spring
Dollars
61
1,620
1,170
549
202
214
180
2,695
6,691
Fall
Dollars
44
810
1,064
549
202
214
126
1,925
4,934
Annual
Dollars
Bag Culture
105
2,430
2,234
1,098
404
428
306
4,620
11,625
Dollars
5,500
14,025
19,067
2,795
9,711
51,098
6

Table 3. Schedule of Labor Operations with a Spring Crop From
Early-December to Mid-July and a Fall Crop
From Early-August to Late-December for
Greenhouse Production of Tomatoes and
Cucumbers.
Operation
Plant seeds for Spring
Transplant to pots
Transplant to beds
Stringing and pruning
Pollination
Harvest
Clean up
Plant seeds for fall
Transplant to pots
Transplant to beds
String and pruning
Pollination
Harvest
Clean up
Tomatoes
Dec 1-7
Dec 8-31
Feb 1-7
Feb 22-May 21
Mar 1-May 21
Apr 15-July 7
July 1-7
Aug 1-7
Aug 8-31
Sep 8-14
Oct 1-Nov 14
Oct 8-Nov 14
Nov 22-Dec 31
Dec 22-31
Cucumbers
Dec 1-7
Dec 8-31
Feb 1-7
Feb 22-May 21
Not needed
Mar 22-July 7
July 1-7
Aug 1-7
Aug 8-31
Sep 8-14
Oct 1-Nov 14
Not needed
Nov 1-Dec 31
Dec 22-31
7

Table 4. Number of Plants, Harvest Assumptions, Price, and Yield Assumptions
for Tomatoes and Cucumbers for Each Culture System.
Item
Number of Plants
Weeks of Harvest in Spring
Weeks of Harvest in Fall
Percent Grade One
Market Price Grade One $/lb
Market Price Grade Two $/lb
Spring Yield lbs/plant
Fall Yield lbs/plant
Spring Yield lbs/week
Fall Yield lbs/week
Tomatoes
Bed
2,160
11
6
90
1.10
0.65
16
4.36
3,142
1,571
Bag
2,160
11
6
90
1.10
0.65
18
4.91
3,534
1,767
Cucumbers
Bed
1,440
14
8
100
0.96
15.75
18
1,620
3,240
Bag
1,440
14
8
100
0.96
20.125
23
2,070
4,140
8

9
Table 5. Variable Cost for Tomatoes and Cucumbers Produced with the Bed Culture System.
Cucumber
Tomatoes
Annual
Fall
Spring
Annual
Fall
Spring
Item
Dollars
Dollars
Dollars
Dollars
Dollars
Dollars
11,625
4,934
6,691
11,625
4,934
6,691
Constant a
396
264
132
455
152
303
Fertilizer
1,296
648
648
410
205
205
Seeds
173
87
86
259
129
130
Pots
6,290
2,843
3,447
6,985
2,293
4,692
Labor
5,929
3,162
2,767
1,926
413
1,513
Boxes and Wrap b
242
88
154
187
66
121
Delivery
543
272
271
543
272
271
Repairs
109
67
42
140
83
57
Interest
26,603
12,365
14,238
22,530
8,547
13,983
Total
a These items are detailed in Table 2.
b Wrap is used on cucumbers only.

10
Table 6. Variable Cost for Tomatoes and Cucumbers Produced with the Bag Culture System.
Cucumber
Tomatoes
Annual
Fall
Spring
Annual
Fall
Spring
Item
Dollars
Dollars
Dollars
Dollars
Dollars
Dollars
11,625
4,934
6,691
11,625
4,934
6,691
Constant a
396
264
132
455
152
303
Fertilizer
1,296
648
648
410
205
205
Seeds
173
87
86
259
129
130
Pots
259
129
130
389
195
194
Bags
6,470
2,933
3,537
7,165
2,383
4,782
Labor
7,576
4,041
3,535
2,166
464
1,702
Boxes and Wrap b
242
88
154
187
66
121
Delivery
596
298
298
596
298
298
Repairs
113
69
44
145
82
63
Interest
28,746
13,491
15,255
23,397
8,908
14,489
Total
a These items are detailed in Table 2.
b Wrap is used on cucumbers only.

11
Table 7. Annual Income Statement for the Greenhouse Module and per Pound for Two Culture Systems for
Tomatoes and Cucumbers.
Cucumbers
Tomatoes
Bag Culture
Bed Culture
Bag Culture
Bed Culture
Item
$/module
$/module
$/module
$/module
59,616
46,656
52,194
46,408
Total Revenue
28,746
26,603
23,397
22,530
Variable Costs
30,870
20,053
28,797
23,878
Gross Margin
7,604
8,334
7,604
8,334
Fixed Costs
23,266
11,719
21,193
15,544
Returns to Risk
$/pound
$/pound
$/pound
$/pound
0.960
0.960
1.055
1.055
Revenue
0.463
0.547
0.473
0.512
Variable Cost
0.122
0.172
0.154
0.189
Fixed Cost
0.585
0.719
0.627
0.701
Total Cost

12
Table 8. Cash Flows, Present Values, and Internal Rate of Return over Twenty Years for Bed Culture Greenhouse Tomatoes.
Net Present
Value to
Year
Internal
Rate of
Return to
Year
Present
Value of
Net Cash
Flow
Annual Net
Cash Flow
Annual
Cash Inflow
Annual
Cash
Outflow
(51,929)
-100.00%
-54.80%
-16.75%
10.70%
20.60%
27.84%
31.25%
34.27%
35.62%
36.89%
37.10%
37.70%
37.99%
38.28%
38.42%
38.55%
38.62%
38.69%
38.73%
38.76%
(51,929)
20,959
13,109
16,709
10,451
11,842
8,331
10,619
6,642
8,465
1,804
6,748
4,221
5,380
3,365
3,813
2,682
3,419
2,138
2,726
91,493
0
51,929
(30,970)
46,407
22,933
(17,860)
(1,152)
9,299
21,141
29,472
40,091
46,733
55,198
57,002
63,750
67,971
73,350
76,715
80,528
83,211
86,630
88,768
91,493
(51,929)
23,474
16,444
23,474
16,444
20,870
16,444
23,474
16,444
23,474
5,602
23,474
16,444
23,474
16,444
20,870
16,444
23,474
16,444
23,474
314,764
46,407
29,963
46,407
22,933
46,407
29,963
46,407
25,537
46,407
29,963
46,407
22,933
46,407
29,963
Cash Outflow
for Operating
and
Maintenance
0
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
22,933
435,727
Cash
Outflow for
Capital
Purchases
51,929
0
7,030
0
7,030
2,604
7,030
0
7,030
0
17,872
0
7,030
0
7,030
2,604
7,030
0
7,030
0
131,249
46,407
22,933
Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Total
46,407
40,805
46,407
22,933
46,407
29,963
46,407
22,933
46,407
29,963
46,407
25,537
46,407
29,963
46,407
22,933
46,407
29,963
46,407
22,933
881,739
566,976

13
Table 9. Cash Flows, Present Values, and Internal Rate of Return over Twenty Years for Bag Culture Greenhouse Tomatoes.
Cash Cash Outflows
Present Internal
Outflows for Operating Annual Annual
Value of Rate of Net Present
for Capital
and Cash Cash Annual Net Net Cash Return to Value to
Year Purchases Maintenance Outflows Inflows Cash Flow Flow Year Year
0 51,098
0 51,098
0 (51,098) (51,098) -100.00% (51,098)
1
0 23,787 23,787 52,197 28,410 25,366 -44.40% (25,732)
2 3,550 23,787 27,337 52,197 24,860 19,818 2.89% (5,913)
3
0 23,787 23,787 52,197 28,410 20,222 27.75% 14,308
4 3,550 23,787 27,337 52,197 24,860 15,799 38.27% 30,108
5 2,604 23,787 26,391 52,197 25,806 14,643 44.10% 44,751
6 3,550 23,787 27,337 52,197 24,860 12,595 47.27% 57,346
7
0 23,787 23,787 52,197 28,410 12,851 49.38% 70,197
8 3,550 23,787 27,337 52,197 24,860 10,041 50.48% 80,238
9
0 23,787 23,787 52,197 28,410 10,245 51.26% 90,483
10 17,057 23,787 40,844 52,197 11,353 3,655 51.46% 94,138
11
0 23,787 23,787 52,197 28,410 8,167 51.78% 102,305
12 3,550 23,787 27,337 52,197 24,860 6,381 51.96% 108,686
13
0 23,787 23,787 52,197 28,410 6,511 52.09% 115,197
14 3,550 23,787 27,337 52,197 24,860 5,087 52.16% 120,284
15 2,604 23,787 26,391 52,197 25,806 4,715 52.21% 124,999
16 3,550 23,787 27,337 52,197 24,860 4,055 52.24% 129,054
17
0 23,787 23,787 52,197 28,410 4,138 52.27% 133,192
18 3,550 23,787 27,337 52,197 24,860 3,233 52.28% 136,424
19
0 23,787 23,787 52,197 28,410 3,299 52.29% 139,723
Total 101,763 451,953 553,716 991,746 438,030 139,723

14
Table 10. Cash Flows, Present Values, and Internal Rate of Return over Twenty Years for Bed Culture Greenhouse Cucumbers.
Net Present
Value to
Year
Internal
Rate of
Return to
Year
Present
Value of
Net Cash
Flow
Annual Net
Cash Flow
Annual
Cash Inflow
Annual
Cash
Outflow
(51,929)
-100.00%
-62.16%
-28.27%
-0.01%
9.77%
17.75%
21.42%
25.09%
26.64%
28.29%
28.40%
29.27%
29.67%
30.12%
30.33%
30.54%
30.66%
30.79%
30.86%
30.93%
(51,929)
17,546
10,061
13,987
8,021
9,673
6,394
8,889
5,097
7,086
573
5,649
3,239
4,504
2,583
3,114
2,059
2,862
1,641
2,282
63,332
0
51,929
(34,383)
46,656
27,005
(24,322)
46,656
34,035
(10,335)
(2,314)
7,359
13,753
22,642
27,740
34,826
35,399
41,048
44,287
48,791
51,374
54,488
56,547
59,409
61,050
63,332
(51,929)
19,651
12,621
19,651
12,621
17,047
12,621
19,651
12,621
19,651
1,779
19,651
12,621
19,651
12,621
17,047
12,621
19,651
12,621
19,651
242,120
46,656
27,005
46,656
34,035
46,656
29,609
46,656
34,035
46,656
27,005
46,656
34,035
Cash Outflow
for Operating
and
Maintenance
0
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
27,005
513,095
Cash
Outflow for
Capital
Purchases
51,929
0
7,030
0
7,030
2,604
7,030
0
7,030
0
17,872
0
7,030
0
7,030
2,604
7,030
0
7,030
0
131,249
46,656
27,005
Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Total
46,656
44,877
46,656
27,005
46,656
34,035
46,656
27,005
46,656
34,035
46,656
29,609
46,656
34,035
46,656
27,005
46,656
34,035
46,656
27,005
886,464
644,344

15
Table 11. Cash Flows, Present Values, and Internal Rate of Return over Twenty Years for Bag Culture Greenhouse Cucumbers.
Net Present
Value to
Year
(51,098)
(23,884)
(2,415)
19,280
36,394
52,212
65,855
79,643
90,520
101,511
105,833
114,595
121,507
128,493
134,003
139,096
143,489
147,928
151,430
154,969
Internal
Rate of
Return to
Year
Present
Value of
Net Cash
Flow
Annual Net
Cash Flow
Annual
Cash Inflow
Annual
Cash
Outflow
-100.00%
-40.35%
8.31%
33.00%
43.34%
48.95%
51.94%
53.88%
54.89%
55.58%
55.77%
56.04%
56.19%
56.29%
56.35%
56.39%
56.42%
56.43%
56.44%
56.45%
(51,098)
27,214
21,468
21,695
17,115
15,818
13,644
13,788
10,877
10,991
4,322
8,762
6,912
6,985
5,510
5,093
4,393
4,439
3,502
3,539
154,969
(51,098)
30,480
26,930
30,480
26,930
27,876
26,930
30,480
26,930
30,480
13,423
30,480
26,930
30,480
26,930
27,876
26,930
30,480
26,930
30,480
477,357
0
51,098
59,616
29,136
59,616
32,686
59,616
29,136
59,616
32,686
59,616
31,740
59,616
32,686
59,616
29,136
59,616
32,686
Cash Outflow
for Operating
and
Maintenance
0
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
29,136
553,584
Cash
Outflow for
Capital
Purchases
51,098
0
3,550
0
3,550
2,604
3,550
0
3,550
0
17,057
0
3,550
0
3,550
2,604
3,550
0
3,550
0
101,763
59,616
29,136
Year
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
Total
59,616
46,193
59,616
29,136
59,616
32,686
59,616
29,136
59,616
32,686
59,616
31,740
59,616
32,686
59,616
29,136
59,616
32,686
59,616
29,136
1,132,704
655,347

Table 12. Net Present Values for Alternative Discount Rates for Each Crop for Each
Culture System.
Discount Rate
Percent
9%
12%
15%
18%
21%
24%
27%
30%
33%
36%
39%
Bed Culture
Dollars
121,731
91,493
69,239
52,434
39,443
29,181
20,918
14,147
8,513
3,760
(299)
Tomato
Bag Culture
Dollars
180,192
139,723
109,923
87,414
70,009
56,261
45,192
36,124
28,580
22,219
16,788
Bed Culture
Cucumber
Dollars
87,512
63,332
45,541
32,108
21,723
13,518
6,908
1,490
(3,021)
(6,830)
(10,084)
Bag Culture
Dollars
198,717
154,969
122,752
98,418
79,602
64,741
52,776
42,976
34,825
27,951
22,085
16

Table 13. Net Present Values for Alternative Yield Levels for Each Crop for Each Culture
System.
Yield
% of Base
105%
100%
95%
90%
85%
80%
75%
70%
Bed Culture
Dollars
107,097
91,493
75,890
60,287
44,684
29,081
13,478
(2,125)
Tomato
Bag Culture
Dollars
157,430
139,723
122,016
104,309
86,602
68,895
51,188
33,481
Bed Culture
Cucumber
Dollars
77,543
63,332
49,120
34,909
20,698
6,487
(7,724)
(21,935)
Bag Culture
Dollars
173,347
154,969
136,591
118,214
99,836
81,458
63,081
44,703
Table 14. Net Present Values for Alternative Price Levels for Each Crop for Each Culture
System.
Price
% of Base
105%
100%
95%
90%
85%
80%
75%
70%
Bed Culture
Dollars
108,585
91,493
74,402
57,311
40,220
23,128
6,037
(11,054)
Tomato
Bag Culture
Dollars
158,947
139,723
120,499
101,276
82,052
62,828
43,605
24,381
Bed Culture
Cucumber
Dollars
80,514
63,332
46,149
28,966
11,783
(5,400)
(22,583)
(39,766)
Bag Culture
Dollars
176,925
154,969
133,013
111,057
89,101
67,145
45,189
23,233
17