Growing media prices look set to rise in 2011, but a bigger concern longer term to manufacturers is Government policy, with another consultation under way and a white paper planned.
Garden writer Peter Seabrook says: "The increase in VAT (to 20 per cent) means potting compost prices will have to rise; consumer prices have been so low, there is no margin to absorb the extra tax. I would welcome an increase in potting compost prices as long as improvements come with them for potting compost quality.
"A sizeable part of potting compost price is the polythene outer and transport. If we had all potting composts for gardeners in compressed bales of light-weight, high-grade sphagnum peats, it would reduce the costs of wrappers and haulage, not to mention lessen the carbon footprint. Please note the word 'potting'; bagged soil improvers and planting composts are quite a different story."
Westland technical director Jamie Robinson says: "With the VAT increase, everyone is faced with a problem. We can't afford to give that away. We've borne all the costs of peat reduction and none of that has been passed on to the consumer so far. We're trying to maintain quality and meet new targets."
Westland is installing two wood fibre machines at its Dungannon plant at a seven-figure cost. A recent Defra survey suggests the industry has spent £120m on peat-free development and trials so far, but more investment is needed to end peat use in the consumer market by 2020 (the Government target).
Robinson says: "We've been trying to work closely with the HTA Growing Media Initiative to create a simple message for consumers - that we're taking care of peat-reduction for you. Here is a strong brand/product that you can depend on. Consumers are disappointed sometimes with some peat-frees and reduceds because they are not performing to expectations. We've got to the point where consumers are looking for peat again, which is not helping the process."
Westland launched a largely peat product, Jack's Magic, at Glee last September; peat-free company Vital Earth teamed up with Bord na Mona's GroWise 75 per cent peat range; and Scotts has launched a 60 per cent peat, Miracle-Gro Herb Planter.
Robinson believes that there is enough woodchip available despite the amount of biofuel required to create substitute peat material. He adds: "We wouldn't invest in new machines otherwise." He points out that harvests were good enough to fulfil requirements in 2010 after two bad years.
Scotts representative Geoff Hodge reveals: "We are working on reducing the peat content of all composts for 2011 and to be peat-free by 2020. Most of the range has a reduction from anything up to 20 per cent on the 2010 levels."
Scotts Miracle-Gro Company managing director Martin Breddy recently told an all-party parliamentary horticulture and gardening event: "Please focus on helping us with what we can do, and not on telling us what we can't do - there's a 'Big Society' out there and it contains millions of gardeners. In austere times, people turn to things like gardening. Many of our sectors have grown by five to 10 per cent in the past two years; we can play an early role in the recovery."
He said there would be a scheme by The Sun and MiracleGro to get more schools gardening. "I know gardeners care more about the environment than do people in many other walks of life. They cherish their piece of land, so when they get told what they cannot do, they get a bit upset."
Squire's growing media buyer Darran Oakley says: "We're keen to do what we can to hold prices in 2011. We feel we are doing what is needed to keep at a good price and still make money, so customers don't see the VAT rise."
He says Scotts, Westland and Sinclair are working hard on peat reduction and he admires their efforts to make compost look like peat by dying it, even if it has a large amount of woodchip in it: "That's important because gardeners expect to see a peat-looking product."
He adds: "We're keen to buy good products that work so consumers are using less peat. A lot of customers, particularly in our area, want to know a little bit more about it now."
William Sinclair Holdings claims that the Government's 2020 peat target will not be met because eliminating consumer sales will cost the state too much in compensation. Defra is reassessing the amateur and yet-to-be-set professional targets, with a new consultation this year and policy outcomes included in a 2011 Natural Environment white paper.
The company has issued an 'upbeat' research note, stating: "The (previous) Government target of reducing peat extraction by 50 per cent by 2010 was missed by a large margin. The compensation payments necessary to the industry hardly rank as a top priority for Government spending."
Sinclair estimates it will be eligible to receive £72m in compensation from the Government for its two million cubic metres of peat stocks, based on the £9m already received for Bolton Fell, if the Government sticks to the 2020 target.
The note adds that the compensation "won't happen, first because the Government won't want to spend the money, and second because the majority of Sinclair's peat is in Scotland, where the promise to cease harvesting for retail purposes has not been given."
A Defra representative says: "We recognise the importance of encouraging further reductions in the horticultural use of peat. We will launch a consultation before the end of the year."
NFU horticulture adviser Dr Chris Hartfield says: "The Government is still looking to eliminate (amateur) peat use in that time frame."
Sinclair estimates revenue to grow 10 per cent for 2010 and eight per cent in 2011 and 2012, reaching £59.4m in 2012. It expects profits to rise from £3.1m in 2010 to £4.8m in 2012, and says margins could rise from four per cent to 10 per cent because of increased use of SincroBoost.
Meanwhile, Vital Earth continues to roll-out peat-based compost GroWise after signing a distribution agreement with Bord na Mona in July.
THE NEW SEASON
Sinclair category manager Steve Chalk looks to the year ahead
As the previous season showed, the best-laid plans can be scuppered by the British weather. Each of the key selling windows in 2010 were subject to poor weather. This kept consumers at home and prevented the season from reaching its full potential; with compost sales up a very healthy 14 per cent year-on-year, imagine what they could have been.
Global weather is subject to a La Nina event, so at time of writing expectations were that the winter would be a couple of degrees colder than average and it could be much drier until March, when we might witness higher-than-expected precipitation levels. All this points to a slow start for the season, which is further exacerbated by a late Easter. In fact, with Easter and the May bank holiday causing three consecutive short weeks, there will undoubtedly be very challenging logistical issues for manufacturers, especially those not based on the UK mainland. We are predicting a condensed season that favours larger manufacturers best able to put stock on the ground and, consequently, react in peak demand windows.
The secret, of course, is putting the correct stock on the ground, and understanding the target market helps both retailers and manufacturers to tailor their offering. The latest 'social trends' survey by the Office for National Statistics shows that participation in gardening increases with age. Only 12 per cent of under-25s garden, compared with 61 per cent of the over-45s. So despite efforts to engage a younger consumer, our core customer is still the traditionalist.
With the economy stalled and austerity measures set to bite, all the indications are that there is a retreat to the home as our haven of luxury. As disposable income shrinks, the shopper will become more discerning when making a purchase. In short, there will be a quest for value, and this doesn't necessarily equate to 'cheap' winning the day - the consumer aspires to have the best they can get for their hard-earned pound. This is borne out by the shift from own-label offerings to branded products in 2010. Sinclair benefited greatly from this and grew volume sales by 82 per cent, with certain channels growing by 433 per cent ahead of the market.
We expect this shift to continue as the industry keeps 'Grow your own' at the top of the agenda, and predict further expansion of the growing media market - albeit this year at a more modest four per cent in terms of value. Volume sales are likely to be at a higher percentage, but smaller pack sizes will mean less return per unit. Growth is likely to be driven by core lines such as multi-purpose compost and the continued emergence of peat-free products, although sales of bark products are expected to diminish as prices increase and it is viewed as a luxury too far.
Price, however, should remain largely stable across growing media. There isn't a glut of peat available, which will inevitably restrict the dumping of product at the low end of the market. The rise in VAT may of course affect SRPs, but this is true of all sectors, so in itself is not expected to deter consumers. What is likely to be of more importance to the consumer is where they shop.
Last season, the mass merchandisers grew their market share by 29 per cent and, as they continue to expand their offering, this could prove to be a very challenging year for the DIY multiples. While the grocers are making inroads, they only offer a relatively small window of opportunity to the consumer, so are unlikely to capture core gardeners. These remain the battleground of the DIY sheds and garden centres, and although the former have a 62 per cent market share (by value), garden centres remain a local leisure destination, so footfall should continue to be strong.
In summary, we expect a relatively short season, but one that will signal continued growth across the growing media market. Sinclair is confident that J Arthur Bowers and New Horizon are brands the consumer and trade identify with and trust. This, combined with our supply-side strengths, will consolidate our position as branded product market leader. We look to 2011 with optimism.