Cannabis clouds competitiveness of greenhouse vegetable sector

Duffy Kniaziew, owner, Orangeline Farms, inspects the exclusion insect netting on top of his Leamington, Ontario greenhouses. It’s the accordion-style material that fills the roof vent openings to keep his Leamington greenhouses as clean as possible from pests. Photo by Glenn Lowson.
Ruben Houweling is retrofitting a quarter of his propagation facilities at Delta, British Columbia to service cannabis growers.
Retailers welcome colourful peppers grown under the Zing! Healthy Foods brand.

Duffy Kniaziew is on a rocky greenhouse high. He’s invested more than a million dollars in rooftop netting to exclude insects from his climate-controlled greenhouses. But looking ahead, he sees more threatening business risk on the horizon. Like the other 205 greenhouse operators in Ontario, the Leamington grower is facing new headwinds on April 1 – a federally imposed carbon tax.

 

“Growers are scrambling to understand the new system and rules, along with the multiple exemption forms that must be submitted, “says Kniaziew, referring to the Canada Revenue Agency ruling that Ontario greenhouse growers will be exempt from 80 per cent of the carbon tax. It’s a nod to Ontario growers who argued successfully that they should be on equal footing with Alberta and British Columbia operators. 

 

In the space of 18 short months, Ontario has pivoted from one set of rules under cap-and-trade to a new energy tax being collected by the gas utilities. With energy costs comprising up to 60 per cent of greenhouse operating expenses, it’s no small worry to the sector. According to Joe Sbrocchi, general manager for the Ontario Greenhouse Vegetable Growers, in the not-too-distant future, the major issue will become access to hydro, water and natural gas. He points to the rapidly developing Essex-Windsor area – the epicentre for Ontario’s 3060 greenhouse vegetable acres – which will have significantly higher electricity demands in five to seven years. 

 

“Our colleagues in the cannabis business use a lot of power,” explains Sbrocchi. “At this rate of economic development, we’ll need more service lines.”

 

The cannabis industry has disrupted the greenhouse vegetable sector in ways that are only now being clearly understood. Sbrocchi’s 2018 estimate for 9.7 per cent growth in Ontario greenhouse vegetable acreage tumbled to just two per cent by year’s end. As in British Columbia, some existing greenhouses were being retrofitted for cannabis while other purpose-built cannabis facilities were coming on stream. Increased demand for land, building permits and suppliers accounted for higher costs and many delays, but  another spoiler was added to the mix: the American-imposed steel tariffs.

 

“The building cycle for all greenhouses, including vegetables, has stretched from 24 months to 36 months and more,” says Sbrocci. “And the cost of building has gone up an estimated 20 per cent! All of this poses worrisome obstacles for future growth at a time when we will need to provide more food to the world.” 

 

Kniaziew confirms that serviced land now commands $25,000 to $40,000 per acre.

 

“There’s no question that the per-acre cost for new construction has reached unprecedented levels and continues to increase,” says Kniaziew, “but the price of vegetables has not kept pace.” 

 

Although dozens of acres converted from vegetables to cannabis in British Columbia, all greenhouses suffered from volatile energy prices. A little known fact nationally is that in October 2018, a large explosion on the Prince George natural gas pipeline severely reduced British Columbian supplies.

 

Most of the B.C. growers sunk anywhere from 25 to 50 per cent of their annual energy budget in the month of February alone, a month when new plantings must be coddled for the best start in life. Delaying planting offered no cost relief since Metro Vancouver and its nearby greenhouses went on to experience the coldest March on record, an average of 0.4°C. compared to the average of 4.9°C.

 

Growers were squeezed as normal prices of $3 per gigajoule soared from $80 to $100 per gigajoule. The crisis spiked with spot prices at $200 per gigajoule in early March. Imagine watching $90,000 go up in smoke in one day! 

 

“What business model can sustain these increases?” asks Ruben Houweling, general manager, Houweling’s Nursery Ltd., Delta. “The reality is that natural gas is a Canadian resource but we have a massive reliance on an old pipeline.”

 

As both a tomato grower and propagator with 50 acres in Delta, Houweling is trying to weather these structural changes in the industry.

 

“In just 18 months, 105 acres of vegetables have been converted to cannabis in British Columbia,” he says. “The change has been very rapid.”

 

It used to be the case that the most B.C. acreage was in peppers, followed by tomatoes and cucumbers. Cannabis acreage has now surpassed cucumbers, says Houweling, predicting the leisure and medicinal product will be in second place behind peppers by 2020.

 

“The biggest change for us is that we are retrofitting a quarter of our propagation acres to cannabis seedlings,” says Houweling. “This is to serve the new cannabis clientele.”

 

The boom in cannabis has captured business-press interest with headlines of “Canadian marijuana stocks ripe for the picking” and “Is pot the right pick for your portfolio?” Bets are that investors are now talking about cannabis rather than cucumbers over their cocktails. And that’s another big risk for the billion-dollar vegetable greenhouse business in Canada. To continue expansion, there must be access to capital at a reasonable cost.

 

For Ontario growers such as Duffy Kniaziew, the irony couldn’t be more stark. As cannabis has been legalized, he must maintain rigorous food safety protocols for peppers and strawberries marketed under the Zing! Healthy Foods brand. This comes under clouds of a perfect storm: higher energy, labour and expansion costs.  

 

Why grow food when you can grow weed?  It’s a topsy-turvy world as greenhouse vegetable growers clear their heads for the competitiveness challenges ahead.  

                                                                        

Greenhouse vegetable acreage in Canada 

Province

Greenhouse

Vegetables

Province

2018

2019 estimates

British Columbia

750

810

Alberta

170

170

Ontario

3060

3125

Quebec 

300

300

Atlantic 

15

15

Total 

4,285

4,420 

 

Karen Davidson, editor of The Grower, goes 'Behind the Scenes' of the April 2019 cover story titled 'Cannabis clouds competitiveness of greenhouse vegetable sector' and speaks with pepper grower Duffy Kniaziew. Duffy shares his views on how these competitiveness issues affect his Leamington, Ontario business.  Click here to read the April 2019 cover story.

 

Sources: Greenhouse vegetable acreage as reported at Canadian Horticultural Council Greenhouse Committee, March 7, 2019. 

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Monday, March 25, 2019

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