January February, 2004

 

 

 

 

Quietly Growing

Employee-owned Pacific Regeneration Technologies (PRT) has quietly grown to become the largest container seedling producer in North America

PRT recently announced that it plans to build a seedling nursery in Nevada and contract a cold storage facility in Oregon to increase their presence in the western seedling market. The Oregon storage facility will put the company’s completed products close to customers in the Pacific Northwest, providing for convenient deliveries during the planting season.

By Paul MacDonald

Pacific Regeneration Technologies (PRT) had an interesting road show for investors when the company was raising capital for the PRT Forest Regeneration Income Fund a few years back. One of the company’s founders, Ev Van Eerden, handed out small spruce and pine seedlings to the hard-to-impress market analysts and pension fund managers attending the PRT presentations in various business centers. In the end, the hard-nosed business types at the meetings were won over by the company’s good news story—it’s all about growing trees— and PRT was successful in raising millions of dollars for its expansion.

PRT’s earnest and refreshing approach was, and is, a true reflection of the employee-owned company. But that does not take away from the fact that it has quietly grown over the past ten years to the point that it is now the largest container seedling producer in North America. In 2002, the company produced over 130 million seedlings from its 13 nurseries. Last spring, PRT produced its billionth seedling.

Quick Start and Still Expanding
The company had humble beginnings. It was started as a result of a decision by the British Columbia government to get out of the business There is a huge potential for containerized seedlings—which PRT specializes in—in the U.S. Less than 10 percent of seedlings in the U.S. are grown in containers, bare-root being the method of choice. of growing seedlings in the late-1980s. The quickly-formed PRT won the resulting bid, and six nurseries were sold to the company. Heading up PRT and the buyout effort were long-time silviculture branch managers Charlie Johnson and Ev Van Eerden, along with managers of most of the nurseries. Since then, the company has expanded its operations.

It recently constructed a seedling nursery in Nevada, and a cold storage facility in Oregon. On January 8, 2004, the company purchased a 28-acre nursery near Portland, Ore., with over 350,000 square feet of greenhouse space, plus cold storage and processing buildings. And it is investigating the purchase of a 20-acre site in the Pahrump valley, a region west of Las Vegas. John Kitchen, who recently took over from Ev Van Eeerden as company president and CEO, noted that the expansion is part of the company’s strategic plan for growth and that a Nevada location offers strong benefits. “Nevada offers unique climatic advantages for high quality and cost effective seedling production. Nevada’s high sunlight hours and excellent business environment provide a great location for container seedling production.

The Oregon storage facility will put our finished products in close proximity to major customers in the Pacific Northwest, providing for convenient deliveries during planting season.” The company said it intends to construct growing facilities at the Nevada site, with an initial production capacity of 750,000 seedlings. “We will carefully ramp up production as we develop the facility to take advantage of the climate, and build on the experience gathered during the last two years of testing,” commented Kitchen. The cold storage facility is located in Medford, Ore.

Opportunities and Challenges of Western Expansion
The Western U.S. is the logical place for expansion. Only about 8 percent of PRT’s seedling production, or about 10 million trees, currently goes into the U.S. That represents a very small portion of a very big market. But it is a market that needs to be handled cautiously, Kitchen notes. “We have some good customer relationships and we would like to build on those.” The seedling situation in the U.S. is quite different from other areas where PRT operates.

The majority of seedlings are still grown by the big forest companies, such as Weyerhaeuser and International Paper. Governments, mainly through state nurseries, are also major players. In recent years, large corporations have become focused on so-called “core competencies.” They take a hard look at what business they are really in, and as a result, often contract out, sell or break off other operations.

An example would be Georgia-Pacific, which will be separating its consumer products and packaging business, and its building products and distribution business into two publicly traded companies. As part of this re-evaluation, G-P merged its timber operations with Plum Creek Timber Company. Another trend is the development of timber investment corporations, like John Hancock.

These trends could pay off for PRT if forest companies come to the conclusion that their core competencies are in producing lumber and paper, and decide to exit the tree growing business. Growing seedlings does not have to be part of their business, says Kitchen. “I can’t say that we are seeing that kind of thinking quite yet, but I think we will see it. There have been rumblings.” Kitchen is quick to add that companies, such as Weyerhaeuser, have long-established seedling programs. And just as it took a number of years for companies in other areas to decide to contract out seedling production, it will likely take years for U.S. companies to make that move.  But when they do, the market is huge.

Advantages of Container-Grown Seedlings
There is also a huge potential for container-grown seedlings, which is a specialty of PRT and pretty much all that the company produces. Forestry markets in other countries have made a gradual move to container-grown seedlings, while the U.S. grows less than 10 percent of its seedlings in con-tainers—bare-root still being the preferred method. Kitchen and his colleagues at PRT believe they have a good story to tell to American companies about containerized seedlings.

The containerized approach produces more consistent, and higher quality, seedlings. The future, they believe, lies in growing seedlings in containers. “That’s the wave that we would like to be on in the market here because we know how the containerized seedlings system works. Our approach is to position ourselves as a player in that market and help that move to containerized seedlings happen.”

Further driving this move toward containerized seedlings, Kitchen believes, are the quality control programs in place at the forestry operations of American companies. The companies are involved in improvement programs, cross fertilizing different trees, and carrying out research and development into what are the best seeds. “As that value increases,” explains Kitchen, “the whole delivery system becomes more important. You’re going to want the entire system to work really well. “As the companies strive to achieve better results with higher quality and more highly developed seeds, they are perhaps going to want to look at containerized seedlings as part of the process of delivering a better product that will have a higher survival rate.”

Happy Customers
While more expansion beyond the site in Nevada is likely to come, Kitchen as new CEO makes the point that the company’s overall emphasis will be on providing service to existing customers. “I believe it’s important in a downturn to do a good job with your existing customers. We want to position ourselves for the future, but we also want to make sure we are doing the right things for customers today.” They supply seedlings to many leading forest companies, and want to make sure that these customers are kept happy. The forest companies, all of whom are now facing financial pressures due to mediocre markets, are looking for new and more efficient ways of growing trees, planting trees and managing forests. In some situations, PRT acts as consultant to their clients, offering advice on what type of seedling might work best in certain growing conditions. When it comes to growing trees, local knowledge is king and everything is site-specific. Having a nursery in a region is important, as is having knowledgeable people.

Research and Development
Kitchen notes that there is always going to be room for improvement in growing seedlings since it involves an evolving area—biology—and sometimes unpredictable factors—weather and agriculture. Kitchen sees his role as the CEO of PRT as that of someone who will continue to lead the move to innovate and create value for customers. Creating value means they have to invest in areas where the payback is sometimes not certain. He cites research work that they are currently doing in hardwoods. While it is not adding to the company’s bottom line, it positions the company as a source of information, and perhaps partnering, for their customers down the road. “Our focus is to stay positioned properly through this downturn. We don’t want to cut all the research and development, or the people that we are going to need. We need to protect our core. “And I think our company and our people have a role to play in helping the industry get its message out about reforestation. There is a lot of misinformation out there.”

TW

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This page was last updated on Tuesday, September 28, 2004