Review of U.S. Tree Nursery Dynamics
Who are the main suppliers of commercial nut, fruit, and timber trees? We supply our database and do the math on whether the U.S. can reach future ARR goals.
1. Headline
The effort to expand afforestation, reforestation, and revegetation (ARR) in the United States is a massive undertaking, as stakeholders work to plant trees and construct mechanisms to maintain their permanence over time. To date, most funders have called out land availability and the offtake of physical/ecological products as two of the main bottlenecks for expanding such work. But there’s a third very important potential bottleneck: tree nursery supply. In this report, we offer up our American Tree Nursery Database to the public, segmented by location, size (acres + seedling capacity), and type (nut, fruit, timber). We aim to help agroforestry and timber project developers better understand current and future supply/demand dynamics, while furthering the conversation on how best to expand tree stock supplies.
2. What does this mean?
Afforestation, reforestation, and revegetation (ARR) is an important part of the toolkit for stabilizing and reversing greenhouse gas emissions (GHGs). The act of planting trees, shrubs, and grasses is relatively straightforward, with newer industries like agroforestry (commingling of trees, crops, and/or grazing animals) joining more established industries like timber in the pursuit of economic benefits alongside longstanding positive ecological impacts from this work. Importantly, signatories to the Paris Agreement under the UNFCCC agree that in order to limit global warming to a level below 2°C, we must halve global emissions by 2030 and realize net-zero emissions by 2050. Tree planting can and should be a part of this endeavor.
According to the U.S. Forest Service, one mature tree can absorb over 48 pounds of carbon dioxide (CO2) per year. Reforestation Hub says that there are up to 148 million acres of land opportunity in the U.S. lower 48 states to restore forest (timber) cover, which would require the planting of 76.2 billion trees over time…while capturing an estimated 535 million tons of CO2 per year (total U.S. GHG emissions are around 6.2 billion tons annually). On the agroforestry side (nut, fruit, and timber), lower 48 U.S. cropland area totals 381 million acres. If we assume an average planting density of 30 trees/acre, that would require the need for 11.4 billion trees over time…capturing an estimated 762 million tons of CO2 per year (agroforestry is estimated to sequester 2-5 tons of CO2 per acre per year). Together, reforestation + agroforestry could theoretically necessitate a supply of 87.6 billion trees in the United States, capturing ~1.3 billion tons of CO2 annually (21% of U.S. emissions).
We do not expect the U.S. to realize a 100% saturation rate on ARR potential across 529 million combined acres, making the assumed need for 87.6 billion trees truly aspirational in nature. However, a 20% saturation rate is possible, in our view, and still leads to sizable numbers. This would equate to 105.8 million acres of land conversion, requiring 17.5 billion trees to be planted over time. We estimate current annual U.S. nursery production capacity at 1.44 billion trees for the nut, fruit, and timber sectors (see database below). Thus, in order to get 17.5 billion new permanent trees in the ground by 2030, the current nursery base would likely need to add annual capacity approaching 3.5 billion trees (for a total of 4.94 billion trees). That’s a big gap. And it’s one fraught with risk for the nursery trade.
Nurseries play an important role in the production of plants and trees. They are, in fact, where plants and trees get propagated and grown to size for purchase. Everyone from home gardeners to landscapers to commercial timber and orchard operators shop at nurseries for their raw materials - referred to as tree, seed, or root stock. Most stock is sold as seedlings (young plant or tree grown from seed) but can take on other forms and grow techniques. Local/regional soils play an important role for buyers and sellers of tree stock; generally, buyers will look to transact with a nursery that offers product well suited to its own climate and soil type. For more background information on nurseries and related nomenclatures, please visit this Wikipedia page.
Today’s U.S. nurseries face a number of pressures. Climate change not only presents increasingly volatile weather/wildfire impacts on tree stock that is mostly grown outdoors, but it also presents new pest challenges, as well. A negative weather or pest event can set nurseries back by years, forcing them into a temporary elevated cost structure at a time where revenues can drop to near-zero. A higher interest rate environment also makes debt carrying costs + asset and land expansion more costly, at a time when land values themselves are elevated. Finally, uneven demand patterns from buyers create uncertainty for nurseries that scale up over a short time period, leaving the potential for stranded assets. The latter risk is particularly acute in a situation like that described above whereby certain ARR activities may not require replacement plantings for 10 or 20 years, let alone that of annual replacement. Related, some U.S. nurseries concentrate their entire business in one type of tree set (i.e., fruit), leaving them exposed if an industry downturn or consumer shift impairs demand for an extended period of time.
Additionally, meaningful constraints exist on seed, cutting, and tissue culture production for clones that result in genetically identical copies of original trees (this is important for homogeneity of desired growth traits). The broader ARR space generally needs to secure tree stock supplies (and thus make species selection decisions) from nurseries 18 months in advance, based on current market indicators. This represents a risk for all parties involved. Finally, trees have a specific planting window whereby cold chain and logistical issues can negatively impact nurseries and/or project managers on a large-scale transaction.
As the pursuit of ARR gains steam, Agroforestry Partners is sharing its American Tree Nursery Database with the public, such that stakeholders can hopefully gain better insight into industry capacity dynamics. It is our hope that this database will create improved decision-making and allow for a more organized expansion effort ahead.
Our database is not the first overall accounting measure of U.S. nurseries. Numerous resources already exist in the public domain, to include geographical maps like the National Reforestation and Restoration Directory from the USDA Forest Service and Southern Regional Extension Forestry (collectively - RNGR). Likewise, a 2021 study led by Joe Fargione at The Nature Conservancy estimated that the U.S. nursery space would need to increase annual capacity by 1.7 billion seedlings, based on reforestation potential inside the country. Baseline estimates of existing annual forest (timber) nursery capacity have previously been communicated by RNGR at 1.3 billion seedlings. Our own project development efforts at Agroforestry Partners have necessitated that we not only understand overall capacity and geographical locations of tree nurseries inside the U.S., but also their respective size and tree types on offer. We have yet to see this type of consolidated resource in the marketplace and are thus making our database available for others.
Our current estimate of 1.44 billion seedlings in U.S. nursery production across the nut, fruit, and timber end markets includes the following parameters:
Only nurseries located in the lower 48 states are listed
Nurseries must be a private commercial/wholesale operation
Nurseries must have a grow footprint of ~100 acres or above (a group estimate is calculated below our detailed data set for those operations under 100 acres in size)
Nurseries focused on landscapers/ornamentals are excluded
Federal/state-funded enterprises are excluded
Agroforestry Partners American Tree Nursery Database:
[Disclaimer: some figures in our tree nursery database are estimated based on assumptions pertaining to sales mix, location, and/or average peer metrics, among other variables. We do not purport this file to be an exhaustive list of all relevant nurseries in operation today. Exact figures should not be solely relied upon for material decision making purposes, as a result.]
So, what does the data in Agroforestry Partners’ database suggest for the U.S. nursery industry’s ability to expand and meet future ARR demand? First, our view of the current industry set shows concentration. Roughly 44 nurseries make up our detailed data set of public-facing nurseries at 100 acres or above in size, with this number moving up to 46 when including the mostly captive nurseries of Weyerhaeuser and Rayonier, two big timber companies. This set of 46 nurseries makes up 85% of the 1.44 billion seedling capacity that we estimate is in place today. These nurseries are large in size and have the ability to lead future expansion.
Concentration is also present as it relates to tree type. Nurseries with timber trees in production make up at least 70%-80% of total capacity today, seemingly making it easier to expand timber production relative to nut and fruit types. Within timber, the nursery set is dominated by two big entities…ArborGen and Weyerhaeuser…making up over 60% of related tree nursery supply in this segment. Within nuts and fruit, the big nurseries are Musser Forests (PA), Central Florida Lands & Timber (FL), Burchell Nursery (CA), Sierra Gold Nurseries (CA), and Simpson Nurseries (FL). By state, we calculate the highest number of large-scale nurseries present in California, Maryland, Oregon, and Tennessee.
For all the size and concentration present in the dataset, we also estimate a fairly sizable contingent of smaller nurseries, summing up to over 200 million seedlings of annual production. This represents both a stark opportunity and risk. Opportunity…in the sense of an expansion runway to add a sizable amount of future capacity. Risk…in the sense of aforementioned market pressures permanently impairing balance sheets and sending a sizable amount of existing capacity out of production.
Can the industry expand to meet future demand expectations? Recall that there is a potential need to add annual production capacity of 3.5 billion seedlings, in addition to the ~1.44 billion seedlings already in production today. If 70% of this increase fell on the top 46 nurseries already in place, this would require incremental production of 53.3 million seedlings from each nursery. Based on current tree-type mix rates at existing nurseries, we calculate the average acreage increase required by the large nurseries to be roughly 275 acres. This compares to a current average footprint of ~410 acres for the top 46 nurseries. Certainly doable…but no easy feat. As the big get bigger, smaller existing players would also need to expand and seemingly be joined by new entrants into the market.
Overall, we estimate that 18,000+ acres of nursery land might need to be added to meet increased seedling production requirements in the U.S. Although an admittedly wide range exists for the cost to establish one new acre of nursery production, on average we believe that $4,000/acre is a good working estimate for cost. Thus, a required American nursery expansion effort could cost in the neighborhood of $72 million, by our math, before considering ongoing annual operating costs.
3. Key takeaway
The effort to expand afforestation, reforestation, and revegetation (ARR) in the United States is a massive undertaking, and there is a big opportunity for the nation’s nurseries to help facilitate the realization of these goals. That said, supply/demand dynamics in the nursery space remain opaque today. And there are a number of external pressures on nurseries that could inhibit the future growth and buildout of the industry. As agroforestry and timber project developers rush into attractive land conversion opportunities, it’s on all of us to work thoughtfully and strategically with nursery partners to efficiently build out tree stock supply. Agroforestry Partners therefore shares its American Tree Nursery Database with the public to better facilitate understanding, partnership, investment, and development.
4. Where to find us
Check us out on our homepage or come connect with us on LinkedIn.
We’re an investment fund that raises money from long-term investors and then pays farmers and landowners to plant trees on their properties alongside crops and/or animals, returning nutrients to the soil and our food while delivering attractive, uncorrelated returns to investors.