While we are far past Christmas, most of us think of Christmas trees as next year’s winter tradition, and a chore, looking forward to the season and dreading the day the tree has to be dragged out to the curb, or stored in a box depending on if the tree is real or fake.
Regarding real trees, Christmas tree farming is a year-round business for nearly 15,000 farms across the US, Canada and abroad employing over 100,000.
To Frans J. Kok, owner of Middleburg Christmas Tree Farm, one of if not the largest Christmas tree farms in Loudoun, tax time brings a certain negative feeling about the business.
For the past several years, Kok and other larger Christmas tree farmers pay a federal assessment on Christmas trees as an effort by the United States Department of Agriculture (USDA) to fund the recently formed Christmas Tree Promotion Board (CTPB)
The CTPB is a national promotion and research organization. CTPB is akin to the Milk industry’s Milk Processor Education Program (MilkPEP) and congressional Acts used to fund and promote milk consumption through industry assessments. This translated into some of the most popular and longest running commercials which the USDA claims created 90% consumer awareness for milk consumption. The two most famous are celebrities having milk mustaches and the “Got Milk” campaigns.
According to the National Christmas Tree Association, there are approximately 25-30 million real Christmas trees sold in the U.S. every year for transactions well over $1 billion. There are close to 350 million real Christmas trees currently growing on Christmas tree farms in the U.S. alone, all planted and grown by farmers like Kok whos 125-acre farm sells nearly 2500 trees locally per season.
While these numbers seem impressive, there has been a massive decline in real Christmas tree purchases since the 70’s and 80’s when fake trees realized a drastic gain in popularity. Baby boomers disrupted the real tree industry opting for fake trees.
This past December, while almost 95 million U.S. households displayed a Christmas tree, only 19% of those were expected to be real, according to a survey conducted by Nielsen for the American Christmas Tree Association.
At this low percentage, it would take very little disruption to again see a large decrease in the already low percentage.
According to the USDA’s efforts through CTPB, the real Christmas tree industry is at high risk when it comes to speculated millennial impact – disruption.
Underlying, the assessment by Christmas tree farmers pays for efforts to sway millennials from obliterating a timeless Christmas tradition and an entire industry – the purchase and use of real Christmas trees.
Believe this is far-fetched? Consider that nearly every industry, from automotive to housing, retail to grocery stores are making massive investments, shifting or pivoting their products, marketing and strategies to align with millennial disruption, spending, and trends – as well as the anticipated offspring of millennials.
Kok, along with Kurt Gernerd of Stonehaven Farm in Purcellville and a third Christmas tree farmer in Maine, do not agree with the USDA or the CTPB efforts. Specifically, they do not agree with the assessment, how the assessment was brought about or the CTPB’s budget.
“In 2014 a congressman from Wisconsin and one from Oregon got it done by slipping a couple of lines into the USDA budget,” Kok said. “It had to have been some big farmers in Oregon and Wisconsin who prevailed on those congressmen.”
Kok, Gernerd and others are spearheading an effort to eliminate the Christmas Tree Promotion Board (CTPB) and the tax on growers that funnels over a 1.6 million dollars to the CTPB annually.
Standing in the way of Kok’s ambition is the fact that industry leaders asked the USDA to put the CTPB in place through a long dialog that included defining the program and an extensive comment period during which a large majority of the comments received were in strong support of having the program. The legislative action Kok cites was done to move the startup of the program forward following the work with USDA and the comment period.
While one may speculate that the CTPB is just a small organization, it is made up of 42 current members who are direct industry Christmas tree growers, like Kok, serving either on the board or within various internal committees and with an annual budget of $1.65 million.
Tim O’Connor serves as the CTPB Executive Director having 25 years as the CEO of Avocados from Mexico, President and CEO of the United States Potato Board and Executive Vice President/CEO of the Illinois Beef Association leading their promotion and research programs.
“Connecting real Christmas trees with millennials as they form their own families and traditions is the critical battle for the future of the real Christmas industry. Hope is not a good strategy; millennials are predisposed to artificial trees and must be won over to reverse the shift of over 50% of the Christmas tree market share loss to artificial trees that has occurred in the last generation,” said O’Conner. “The industry can’t hope the shift to artificial trees suddenly changes and see positive results. CTPB was formed by growers who believe the future of the industry is at stake and want to combat the artificial Christmas tree industry which spends millions of dollars marketing their products and growing demand each year.”
Kok strongly disagrees.
“You don’t increase the sale of Christmas trees by running a national advertising campaign,” Kok said. “That is a well-known marketing concept. It’s the reason you don’t see national advertising for generic soda.” According to Kok, consumers are not going to all of a sudden flock to tree farms and stands to buy a Christmas tree because an ad reminded them to do so.
According to industry experts, Kok’s statement easily fails by looking at the competition. Fake Christmas trees are heavily advertised by nearly every major retail chain as the season approaches. Lowes, Home Depot, Walmart, Target and hundreds of major department stores along with thousands of smaller ones promote the sale of fake Christmas trees through 10’s of millions in media buys. Additionally, artificial Christmas tree manufacturers themselves, such as Balsam Hill, spend millions annually to market and sell their artificial trees even going so far as lobbying and bidding to have their products placed in major movies and television shows. Therefore, the sale of fake Christmas trees has increased by national advertising campaigns.
Kok attempts to explain his reasoning by alluding that the fake tree industry is simply too large.
“Last year Christmas tree growers paid $1.65 million to the CTPB for zero return on their investment. No amount of advertising and marketing at the national level will increase public awareness of Christmas or the public understanding of the purpose and use of Christmas trees beyond the current saturation level consumers already face every Christmas.”
O’Connor says CTPB’s strategy and campaigns are not focused on increasing sales of Christmas trees this year or even next year.
“We are working to increase demand for real Christmas trees and create new customers for the long-term by motivating young adults to choose real Christmas trees as they form their own families and traditions. But that will require some sustained messaging and education as the majority of millennials grew up with an artificial tree and believe an artificial tree is better for the environment than cutting down a real tree,” says O’Connor.
Nevertheless, Kok and Gernerd led the formation of Farmers Against Christmas Tree Taxation, an association of Christmas tree farmers working to encourage votes against the continuance of the CTPB in an upcoming referendum in May 2018. On its website and via email sent out March 26 to fellow farmers and the media, FACTTS laid out its case against the CTPB.
According to Kok and FACTTS, the CTPB numbers don’t justify the amount of money being paid in by tree growers.
“It’s a big country and there are 12,000 Christmas tree farmers,” Kok said. “Their budget in 2017 was $1.65 million, and about half went to administration and overhead.”
O’Connor refutes the FACTTS numbers with figures and percentages CTPB makes public.
“FACTTS is willing to play a little loose with the facts like many other political campaigns. The total budget for operating costs in CTPB’s current fiscal year is 9% of the budgeted $1.65 million revenue,” said O’Connor. “To suggest half of the budget is going to administration and overhead is a misrepresentation of the facts. The CTPB board is comprised of growers who pay assessments themselves, it is ridiculous to think they would approve using half of the board’s budget for overhead and administration.”
The Loudoun Tribune confirmed that CTPB published the fiscal year 2017-18 budget which allocates 9% for administration and overhead.
According to FACTTS data, results from the CTPB promotional campaign have been mixed at best.
“In the first year of CTPB activity, tree sales fell from 26.3 million trees in 2014 to 25.9 million trees in 2015; in the second year (2016) sales went up to 27.4 million trees, a number that is dwarfed by sales in the year before the CTPB was created (2013) of more than 33 million trees,” FACTTS wrote in an email. “(Data) points to evidence that national advertising and promotion of Christmas trees is a useless and frivolous waste of money. During the first three years of its existence, the CTPB spent about $3 million with no discernable effect on national sales.”
O’Conner addresses the CTPB’s mission and vision as long-term and states FACTTS even has the wrong year CTPB began which skews their interpretation.
“CTPB’s focus is on long-term demand creation, not short-term [local] sales. Second, many factors well beyond CTPB’s control affect the number of trees sold each year such as the number of trees available for sale, the economy and the weather on the prime Christmas tree sales weekends, to name a few,” said O’Connor. “And, just to keep the facts straight, CTPB was appointed by the Secretary of Agriculture in January 2015.”
The Loudoun Tribune confirmed CTPB was created in 2015, not 2013 as suggested by Kok’s organization.
While the CTPB assessment of 15 cents per tree sold for farmers who sell over 500 trees per season is collected, Christmas tree farms, in general, receive large tax incentives essentially reducing its business tax rate from 35% to 15%.
Additionally, Internal Revenue Code section 263A contains rules on whether farmers can deduct their expenses in growing crops, or whether they have to capitalize the costs (and amortize it over time or benefit from the deduction only when they finally sell their crops). Christmas tree farmers can deduct all of their expenses immediately, while other tree farmers (and general crop farmers) must wait several years until they sell the trees before they can benefit from the deduction.
Kok admits he is responsible for very little tax regarding the operation of his business and states his farm pays under $400 per year for the CTPB assessment.
With only 19% of Christmas trees purchased being real, time will tell whether the industry’s efforts through the CTPB will make an impact on speculated millennial disruption.
“The real Christmas tree industry has been disrupted once by the baby boomer generation shifting to artificial trees. During that time the industry saw an acreage reduction of 30 percent and growers forced out of business. Today the real tree industry is faced with a battle for the future of the industry to convert millennials to choose real trees. Will growers be better off to do nothing, or fund a national program, through an equitable assessment of 15 cents per tree, and work together to tell the story of their industry and product to their customers of the future? The growers will decide.” O’Connor said.