Ellison Chair in International Floriculture
Ellison Chair in International FloricultureTeaching, Research, Extension and Service

How not to save housing…

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I have pontificated previously regarding the value that landscaping provides in increasing perceived home values by enhancing curb appeal, etc. (see value of landscaping in the sidebar). In recent months, I have also reported on the record decline in home values. Intuitively, those who have landscaped their homes “properly” may have offset the devaluation of their home to some degree.

But several Congressional proposals seek to adjust home values artificially by authorizing the Federal Housing Administration (FHA) to guarantee $300 billion of new home loans to strapped homeowners, allowing them to refinance their existing mortgages at lower rates and lower outstanding amounts. Under it, homeowners who borrowed from Jan. 1, 2005 to July 1, 2007 would be eligible for new loans if their monthly payments of interest and principal exceeded 40 percent of their income, well above a more prudent level of 30 percent.

Everyone wins from this arrangement, say its supporters. Homeowners (some perhaps victims of deceptive lending practices) stay in their houses. Neighborhoods don’t suffer the potential blight of numerous foreclosures. Housing prices don’t go into a free fall, depressed by an avalanche of foreclosures. Although lenders take a loss, the losses are lower than they would be if homes went into foreclosure.

But Bob Samuelson provides a differing perspective, saying not only does not make good moral sense, but less economic sense:

About 50 million homeowners have mortgages. Who wouldn’t like the government to cut their monthly payments by 20 percent or 30 percent? But Frank’s plan reserves that privilege for an estimated 1 million to 2 million homeowners who are the weakest and most careless borrowers. With the FHA now authorized to lend up to $729,750 in high-cost areas, some beneficiaries could be fairly wealthy. By contrast, people who made larger down payments or kept their monthly payments at manageable levels would be made relatively worse off. Government punishes prudence and rewards irresponsibility. Inevitably, there would be resentment and pressures to extend relief to other “needy” homeowners.

The justification is to prevent an uncontrolled collapse of home prices that would inflict more losses on lenders — aggravating the “credit crunch” — and postpone a revival in home buying and building. This gets the economics backwards. From 2000 to 2006, home prices rose by 50 percent or more by various measures. Housing affordability deteriorated, with home buying sustained only by a parallel deterioration of lending standards. With credit standards now tightened, home prices should fall to bring buyers back into the market and to reassure lenders that they’re not lending on inflated properties.

If rescuing distressed homeowners delays this process, the aid and comfort that government gives some individuals will be offset by the adverse effects on would-be homebuyers and overall housing construction. Of course, there are other ways for the economy to come to terms with today’s high housing prices: a general inflation, which would lift nominal (but not “real”) incomes; or mass subsidies for home buying. Neither is desirable.

None of this means that lenders and borrowers shouldn’t voluntarily agree to loan modifications that serve the interests of both. Foreclosure is a bad place for most creditors or debtors. Although the process is messy, promising to lubricate it with massive federal assistance may retard it as both wait to see if they can get a better deal from Washington, which would then assume the risk for future losses.

Standards Committee deadline extended

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Due to increased interest in the development of the Sustainable Agriculture Practice Draft American National Standard for Trial Use, the deadline has been extended for applications to participate on the Standards Committee and/or supporting subcommittees to May 23, 2008.

This extension is being implemented based on numerous requests to allow time for additional stakeholders to submit their applications. To learn more, click here for the official deadline extension announcement and click here for the Leonardo Academy press release announcing the call for Standards Committee applicants.

Why is it important to get involved? Ever heard the phrase “taxation without representation”? Need I say more?

SAF and OFA have great summary websites if you need to get caught up on this critical issue.

No-Match Saga Continues

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In August 2007, a long awaited “no-match letter” regulation from US Immigration and Customs Enforcement was released. It quickly was challenged in court and the rule was barred from taking effect by a federal district court. Yesterday, DHS released a proposed rule that makes very few actual changes to the previously released rule and instead attempts to address procedural questions raised by the court in its preliminary injunction.

The rule describes the obligations of employers when they receive no-match letters from the Social Security Administration or receive a letter regarding employment verification forms from the Department of Homeland Security. The rule also provides “safe harbors” employers can follow to avoid a finding the employer had constructive knowledge that the employee referred to in the letter was an alien not authorized to work in the US. Employers with knowledge that an immigrant worker is unauthorized to accept employment are liable for both civil and criminal penalties.

The rule finalized a proposed rule released on June 14, 2006. The Department of Homeland Security, ICE’s parent department, received nearly 5,000 comments on the rule from a variety of interested parties including employers, unions, lawyers and advocacy groups. According to DHS, the opinions were highly varied with both strong opposition and support being enunciated. DHS also held a meeting with business and trade associations to discuss the proposed rule.

Why did the court block the rule from taking effect?
The rule was challenged in court prior to it taking effect in September 2007 and a judge issued a preliminary injunction on three grounds:

(1) DHS failed to supply a reasoned analysis justifying what the court thought was a change in DHS’ position – that a no-match letter may be sufficient, by itself, to put an employer on notice that its employees may not be work authorized;

(2) DHS exceeded its authority (and encroached on the authority of the Department of Justice) by interpreting anti-discrimination provisions in the Immigration Reform and Control Act (IRCA); and

(3) DHS violated the Regulatory Flexibility Act by not conducting a regulatory flexibility analysis.

How has DHS attempted to address the court’s objections?
On March 21, 2008, DHS released a supplemental proposed rule designed to address the court’s concerns. DHS is hoping that the court will overturn the preliminary injunction and allow the agency to implement the proposed rule. The agency is also continuing to appeal the court’s order. The agency is providing 30 days for comments.

In the proposed rule, DHS first addressed the court’s concern that that agency had failed to provide a detailed analysis explaining the agency’s new position that no match letters are an indicator of unauthorized status.

DHS first cites a number of sources indicating that Social Security numbers are being used to gain employment authorization by people unauthorized to work. It included quotes from the 1997 report of the US Commission on Immigration Reform and also cites reports issued by the Government Accountability Office and the Inspector General of the Social Security Administration.

It also notes that the industries most affected by the rule have admitted that much of their workforce is unauthorized and millions of employees have used false numbers. Finally, the agency cites to public and private studies confirming that a sizeable portion of employees identified by no-match letters are working illegally in the United States.

DHS cites two other justifications for the law. First, many employers fail to respond to no-match letters because they fear being accused of violating anti-discrimination rules if they react inappropriately to them. The no-match rule would provide protection from such liability if the employer follows the requirements of the regulation.

Second, many US citizens and aliens would benefit by being notified of problems in the Social Security database and being able to get proper credit for their earnings. US citizens would also benefit, according to DHS, by seeing an expansion of employment opportunities as a result of unauthorized employees being terminated for not providing a valid Social Security number.

DHS then describes in the rule a series of rulings and opinions by the agency that it believes show the agency has had a consistent position on no-match letters. But the agency states that even if it concedes that it is taking a new position, it meets the requirement to show a reasoned analysis justifying the chance in policy.

In this case, it states that the “most basic justification for issuance of this rule – and for the “change” in policy found by the district court – is to eliminate ambiguity regarding an employer’s responsibilities upon receipt of a no match letter. Absent this rule, employers have been taking very different positions based on DHS’ ambiguous statements.

DHS also defends the rule by pointing out that only employers with more than 10 employees identified with no-matches get SSA no-match letters and only if the percentage of no-matches exceeds .5% of the employer’s work force.

With regard to the question of usurping the Justice Department’s anti-discrimination enforcement authority, DHS insists that its rule does not interfere with “the authority of DOJ to enforce anti-discrimination provisions of the INA or adjudicate notices of intent to fine employers.”

It also specifically rescinded statements from the August 2007 rule’s preamble describing employers’ obligations under anti-discrimination law or discussing the potential for anti-discrimination liability. That includes the statement “employers who follow the safe harbor procedures…will not be found to have violated unlawful discrimination.”

With respect to the regulatory flexibility analysis, DHS takes the position that the rule is a voluntary safe harbor rather than a mandate. Hence, the rule does not require a showing that employers will not be significantly impacted economically.

However, the agency claims it is going to comply with the judge’s ruling by providing an initial regulatory flexibility analysis (IRFA). They have provided a very cursory summary of the analysis in the proposed regulation, but DHS says it will provide a full analysis in the docket of the rulemaking.

DHS claims that it has been stymied to some extent in providing a highly specific analysis because the Social Security Administration has denied its request for the names and addresses of the companies already identified by SSA in its preparation to release no-match letters pursuant to the August 2007 regulation.

SSA reminded DHS that this disclosure would actually be illegal under taxpayer privacy laws. SSA did, however, provide more general information including a table showing the distribution of employers slated to receive no match letters in 2006. DHS estimates it will cost employers anywhere from $3,009 to $33,759 depending on the size of the employer and the percentage of current no-match employees assumed to be unauthorized. DHS does not believe these costs constitute a “significant economic impact.”

DHS notes that the costs associated with losing an employee as a result of the rule are due to the Immigration and Nationality Act itself and not the new rule. However, the agency does not mention “false positives” where employees authorized to work are incorrectly identified in a no match letter.

The agency did not account for costs associated with losing employees not being able to resolve problems within 90 days, something that critics fear will become common as hundreds of thousands of people attempt to resolve problems at the same time under the new rule.

DHS did site the following costs: labor cost for human resource personnel, ce
rtain training costs, legal services and lost productivity.

Did DHS mention any changes to the August 2007 rule in its proposed rulemaking?
DHS only announced two relatively minor changes. First, DHS changed the rule require that employers “promptly” notify affected employees after they are unable to resolve a mismatch through internal checks. Employers would now be given five business days to notify employees.
Second, DHS makes clear that employees hired before November 1, 1986 are not covered by the no-match rule since these workers are not subject to IRCA.

Source: The Immigration Portal, www.ilc.com

Promotional program impacts

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Several in the Green Industry have postulated regarding the impacts of generic promotion programs and there are rumblings (at least there were before the economy slowed) of another industry-wide generic promotional program surfacing. It behooves us to consider all of the case study experiences before embarking on such a task. To that end, the most recent HortScience contained an article analyzing the effectiveness of Texas citrus promotions that also has some interesting insights for other commodity promotion programs.

This study finds that Texas citrus promotion programs have effectively enhanced shipments of Texas grapefruit and that the benefits of the promotion efforts in terms of increased grapefruit industry revenues are greater than the costs. The study also finds that the promotion programs have had no statistically discernible effects on Texas orange shipments and, hence, have not generated returns to Texas orange growers. Although specific to the promotion program of Marketing Order 906, these results provide some important insights for the operation and management of other commodity promotion programs, particularly those at the state or regional level:

Growers in a particular state or region can successfully promote the demand for their products if they are sufficiently differentiated from those produced in other states or regions as in the case of Texas grapefruit. However, funds invested in promoting homogenous, undifferentiated commodities like Texas oranges are unlikely to stimulate a shift in consumer demand for those commodities.

Even for undifferentiated commodities like Texas oranges, however, advertising can enhance buyer loyalty by reducing their price responsiveness. As a result, a weather-induced run-up in price, for example, is less likely to drive buyers to alternative sources of the product.

The gains from promotion can dissipate quickly if the marketing order or other commodity promotion group fails to at least maintain its level of promotion funding from year to year.

How a marketing order or other commodity promotion group chooses to allocate its promotion funds among alternative promotion activities can influence the effectiveness of the funds in enhancing demand. In the case of Marketing Order 906, a shift in promotion strategy away from merchandising to public relations likely contributed to a decline in the effectiveness of promotion activities.

Consumer preferences for container gardens

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A recent article published by Dr. Terri Starman (TAMU) et al. in the April 2008 issue of HortScience is entitled Consumer Preferences for Price, Color Harmony, and Care Information of Container Gardens. The abstract of the article’s findings is below.

Retail sales of container gardens have increased dramatically in recent years, rising 8% from 2004 to 2005, to $1.3 billion. The objective of this study was to determine consumer preferences for three attributes of container gardens; color harmony, price, and amount of care information provided with the purchase. A hierarchical set of levels for each attribute was used in a 3 x 3 x 3 factorial conjoint analysis.

A Web-based survey was conducted on 18 Oct. 2006 with 985 respondents. Survey participants were asked to complete a series of questions on a 7-point Likert scale. Survey participants also answered questions about past experiences with and future purchase intentions of container gardens as well as demographics. The three attributes accounted for 99.8% of the variance in container garden preference. Relative importance decreased from price (71%) to amount of care information (23%) to color harmony (6%).

Survey participants preferred a container garden with a price point of $24.99, extensive care information, and complementary color harmony. A large portion (76%) of participants in this study indicated that they would be more likely to purchase a container garden if extensive care information was included with the purchase and 85% of participants said they would be willing to visit an Internet Web site that would provide more information on how to care for and maintain a container garden.

Results of this study show that there is a potential to increase the value of a container garden through providing educational material with the purchase.

Trouble comes in threes…

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Yesterday was a busy day. Not only did reports focus on the record housing price decline and the precipitous drop in the consumer confidence index, but current trending of the value of the dollar indicates some very interesting economic conditions. Increasing numbers of economists are predicting that the economy has entered, or will soon enter, its first recession since 2001.

On the other hand …

The Standard & Poor’s 500 Index gained 0.2 percent yesterday as a rally in commodity producers helped offset the decline in consumer confidence. In addition, existing-home sales climbed for the first time in seven months during February as buyers took advantage of sharply falling prices. Home resales rose to a 5.03 million annual rate, a 2.9% increase from January’s unrevised 4.89 million annual pace according to the National Association of Realtors.

While the rise in home sales is encouraging, given the weakness in other housing-related data and continued problems in the housing market, it is too soon to say that this sector is bottoming out.

It’s also too soon to throw in the towel on the economy. Though weak, we are hardly in a state of collapse. Robert Samuelson provides yet another interesting commentary in this regard. He states “…most markets self-correct. As housing prices fall, more buyers come into the market; sales and construction revive. If inventories get too high, production slows and surpluses are sold; then production accelerates. If consumers or businesses are overindebted, they reduce spending to repay loans; spending speeds up when debt burdens drop.

In other words — stay the course.

Behaviorial Economics 101

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James Gilmore and Joseph Pine run a consulting firm called Strategic Horizons that has an almost cultlike following in the business world because of their ability to accurately predict consumer sentiments. Nine years ago, in their first book, they argued that businesses had to start selling experiences—not mere products—in order to survive the new economy.

The Experience Economy: Work Is Theatre & Every Business a Stage made the case that goods and services were being so thoroughly commoditized by Wal-Mart and the Internet that companies would fail unless they could create such diverting shopping experiences that customers would pay more for the same stuff they could buy for less elsewhere.

In their new book Authenticity (Harvard Business School Press), they argue that the virtualization of life (friends aren’t friends unless you “confirm” them on Facebook; reporters are now all bloggers, and vice versa) has led to a deep consumer yearning for the authentic. America has “toxic levels of inauthenticity.”

Inundated by fakes and sophisticated counterfeits, people increasingly see the world in terms of real or fake. They would rather buy something real from someone genuine rather than something fake from some phony. When deciding to buy, consumers judge an offering’s (and a company’s) authenticity as much as–if not more than–price, quality, and availability. G&P; argue that to trounce rivals, companies must grasp, manage, and excel at rendering authenticity.

So how can companies deliver authenticity? What businesses will survive our jaded new form of capitalism? Gilmore and Pine offer two approaches. First, companies can strive to be transparent and exactly what they say they are. Chipotle Mexican Grill—”Food with Integrity”—goes for this approach, as does Honest Tea, the clothier Anthropologie, and Ethos water. These companies use the holier-than-thou strategy.

Want to know the other stategy? Read the book. It’ll be well worth the time.

From the website:
Through examples from a wide array of industries as well as government, nonprofit, education, and religious sectors, the authors show how to manage customers’ perception of authenticity by recognizing how businesses “fake it;” appealing to the five different genres of authenticity; charting how to be “true to self” and what you say you are; and crafting and implementing business strategies for rendering authenticity.

Latest Floral Trend Tracker

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SAF’s Spring 2008 Floral Trend Tracker was released yesterday (see http://news.safnow.org/saftt/issues/2008-03-20/index.html). Some of the highlights included:

  • “During hard economic times consumers might not want to buy a BMW or other luxury items, but there are still people getting married, babies born and funerals to service,” she says. “There is always a need for flowers.”
  • “Flowers and plants are a terrific, cost-effective way to express human emotion across all life occasions,” Williams says. “As business owners, we need to promote that.”
  • Businesses in all industries are beholden to what’s known as a value proposition — the reason, or reasons, a customer should buy your goods and services and not someone else’s.
  • Surviving during an economic slowdown might also entail acquiring the customer base of recently defunct local florist business to help support existing overhead expenses.
  • “Recessions can cause a lot of financial pain. The quicker you can react, the better. Monitor your sales monthly compared to the previous year. Whatever trend you see, project that into the future and make staffing adjustments accordingly. Keep marketing and promoting, but be realistic about what is happening that is out of your control.”
  • Exchange rates influence the trade balance by changing the demand for domestically produced and imported goods and services. A strong dollar will lead to an increase in the trade deficit, because it lowers the price of imports and makes domestic consumers more willing to buy goods from overseas. It also will make U.S. goods more expensive in overseas markets and therefore export growth will be weak. By contrast, a weak dollar will raise the price of imported goods and consumer demand for those goods will fall. U.S. exports abroad will increase since the weak dollar lowers the prices of U.S. goods in foreign markets.
  • A weak dollar makes it more expensive for U.S. consumers and producers to buy foreign goods and services so some will shift to buying domestically produced products instead, which are now relatively more affordable. This increases demand, which is good, but can also lead to an increase in inflation, which is bad. Nor does this increased consumption help every industry, since many service industries see little competition from overseas and will therefore see little change when the dollar depreciates, or falls in value relative to other currencies. Also, companies that depend heavily on foreign markets for their inputs also will suffer from higher import prices, since they increase the cost of production.
  • This economic softness, which many expect will evolve into a recession, is different than the last two recessions, which were both relatively mild and brief. The 1991 and 2001 recessions came about as the Federal Reserve tried to put a lid on rising inflation. It pushed rates high enough to cause the slowdown that it believed would reverse the inflationary trends. With a slowdown in evidence, it changed course and allowed rates to decline, initiating the economic recoveries. But that’s not today’s story. Rates were already low when trouble became evident last year, as housing prices began to decline and mortgage financing tightened up. Lower interest rates from the Federal Reserve can’t directly solve the problem of falling asset prices, but it can provide some cushion.
  • Over the past year, inflation has jumped. In the past twelve months, the Consumer Price Index is up 4.3%. Those are the kinds of readings that should ring alarm bells, on Wall Street and in the Federal Reserve boardroom.
  • On the positive side, we started this re-evaluation of real estate in a fairly healthy economic environment. The unemployment rate has been low, though it’s inching up of late, standing today at 4.9%. Meanwhile, export growth (thanks to the low value of the dollar) and business spending are robust, although weakening credit conditions suggest that business spending in the months ahead will be more restrained.

Two recent seminars you might find interesting!

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Two recent seminars you may find interesting:

  1. Dr. Natalia Dudareva, Wickersham Chair of Excellence in Agricultural Research, University Faculty Scholar, Professor, Dept of Horticulture and Landscape Architecture, Purdue University, West Lafayette, IN presented Floral Scent: Gateway to Original Creation. Click here to view.
  2. Dr. Rick Schoellhorn, Director of New Products, Proven Winners L.L.C., Alachua, Florida presented New & Unique plants – Ready, Set, Go: Discovery, Development, Release, Pandemonium! Click here to view.

Also, our fifth lecture in the Distinguished Lecture Series on International Floriculture will be presented by Dr. Peter Bretting, the USDA/ARS National Program Leader for Plant Germplasm and Genomes. The title of his Lecture is “Horticultural Genetic Resources: Current Status and Future Prospects“. A reception will be held at 2:30 p.m. in the Texas A&M; Horticulture/Forest Science Building atrium on Wednesday, April 9, followed by his Lecture at 3:00 p.m. in room 102 HFSB.

Dr. Bretting has been USDA/ARS National Program Leader, Plant Germplasm and Genomes since 1998, and was promoted to the rank of Senior National Program Leader in 2004. This position involves co-leadership, coordination, and direction of a national program of crop genetic research conducted at more than 50 locations nationally, with an annual budget of approximately $120 million. He also serves as a USDA representative for the US government delegations negotiating the UN-FAO International Treaty for Plant Genetic Resources for Food and Agriculture, and the UN-UNEP Convention on Biological Diversity.

His areas of research specialization and professional interest include: 1) Administration and management of scientific research, development, and service organizations; 2) Plant genetic resource management, emphasizing statistical genetic and molecular marker approaches to managing germplasm; 3) Crop genetics, genomics, systematics, and economic botany, with particular emphasis on maize, sunflowers, and new crops, especially ornamentals.

He is the co-editor of one book and a collection of papers, and the author or coauthor of numerous scientific publications. His research has been supported by grants from government and industry. He has served as Associate Editor of two international journals, and on the editorial boards of two others. With three other Iowa State University or USDA/ARS scientists, he taught “Plant Genetic Resource Management,” a graduate level course at Iowa State University during the 1990s.

The Distinguished Lecture announcement can be found online at http://ellisonchair.tamu.edu/lectures.html.