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SAP 2.80/WP.139
A number of elements are important for producers to become successful exporters. These can be divided roughly into those related to growing and those related to post-harvest handling. An efficient transport and distribution system is essential for all growers in view of the highly perishable nature of the product. This is even more the case for producers, who are located far away from their main markets. We will discuss growing and post-harvest handling in separate sections.
The successful cultivation of flowers requires the following elements:
Each element carries a price. For some this price is the same or similar for all growers (e.g. planting material, fertilizers and other chemicals). For others, the price differs by location. As such, it becomes the source of competitive advantage or disadvantage. Low production costs can constitute a competitive advantage. But so does a high capacity to innovate. Fashions in demand for flowers change more rapidly and more often than before. New products can fetch prices way above the average (see section 2.4).
Closeness to the market and to "world class" research and extension services constitutes a competitive advantage for producers in established growing countries, particularly for those based in the Netherlands. This enables these growers to quickly detect changes in consumer demand, and more importantly, it helps them to experiment with new varieties and growing techniques. Together it allows them to innovate rapidly. Physical infrastructure is of high quality. In contrast, land is expensive (but yield per hectare high), and energy (for heating the greenhouses and for additional lighting) a significant component of overall cost. High labour costs (one-third of total cost (see table 12)) constitute a competitive disadvantage.
Table 12. The cost of cut flower production in the Netherlands
(by major item; in per cent)
| % | |||
| Labour | 35 | ||
| Interest and depreciation | 28 | ||
| Energy/transport | 14 | ||
| Plant material | 14 | ||
| Other | 9 | ||
| Total | 100 | ||
| Source: Rabobank, p. 23. |
Developing countries benefit from low cost of manual labour, but skilled labour and technicians can be expensive, particularly when expatriate. They also have abundant light, good climatic conditions and low land costs. In hilly regions close to the equator (as in Kenya and Ecuador) farmers can experiment with ideal growing conditions (in terms of soil and microclimate). Nevertheless, despite their favourable "natural" growing conditions, an increasing number of these exporters are now producing "under plastic" or "under glass" because this allows them better control over daily (night-day) temperature fluctuations. It also helps to protect against adverse weather conditions such as frosts and storms, and plagues and diseases and thus ensures a better control of product quality, the key word for all ambitious growers.
Air freight adds significantly to total cost and makes up by far the largest component of overall cost to the African producers. For example, cost of airfreight, marketing, handling in Europe and packaging make up 50 per cent of all costs for Kenya and 62 per cent for Uganda (ABN AMRO). The reliability of air connections is an additional risk factor for exporters located far from their main markets.
2.2. Post-harvest handling (3)
Post-harvest handling is as important as growing for delivering an attractive product to the consumer, if not more so. In the same vein, the reliability of air connections is as critical as its costs. Speed of delivery is important since flowers must be carried to their destination without delay. Only a few hours of inattention can spoil a flower and ruin months of hard work. Hence, the importance of good infrastructure and efficient organization. This includes proper transport between farms and airport (good roads, refrigerated trucks).
Many things can go wrong after the harvest, particularly in warm climates where the chance of disease is great. Flowers are highly perishable in the post-harvest chain from grower to consumer. Floral organs continue to grow actively. They have high rates of respiration, which continue after harvest. A flower at 30°C will respire 45 times faster than one at 0°C and consequently will have a shorter life span. Flowers must be stored and handled at low temperatures, close to 0°C being the best. A "cold chain" from producer to retailer is essential, including cold storage at the airport.
Humidity is equally important. Flowers have a high surface-to-volume ratio due to the thin structure of petals and leaves. This causes high rates of water loss and renders the flower susceptible to mechanical damage and disease. To prevent this, cut flowers should be stored at above 95 per cent relative humidity.
The use of good quality water prolongs vase life. A clean handling and storage environment is also important. Adverse conditions can cause bacterial growth which blocks flower stems, or fungi growth, which infects flower blooms.
In short, avoiding great temperature fluctuations, careful handling (to avoid damage) and good air circulation reduce the risk of fungi and other diseases. Temperature and humidity- controlled transportation is needed at all stages of the transportation process to ensure that the flowers arrive at their final destination in good condition.
Only top-quality flowers are traded internationally because of the increasing quality-consciousness of the customers. Competition is such that anything less than top-quality flowers can at best be sold to less-demanding domestic customers. Quality has several dimensions. Flowers should be free from plagues and diseases and they should be undamaged. These elements can be judged on visual inspection. Other quality aspects, however, are more difficult to judge. For instance, it is hard to see whether flowers have been correctly handled once cut. Yet this is an important determinant of vase life and whether or not the bud will open. It is the reason why reputation is so important and why growers who have consistently delivered high-quality produce fetch higher prices than little known or irregular suppliers.
Exporters thus have an interest in building up a good reputation. For producers who are thinking of starting to export, this may require a change of attitude and may demand considerable investment. It may mean having to grow more flowers under cover, concentrating on fewer flower types, working production peaks around specific dates and markets, and learning stricter grading. Post-harvest management -- including cold treatment, proper packaging and preservatives application -- may also need to be strengthened. The conditions under which flowers are grown is a further aspect of quality. It will be dealt with below in section 3.2.
World market prices for cut flowers are basically set at the Netherlands auctions due to their overwhelming market share. Prices of cut flowers have several dimensions.
Figure 5. Monthly auction prices of Dutch flowers and imports, average 1993-95 (ecus per flower)
Source: Federation of Dutch Flower Auctions (VBN), ProFound.
The cut flower trade can make a major contribution to a country's employment and export earnings. In Ecuador, the industry employs 45,000 people directly and contributed over US$100 million to overall export earnings in 1997. In Colombia, the industry is estimated to employ 80,000 people directly and another 50,000 indirectly. It is that country's fourth largest export earner. In the Netherlands, a round figure estimate is that up to 100,000 jobs are somehow related to the flower industry. Small wonder that governments are interested in supporting the growth of this industry.
Such support usually comes in the form of the provision of infrastructure, (co-)financing research into the development of better growing techniques and new varieties and generally in all aspects of quality improvement. In the Netherlands, research is carried out at the Agricultural University of Wageningen and at specialized floricultural research institutes, experimental stations, and experimental gardens. The effects of different glasshouse climates on crops is a priority area of research at the latter group of entities (Ministry of Agriculture, 1991).
In international trade, governments play a role, on the export side, by assisting in the gathering of market information and in other marketing efforts, and by facilitating trade finance and infrastructure (e.g. cold storage at airports). Governments also facilitate trade through the enforcement of phytosanitary regulations. International trade in agricultural products brings the attendant risk of spreading diseases and plagues. New diseases can have great negative consequences for the cultivation of flowers. The phytosanitary certificate, by which the exporters guarantee that the product left the country in a healthy condition is a measure which aims to prevent the spread of damaging diseases and pests in importing countries (COLEACP, 1996).
On the import side, "northern" governments use preferential market access to help the promotion of the industry in selected exporting countries. Customs duties add to the imported product's sales price; a high level would weaken the competitiveness of the country of origin (4). Reduced import duties or duty-free imports provide a trade incentive.
Developing country exporters to the EU benefit from several preferential schemes. Under the Generalized System of Preferences (GSP), imports from a number of developing countries are admitted at a lower tariff and imports from a group of least developed countries at zero tariff. Under the Lome Convention, the ACP countries and overseas countries and territories qualify for duty-free access. Since 1992, this zero tariff also applies to imports of cut flowers from ten Central and South American countries. All in all, countries with zero-rated customs duties and no quota for exports to the EU are as follows (Protrade, 1996, pp. 67-68):
-- the 70 ACP countries;
-- ten Central and South American countries: Bolivia, Colombia, Ecuador, Peru, Costa Rica, Honduras, El Salvador, Guatemala, Nicaragua, Panama;
-- the least developed non-ACP countries: Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, the Maldives, Myanmar, Nepal, the Solomon Islands, Western Samoa, Yemen;
-- Turkey and Malta; and
-- countries and territories associated with the European Union (Overseas Countries and Territories, OCT).
Some other countries (non-GSP beneficiaries) benefit from preferential customs duties under the subjection to quota. These include the countries of the Mediterranean basin (Israel, Jordan, and Cyprus). Subject to the quota, they do not pay customs duties.