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SAP 2.80/WP.139
A number of trends are having, or could be having, a significant influence on the flower industry. Some of these -- e.g. the increasing importance of quality products and the need to invest more capital to achieve this, the emergence of new growing and exporting countries and the enhanced demand for mixed bouquets --have already been discussed. Three other trends are the subject of this section. They are the changing position of the Netherlands (and the enhanced concentration on both the demand and the supply side there); the attention being given to higher ecological and labour standards and the increased influence of supermarkets. All these trends are somehow interrelated.
3.1. The Netherlands: More emphasis on
trading and distribution
The Netherlands plays a pivotal role in the world cut flower trade. It is home to some of the world's most efficient and most innovative producers (who are supported by a wide range of services in research and development, and extension services). The Netherlands also has an efficient distribution system supported by good road and air connections. And it is home to a number of auctions, which, because they handle such a large share of world trade, virtually set world (and certainly European) market prices. For their success, growers, distributors and auctions depend on each other to a large extent. But that is not to say that their interests always coincide.
The Dutch auctions handled 85 per cent of Dutch and 60 per cent of imported cut flowers in 1995. Their share of the European cut flower market is 34 per cent (Protrade, 1996, pp. 27-28). Auctions are cooperatives; as members of the cooperatives, the growers own the auctions. Members must sell all of their production through the auction. In turn, the auction is obliged to sell 100 per cent of its members' products. With their monoculture growing system, Dutch growers need an outlet like the auctions to sell their product. Marketing millions of one single item when several other growers close by are growing the same thing makes them very vulnerable on the sales side. The auction system avoids growers being played off against each other.
An oft-mentioned advantage of the auction system is that it avoids growers seeing themselves as competitors. This, so the argument goes, encourages them to exchange information and collaborate closely in the search for optimal growing techniques and better management systems. A weak point, however, is that because of the auction system producers have comparatively little contact with buyers, making it difficult for market signals to pass easily to producers.
Imports, and particularly developing country imports, have steadily increased their share of the Dutch market. Most of these imports are being sold through the auctions. In 1994 when the share of imports reached significant proportions the Dutch growers thought that they could slow them down by restricting access to "their" auctions. This action proved futile and was even seen as harmful. Importers set up their own auction ("Tele Flower Auction") in 1995. Shutting imports out from the auctions thus provided temporary relief at most. The restrictions did little to solve the growers' problems. In 1996, the auctions lifted the restriction on imports again.
In addition to the increasing share of developing country imports, other changes are also placing pressure on the auction system. These are related to the trend towards concentration on both the demand and the supply side.
Concentration on the demand side. The share of all flowers that is being sold by supermarkets is on the increase (see also below). Supermarkets want to buy directly from large suppliers through long-term contracts, because they want to have and to give (to their customers) a quality guarantee. Currently, this is difficult because Dutch growers are obliged to sell their produce through the auctions (5). It is one reason why European supermarkets buy their flowers in Africa, where growers are prepared to sign long-term contracts for direct delivery and are capable of delivering large quantities. The rapid growth in market share of the developing-country exporters must be seen in this light. Direct purchasing also has the advantage of time and costs being saved, as the goods need not be physically moved to and from the auctions.
Concentration on the supply side. Dutch growers achieve high yields per hectare of good-quality produce thanks to very intensive, closely controlled cultivation methods and the availability of skilled labour (see box 1). Their main markets are nearby so they can deliver without delay. And they have at their disposal a highly efficient distribution system. On the other hand, labour costs and ecological demands are high. Competition in the bulk segments is fierce. Many growers do not make a profit (VVB, 4, 1995, pp. 55-59); a significant number are expected to cease production in the not too distant future.
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Productivity increases in rose-growing in the Netherlands Rose growing for commercial purposes has a long history in the Netherlands. Up to the 1950s the culture of roses was soil bound. Every seven to eight years the bushes were replaced by new bushes. All the work, including grading and the making of bunches was done by hand. In winter, growers observed a six-week rest period. During that period the greenhouses were barely heated. At the end of the rest period the bushes were pruned and greenhouse temperatures were raised to their normal levels again. Coal was used for heating. The greenhouses had a wooden frame and small windows. Greenhouse temperatures were set by hand or with the aid of a simple thermostat. Airing and irrigation was done by hand. Much use was made of animal dung. Slowly change set in. Greenhouses were built with frames made of aluminum or steel, and with large surface windows (maximum transmission of light is essential in a country where, in winter, light is a limiting factor). Energy saving and climatic control became a priority. Climatic conditions and irrigation were controlled by analogue electrical systems and later by digital computers. Coal for heating was replaced by oil and later by natural gas. Chemical fertilizer was mixed with water for irrigation to replace animal dung. New varieties were developed which could also be grown in winter. Care for the environment became an issue. Improved protection agents and protection techniques reduced the use of chemicals harmful to the environment. In the 1980s artificial substrates were introduced. The pole height of the greenhouses was increased to enable a more stable climate. Mechanical grading and bunch making was introduced. Assimilation lighting provided a better control of the production process, a higher and more stable quality product and a more even spread of production around the year. Movable shade screens save energy, improve the summer climate and keep the humidity up. The 1990s saw a more intensified use of the above innovations. All roses are now grown in greenhouses. Most farms now use assimilation lighting and artificial substrates. Water is re-used after purification to ensure that no fertilizers and other chemicals enter the environment. The first-ever machines which can grade roses not just on stem length but also on colour and size are now operational. In sum, rose growing in the Netherlands has become a highly sophisticated, increasingly computerized, capital-intensive activity that requires sizeable investments placing it increasingly beyond the capacity of the smaller growers. Sources: ABN AMRO, 1995; van der Meer, 1998, pp. 30-31 and others. |
But whereas the prospects for many smaller Dutch growers -- particularly those that choose not to become specialist suppliers -- may be bleak, the future of the Netherlands as a centre for distribution looks positive. For imports from non-EU countries into the EU, the Netherlands is the most important market. And its share is increasing. In 1996, over one-half of these exports by weight were imported into the Netherlands; with Germany and the United Kingdom together taking most of the rest. For Israel and Kenya, 70 per cent of their exports to the EU went through the Netherlands, for Zimbabwe this percentage was 80 per cent (6).
The high level of efficiency and know-how achieved in handling imports makes it profitable for foreign producers to ship via the Netherlands. Its long experience and its guaranteed fast connections between growers and consumers are major factors in professional flower growing. As a rose grower from South Africa commented in a recent interview: "Many wholesalers who are interested in purchasing our flowers tell us to go through a Dutch trader. Many European wholesalers do not like to get shipments from all over the world. These cause them a lot of work. They want to receive their flowers in one shipment; they are happy with the existing trading lines between the Netherlands and the rest of the world" (in VVDB, 47,1997, pp. 30-31).
3.2. Attention to higher ecological and
labour standards
Environmental issues have become very prominent in recent years. Consumers are concerned about the impact of the use of chemicals on the environment, and on workers. This enhanced environmental awareness has made them more critical of anything they consume (7). Cut flowers are no exception. Flowers are often offered as gifts for a special occasion; who wants to be seen giving an item that is suspected of being unhealthy or not environmentally friendly?
The floricultural sector makes intensive use of crop protection agents and fertilizers. This has to do with the nature of the (high-productivity) production process, the fact that growers tend to specialize in the cultivation of a few flowers or a single one (which increases the risk of diseases and plagues), and the fact that certain export markets (notably Japan) demand the complete absence of any living insect or mite ("zero tolerance") in imported flowers.
In Europe, under pressure from environmental groups, efforts are being made to reduce the use of these chemicals. Environmental regulations have been strengthened. The industry itself has also taken steps to clean up its image. An example is the Floricultural Environmental Project MPS (see box 2). Pressure from retailers has also been a factor. Since a number of years, the Swiss retailer MIGROS, a major force in flower retailing in Switzerland, has been selling flowers produced in an environmentally friendly manner (e.g. MPS-A) under a special label.
In an industry in which imports take up a large share of consumption it is natural that imports have also come under closer scrutiny. Fears of unfair competition also play a role when environmental and labour standards are seen to be at lower levels or less strictly enforced than, say, in the EU. Overseas production methods are thus attracting increased attention. Exporters, aware of these trends have responded by stressing their good environmental and social production methods (see the examples in box 3).
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MPS C The floricultural environmental project (AMilieu Project Sierteelt@) In 1995, the Dutch floricultural sector created the MPS foundation in response to consumers' growing concerns about the way flowers and plants were being produced; to raise the awareness of participants and to encourage them to produce in a more environmentally friendly way; and to improve the sector's generally poor image. Participating growers must keep a record of the amounts of crop protection agents and fertilizers used, the energy consumed, and the amounts of waste produced. As a first step, registration is meant to make growers more aware of their levels of consumption of toxic waste and energy and to allow them to compare these levels with those of other participants. Four times a year participants are awarded an environmental qualification. A rating system is used in which crop protection agents make up 40 per cent, energy use 30 per cent, fertilizers 20 per cent, and waste 10 per cent of the total. Participants are awarded points according to which they are classified in environmental class A, B or C. Those classified in class A use the most environmentally friendly cultivation methods (and have kept records for the previous consecutive 12 months at the least). Thus far, over 3500 Dutch growers are participating in the MPS project. They represent over 50 per cent of supplies. Participants in the project are allowed to mark their products with the MPS logo. An independent organization C SGS Agrocontrol, a subsidiary of Geneva-based Societe Generale de Surveillance C checks on a regular basis whether the growers are recording the data as required; takes samples; and makes sure that the MPS logo is used in accordance with the regulations. The purpose of the inspections is to guarantee the project's credibility and to ensure that the records are correctly submitted. According to MPS, each year SGS Agrocontrol inspects around 30 per cent of MPS participants. Growers in Israel, Germany and Kenya have indicated that they would like to participate in the MPS project. The fact that SGS Agrocontrol is part of a worldwide operating organization is helpful in this regard. MPS could well become an international standard for environmentally friendly growing cut flowers. MPS has now also drafted a social chapter. New participants would need to comply with its requirements after one year of registration. Inspection would be integrated into the existing annual farm inspections by SGS. The chapter consists of two subchapters. The first subchapter deals with conditions of employment and includes provisions on union membership and the right to negotiate collectively; anti-discrimination; forced labour; minimum age; contracts and wages; working hours and weekly rest; annual leave; maternity leave and protection; and medical care and housing. No reference is made of ILO standards. The second subchapter deals with occupational safety and health. It includes mainly provisions on the safe use, handling and storage of pesticides. Source: Various. |
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Exporters and standards: Excerpts from two Ecuadorean company brochures "Y Ecuador is the answer to the request for a socially and environmentally acceptable flower productionYSunrite Farms is proud to having been key-coordinator for the implementation of the [German] Flower Label Program in Ecuador Y The participating farms are frequently inspected by German experts in order to guarantee that a once certified company continues with the established FLP standard Y Sunrite Farms got the FLP-license in January 1997, which shows that all the 653 farm workers can be sure to have labour contracts, social security and regular salary payments. The company provides safety equipment for every working area as well as constant training on the job. Daily breakfast and lunch assure adequate nutrition to the employees." (from a brochure of Sunrite Farms, Ecuador). "EQR's Corporate Responsibility: 350 employees who work in an excellent environment under strict industrial security standards; higher compensation and benefits; execution of policies addressed to ecological environmental preservation; permanent health protection of worker." (from a brochure of Equatoroses, Ecuador). |
Such texts must be seen in conjunction with the attempts undertaken in the main importing countries to pressure for improvements in production conditions in exporting countries. Since the late 1980s, several European NGOs have been campaigning in cooperation with trade unions and NGOs in Colombia and Ecuador for better conditions in the flower industry. No consumer boycott is being advocated. Rather, the NGOs and the trade unions demand from the employers that they observe local laws regarding labour conditions, pesticide use and environmental care. The campaign (and a 1994 European Parliament hearing on the subject (Maharaj et al., 1995)) has led to some interesting initiatives (see box 4 ).
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Labels Labels are meant to convey to the purchaser that the products to which they are attached have been produced in a manner that respects certain ecological and labour standards. Under pressure from German and Swiss activist groups (and, more recently, Dutch groups), production conditions in developing country exporters have come under closer scrutiny. This has led to such initiatives as the AEcoflor seal@, and the AFlower label@. Twenty-two Colombian growers work together under AEcoflor@ to create a Code of Conduct and develop a label. Ecoflor growers agree to follow environmentally friendly production techniques and to meet and exceed Colombia's labour legislation. According to COLEACP (1996, pp. 36-37) the environmental standards include minimum use of highly toxic substances, no use of illegal substances, the recycling of water used and integrated pest management. Labour standards include complete protective equipment when applying pesticides, appropriate waiting periods before re-entering areas where pesticides have been applied, free medical care, and a committee to monitor the implementation of occupational health programmes. The AFlower label@ is an initiative of the German Association of Flower Importers and Wholesalers, and is supported by the Organisation of German Flower Retailers. The Flower Label was developed in reaction to claims by European environmental and human rights groups that infringements of human rights and damage to the environment are common in flowers from developing countries. The label is meant to guarantee that participants grow flowers using care for the environment and human well-being. Freedom of association is not part of the list with criteria. Inspection is done by the Bonn-based Agrar Control inspection company, in conjunction with a label commission consisting of three university professors. The label commission decides whether the cut flower operation meets the FLP requirements and, if so, gives the approval for use of the label. By early 1998, 30 Ecuadorean growers had been awarded the AFlower label@. Sources: COLEACP, 1996; FLP; VVDB, various issues. |
3.3. The influence of supermarkets
At the retail level, flowers are being sold through a variety of outlets including traditional florists, garden centres, supermarkets, and market and street vendors. The share of each differs by country. All principal markets have in common, however, that the share of supermarkets is on the increase. In some countries the increase is barely noticeable; in others supermarkets already dominate the trade. In Switzerland, the two major supermarket chains (Migros and Coop) together account for 60 to 70 per cent of all sales (Protrade, 1996, p. 64). In the United Kingdom the market share of supermarkets is approaching 40 per cent. What is certain is that from Israel to the United Kingdom and from the Netherlands to the United States, supermarkets are targeting the flower trade as an area for expansion.
The number of supermarkets that sell flowers has increased and so has the quality of the flowers for sale. In the past the selection of flowers for sale in supermarkets was small and a low price was considered more important than high quality, today supermarkets are setting the trend in certain areas. Because of their market power they are having a significant influence on growing and trading practices. In Switzerland the Migros chain sells environmentally sound MPS-A flowers (see the previous section). In the United Kingdom, Tesco guarantees, depending on the product, a vase life of 7-14 days.
Supermarkets want to buy large quantities of cut flowers through long-term contracts, directly from known producers. Buying directly is the shortest route from grower to shop (the product is fresher and this favourably affects vase life). And it is essential for the vase life guarantee: the producer's code is marked on the written guarantee so that any problem can be traced back to the grower. Buying directly is also important because supermarkets want to have certainty about the conditions under which the flowers that they sell are being produced. However, buying directly and regularly through long-term contracts makes it difficult to source from the Netherlands where growers are obliged to sell their produce through the auctions. African producers are capable of producing large volumes and willing to sell directly at an agreed price, making them attractive to supermarkets.
Shortening the chain of intermediaries between growers and retailers is a key objective for supermarkets. It gives them more control over who their suppliers are, and more information on the conditions of work at these suppliers. It lowers costs and reduces delay (and thus lengthens vase life). As an observer from the United States remarked: "The influence of supermarkets has become much larger, and they are more sophisticated. They are taking more of higher quality product, and there is much more emphasis on quality, not price. Before supermarkets entered the picture, importers sold almost exclusively to wholesalers, with very definite lines as to how the chain of distribution was laid out. You never crossed those lines ... now, supermarkets call importers; supermarkets call Colombian farms." (Mr. Andrew Hamer, Director of Operations for Floramor, which is part of Floramex, one of the largest cut flower traders in the world, quoted in Floraculture International, March 1998, p. 24.)
African producers appear to be the main beneficiaries of this change in purchasing habits. Supermarkets are interested in African flowers because they are inexpensive and because growers are willing to accept a set price. To the growers the arrangement is attractive because supermarkets buy large quantities at prearranged prices. But in order to live up to their side of the bargain African growers must invest in optimal production methods. Often this includes investments in greenhouses, forced ventilation and heating and, in all cases, greater attention to quality.