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SAP 2.79/WP.138

Employment and working conditions
in the Ecuadorian flower industry

1. Industry significance

1.1. Financial

In general terms the financial contribution of the flower industry is measured by its contribution to total exports. Although flowers have been produced since time immemorial for the domestic market, they are now classified as a non-traditional export industry, different from other exports such as petroleum, bananas, cacao, coffee, shrimps and others which have been important since before the decade of the 1980s. Available data show an increasing contribution of flowers to total exports, albeit at a slowing rate between 1990 and 1996 (table 1). The financial impact affects direct and indirect employment and income generation, both factors which have resulted in important changes in rural Ecuador.

Table 1. Exports by product groups, 1986-96

(FOB; '000 US$)

Year		Total exports		Agricultural exports		Non-traditional agricultural exports		Flower exports		Growth rate		Flower exports v. total exports		Flower exports v. non-traditional agricultural exports
		(A)		(B)		(C)		(D)		(E)		(F=D/A)		(G=C/D)
1986		2 200 327		649 816		16 437		1 706				0.08		10.38
1987		1 927 694		566 448		24 465		3 566		109.03		0.18		14.58
1988		2 204 598		547 025		19 231		2 341		-34.35		0.11		12.17
1989		2 353 900		528 278		31 186		9 225		294.06		0.39		29.58
1990		2 724 133		676 697		29 991		13 598		47.40		0.50		45.34
1991		2 851 013		893 877		39 823		21 552		58.49		0.76		54.12
1992		3 101 527		785 746		43 067		24 221		12.38		0.78		56.24
1993		3 065 615		765 142		60 671		39 610		63.54		1.29		65.29
1994		3 824 683		1 250 240		109 677		54 154		36.72		1.42		49.38
1995		4 411 224		1 241 652		129 291		79 420		46.66		1.80		61.43
1996		4 859 774		1 328 544		138 690		99 083		24.76		2.04		71.44
Source: Monthly statistics 1739; Ecuadorian Central Bank; EXPOFLORES and CFN. Prepared by: Corporación Financiera Nacional, Strategic planning division, 1997.

While the relative contribution of flowers to total exports is low, it should be recognized that among non-traditional agricultural production flowers represent 71.4 per cent. This situation exposes the limitations as well as the potential for diversification enunciated first by the policy of export promotion and later, by the policy of openness. Under these, flower production is considered as having the greatest potential among non-traditional exports (see diagram 1), as demonstrated in the study entitled "Exporting to success" conducted by the Ministry of Foreign Trade. This study focuses on agriculture, livestock and agro-industry among eight clusters with the greatest export potential in Ecuador; the flower industry is the most dynamic export industry in the agro-industrial sector.

Diagram 1. Evolution of flower exports, 1986-96
(in thousands of US$ FOB)

Exports increased from less than US$2 billion in 1986 to US$13.6 billion in 1990, and US$147.9 billion in 1997. Of a group of ten products comprising agriculture, livestock and industrial manufacturing, only sardine exports have surpassed flower exports. Other items in order of importance are: tuna fish, cocoa byproducts, other seafood products, lumber, passion fruit juice, peeled beans, sugared cocoa and juices.⁽¹⁾

1.2. Flower production

(a) Producers

According to information provided by EXPOFLORES, between 1990 and 1997, the number of producers escalated from 39 to 179 and the total cultivated area went from 286 hectares in 1990 to 1,549 hectares in 1997 (table 2 and exhibit 1).

Geographically, the North-Central Highland (the Provinces of Cotopaxi, Pichincha and Imbabura) contains more than 80 per cent of all flower producers (table 3). Climate, easy access (first-class roads and proximity to an international airport), and proximity to Colombia, from where much investment into the industry comes, are factors responsible for this. The South-Central provinces have only in recent years begun to attract growers, as also the coast, where the climate is suitable for growing tropical flowers, but which as yet are not as attractive to the markets. Cultivated area is only 39 hectares.

Table 2. Number of flower producers, 1990-97

		Numbers
	1990	39
	1991	50
	1992	64
	1993	76
	1994	89
	1995	123
	1996	177
	1997	179
Source: EXPOFLORES, 1997.

Table 3.Number of growers by province

Province	Number of businesses	Cultivated area in hectares
Azuay	11	93.8
Cañar	3	9.2
Chimborazo	2	8.0
Cotopaxi	28	180.2
Guayas	4	39.0
Imbabura	11	68.8
Pichincha	130	1 150.9
Total	189	1 549.9
Source: EXPOFLORES. Prepared by: Strategic planning division.

PROEXANT classifies companies as small if they have under 50 employees; and large when they have more. Average area by company is 8-10 hectares. The average number of units produced per hectare is 542,380 roses, with an average FOB price of US$0.26, for a total production of US$745,555 per hectare. Required investment per hectare should be of the order of US$263,570. The financial yield is thus attractive and current producers forecast continuing expansion. Ownership of producing businesses is mainly domestic (eight of the nine companies surveyed). There is little foreign capital, and most firms are self-managed family businesses. Some of the companies surveyed started operations in 1989, while others did so in 1993 and some, as recently as 1996 (table 4).

Table 4. Years in operation of surveyed companies

Years in operation	Number of companies		%		Year operation started
Up to 1 year	1		11.11		1996
2 years	1		11.11		1995
4 years	4		44.44		1993
7 years	1		11.11		1990
8 years	1		11.11		1989

(b) Marketing

From the start, the flower industry distinguished itself for separating production and marketing activities. This specialization within the industry contributed to the dynamism in the sector. As the number of producers has increased so have new marketing companies. Employment provided by these companies is considered as indirect employment. Most marketing companies are either totally or partially foreign and are very knowledgeable of the international flower trade. The following 21 companies exist (source: EXPOFLORES, 1997): American Flowers; Arco Valeno; Biocare Limited; Color from the World; Comendisa; Comercializadora Agrícola Caribe; Comprinz; Ecoflowers; Ecuaflor; Ecuplanet Trading; Ecuaplanta; Florimex Verwal Tung GmbH; Incaflor; Maximafarms Ecuador; Milflowers; Nevado Naranjo Ecuador; Noeliaflowers; Panorama Roses; Quito Inor Flowers; Trevis; US Flora Corp. Some of the small flower producers have initiated direct marketing to flower buyers, especially from the United States, avoiding the intermediation by the marketing companies. Many of the companies operate on trust, avoiding the signing of contracts. The relationship with the marketing companies is transparent, as the producer always knows the final prices paid by his clients. Currently, there is a good profit margin for the producer. As a reference, the following prices and costs can be observed (US$ per stem):

-- FOB price: 0.25;

-- Importer's price: 1.10;

-- Retail price: 1.55.

As can be appreciated, there are wide margins for the marketing chain, especially with respect to international shipping and freight and distribution. Most established producers knowledgeable of the market would prefer continuous demand at the sacrifice of higher prices for sporadic orders. The role of the marketing company is important in this chain, as it makes a contribution in terms of its knowledge of clients, margins, quality and costs.

(c) Dissemination of plants

The requirements of the international flower market and the necessity of diversifying exports have caused the expansion of companies engaged in the research and cultivation of plant nurseries. The main companies here are (source: EXPOFLORES, 1999):

Activity

D.R. Latin Roses Rose varieties

Germyplant Gypsophila, Limonium

Plantador Rose bushes

Rosaplan Dissemination and sale of rose bushes

Rosas Olij Rose bushes

Select plant Sale of plants

(d)Roses

Around 250 species of flowers are grown in Ecuador, for domestic use and export. Nurseries abound where new types of flowers are being experimented. Nearly two-thirds of the flowers exported by Ecuador are roses, with around 1 billion being produced per annum. (The world's top producer of roses is still Colombia.) Special attention is lavished on technological developments and diversification of the types and quality of roses with regard to colour, size and resistance. "Plantador" for example, has one of the largest nurseries in Latin America and a laboratory where research, production and dissemination of flowers take place.

1.3. Markets

The main markets for Ecuadorian flowers in 1996 are shown in table 5. The most important buyer is the United States, followed by the Russian Federation, and Europe, where the Netherlands, Germany, Italy and Switzerland stand out. In South America, Argentina and Brazil dominated. Marketing follows three main patterns:

• sale to direct importers (especially United States, Canada and Europe);
• sale through contract;
• sale through local collectors/exporters (mainly Russian Federation).

The information presented above shows that Ecuadorian flowers have attained international competitiveness, especially in the American and European markets. The Russian market should be highlighted, as it shows considerable growth potential. Although these are year-round markets, peaks occur on Valentine's Day, Mother's Day, Christmas and Thanksgiving.

Table 5. Export markets

Country		Tons		Thousands of FOB (US$)
Canada		358.30		1 023.12
United States		14 756.33		42 276.08
Europe		3 253.09		10 084.76
South America		263.13		1 499.50
Russian Federation		6 741.45		7 994.91
Others		620.61		1 499.72
Total		26 292.77		64 376.97
Source: Ecuadorian Central Bank.

1.4. Air transport

Exporters class air transport as the greatest bottleneck. The efficient functioning of the industry requires that frequencies and cargo space have sufficient capacity to satisfy the demand. Transport rates are high and transport represents 30-35 per cent of production costs, especially when shipping to the United States, the main buyer (study conducted by CFN). The CFN study shows that Colombia and Peru manage to keep transport cost below 30 per cent, offering them a comparative advantage over Ecuador. Lack of international agreements restrains traffic or landing of certain aeroplanes.

The Civil Aviation Office (DAC), a government institution which supervises all air traffic, is inefficient in dealing with the demand and characteristics of the exports, as frequencies are limited, especially to Europe and Asia.

The temporary relocation in November 1997 of the Quito airport to Latacunga caused much concern to the flower export sector in the northern section (Imbabura and Pichincha), as there is an infrastructure in Quito provided by companies engaged in cargo services, with a cold- storage capacity for 50,000 boxes per week (17 kg per box) and which deliver them to the various airlines. Latacunga did not offer this storage capacity and could accommodate only 5,000 boxes. In spite of the fact that trucks do have refrigerated storage, it is necessary for DAC to organize frequencies efficiently and avoid a crisis in the industry. No doubt for the adjacent flower producers in the Provinces of Cotopaxi and Chimborazo the relocation of the airport represents considerable savings (US$1 per box) in terms of reduced travel time, but this area as yet accounts for only 20 per cent of the production (6,000-10,000 boxes per week).

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