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SAP 2.64/WP.120
The Dutch flower sector:
Structure, trends and employmentPaul Elshof
Food World Research and Consultancy
The total size of the world flower market (flowers and potted plants) in 1995 was estimated at Dfl.80 billion (US$40 billion) in 1995 based on sales to end consumers, an increase from Dfl.71 billion in 1990. About 75 per cent of this consists of local production and sales, the rest being flowers that pass through international trade. The auctions in the Netherlands handled 60-70 per cent of the total world flower production, 15 per cent of this being imports. Since not all flowers produced in or imported into the Netherlands are sold through the auctions, the export share of the Netherlands in the flower market is somewhat higher than the auction sales indicate.
The market for flowers is concentrated in three regions: Western Europe, North America and Japan, Western Europe alone accounting for around 50 per cent, with Germany as the leader. The next two most important flower-buying countries in the world are the United States and Japan.
Dutch flower exports and flower production experienced continuous growth between 1972 and 1991, with export sales increasing ninefold during these years. Growth has since continued, with exceptional declines in 1992 and 1995, the drop in 1992 being explained by a market correction after two years of explosive growth in exports to Eastern European countries, and the drop in 1995 by the long hot summer in Europe (which has negative implications for flower sales) and a slow reaction of growers of flowers of low value. Growth resumed in 1996 and 1997.
The two years of stagnation, growing competition, and a virtual saturation in Western Europe have brought about fast changes in the market conditions for the Dutch flower industry and triggered a rethinking of its roles and strategies. All actors involved -- breeders, growers, auctions, wholesalers, retailers -- have participated in this rethinking. Particularly notable was a change from a production-driven to a market-oriented industry, with a deliberate segmentation and specialization among growers and traders to improve the services they can deliver to raise the value of their products and margins. In this way they have avoided being squeezed by ever lower sales margins of mass production and rising costs.
Apart from increasing competition from foreign suppliers, market saturation in Western Europe, and lower margins in mass products, two new elements have also appeared in the world flower market -- increasing consumption in Eastern Europe and Asia and trade liberalization due to GATT. The importance of the latter however is somewhat blunted by the fact that already 80 per cent of flower imports to the European Union (EU) was duty free as a result of agreements concluded between the EU and non-member countries.1
The main task facing the Dutch floristry sector is not so much coping with the changing supply as the changing demand. An analysis will be given of the history, structure and size of the flower sector in the Netherlands, the main developments and trends therein, and the adaptive strategies of different groups to the changing market conditions. All this will be seen in the context of the impact on employment levels and employment conditions. Wherever possible these impacts will be quantified, although clear-cut cause-and-effect relations may be difficult to identify since most changes are still in their early phases.
Cultivation of flowers in the Netherlands goes back to a long horticultural tradition that developed as a result of the early urbanization of the western part of the country. Land scarcity and nearby markets created the right conditions for horticulture. Three regions figured in this: one north of Amsterdam (near Alkmaar), one south of Amsterdam (around Aalsmeer), and one near Rotterdam and The Hague (Westland and Rijnsburg). Each specialized in different products: the first on vegetables, the second on trees, and the last on vegetables and flower bulbs. Over the decades this last group of growers have switched to flower-growing because of the high returns, the limited possibility to expand their growing area, and the availability of nearby markets.
As early as 1887, vegetable growers started the first auction at Broek op Langedijk as a form of self-protection against the powerful wholesalers who could pit the small independent growers against each other. Soon after, growers in other regions, amongst them those around Aalsmeer and the Westlands also started their own auctions. Export of flowers goes back a long way too, north-west Germany and Russia being sales destinations from quite early on.
In each region groups of traders started to buy the products and to develop their sales markets with the intermediation of the auctions, formed as cooperatives of which the growers were the owners. The auctions were an ideal place for not only price-setting, but also as a forum for an exchange of information regarding market tendencies.
The cooperative structure stimulated the growth of an education system that laid a strong knowledge base. From the primary school, a well elaborated hierarchy started to develop, making the sector a highly developed infrastructure of education, knowledge, innovation, agronomy, information, and marketing services. This was also true of other sectors in the Dutch agricultural structure, such as the dairy industry. With the investment in physical infrastructure -- roads/waterways/rail -- the stage was set for phenomenal growth after the Second World War. On the demand side, the market was continuously expanding because of increasing disposable incomes in Western Europe. Conditions were thus ideal for farmers to innovate and adopt new methods and new varieties.
Apart from the infrastructure, the flower-growing region's location favoured its growth, particularly in terms of soil and water. The ground is flat, facilitating the construction of glasshouses and mechanization, and it is traversed by small canals, facilitating low-cost internal transport. Flat-bottomed boats can transport inputs, fertilizers and finished products over short distances to collection points where other crafts can be used to reach the auctions. The two most important areas (the regions around the Aalsmeer auction and the Holland auction at Naaldwijk) both have a temperate climate because of their proximity to the North Sea. Glasshouses do not have to be adapted to fluctuations and extremes in temperatures.
A network of suppliers has developed around the growers, over the years becoming sufficiently specialized and sophisticated to enter the international arena. The network comprises breeders and propagators, seed companies, construction companies specializing in glasshouses, and companies specializing in the installation of utilities for glasshouses. Also connected are computer software companies who develop tailor-made systems to regulate the micro-climate -- humidity, air and light -- inside the glasshouses. Other branches serving the flower industry are banks, accountancy and administration firms, and insurance companies. The Hagel Unie (The Hail Union) has a long history of insuring glasshouses against damage by hail and other risks. The network has been an important reason for the continuous growth of the horticultural sector in the Netherlands. Open communication between small-scale units and service industries was facilitated by the well-developed physical infrastructure and the high level of education of the concerned parties. It is an unanswered question whether this capacity for open exchange of new insights, innovations and information will withstand the pressures that the more market-oriented strategies will generate in the coming years.
Between 1992 and 1994 two consultancy companies were commissioned to advise the auctions and traders on the strategies required to meet new market conditions. The studies were to form the basis of discussion with government agencies at the national and international level in the light of the fast liberalization of agricultural policies and the decreasing role of governments in support of agricultural interests. Coopers and Lybrand (August 1994) estimated the production of the horticultural sector in glasshouses at Dfl.20-25 billion, more than half of it flowers. Total employment in the flower industry, including suppliers, was put at around 100,000. A.T. Kearney (October 1994) estimated the contribution of the agro sector (primary sector, processing, trade, suppliers) at 10 per cent of national GNP and employment. They showed that just over a quarter of Dutch exports consisted of agricultural products.
One consequence of the sophisticated structure of the sector, where at a concentrated level all kinds of information come together or are deliberately collected, is a high level of easily accessible documentation. Yearbooks are edited by the LEI-DLO and the CBS, containing enormous amounts of statistical data. The only secretive part of the chain are the traders, but marketing information is gathered and distributed by BBH (Bloemenbureau Holland), an institute that is 50 per cent financed by the growers through the auctions and 50 per cent by a joint body of growers and traders called the Productschap Voor Tuinbouw. The Productschap also edits a lot of information and the auctions have their annual reports. Used here are Landbouwcijfers 1996 and Tuinbouwcijfers 1996.
1 EU Commission to the Council: EU Strategy for trade in live plants and floricultural products, 17 Feb. 1997, Com. 97, 36 final.