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SAP 2.64/WP.120
The Dutch flower sector:
Structure, trends and employmentPaul Elshof
Food World Research and Consultancy
All auctions are organized as cooperatives, with growers as owners. Their history goes back to the end of the last century. Over the last few decades mergers have diminished their numbers, just since 1989 from 40 to 27 (seven specializing in flowers). The 13 auctions that ceased to exist all had a turnover under Dfl.100 million. Thus there has been a concentration of activities in the auctions too. By 1995 there were still 14 auctions with a turnover under 100 million guilders, while 13 had more than this.
In the sector of the vegetable auctions a process is under way whereby most will merge into one big auction. In the flower auction sector where seven auctions operate, two (Aalsmeer and Westland) control 83 per cent of the turnover (see table 4). The next largest has 11 per cent, but is itself only a quarter as large as the top two auctions.
Table 4. Turnover at the flower auctions, 1993-95 (in Dfl. million)
| 1993 | 1994 | 1995 | |
|---|---|---|---|
| Aalsmeer | 2 332 | 2 470 | 2 442 |
| Holland ("Westland") | 2 067 | 2 126 | 2 073 |
| Flora (Rijnsburg) | 560 | 576 | 582 |
| Z.O. Nederland | 111 | 116 | 116 |
| Oost Nederland | 79 | 78 | 76 |
| Eelde | 67 | 74 | 75 |
| Vleuten | 47 | 48 | 47 |
Membership of auctions is mostly regional, although the biggest -- Verenigde Bloemenveilingen Aalsmeer (VBA) or Aalsmeer for short -- is an exception. With a share of 45 per cent of the trade, Aalsmeer has a total membership of 4,500 growers, with a wide regional coverage. The Dutch members are organized in 13 sections and German and Belgian in two more. One section is available to growers from other foreign countries. Meetings take place at the section level.
At the next two largest auctions -- Holland and Flora -- all members come from nearby areas although not all regional growers join these auctions exclusively; the biggest section at Aalsmeer comprises growers from the region where the Westland auction is located. This has to do with the kind of products handled, with the Flora auction concentrating on flower bulbs and flowers grown in open air, mainly on the dunes, the Holland auction on vegetables, and Aalsmeer on flowers. The last, almost from its start was very much an auction with an international perspective, facilitated partly by the proximity of the Schiphol international airport, although this was in no way the only contributory factor as most shipments to neighbouring countries go by road. The international perspective made Aalsmeer attractive to affiliate with for growers from all parts of the Netherlands.
The main objective of the auctions was and has been to serve the interests of growers vis-à-vis buyers, an auction almost visibly being the most transparent price-forming institution between buyers and sellers. The system prevents collusion by big buyers, collusion being also precluded by the inherent perishability of the product, the near impossibility of withholding the product from the market contributing to the daily supremacy of the auction. For the services provided, the Dutch members contribute 4.5 per cent of their turnover, while overseas sellers additionally pay a premium of 1-3 per cent, depending on the frequency, stability and quality of their products.
In 1972 the Board of the Aalsmeer auction allowed imported flowers to enter the auction, the first time that the auction not only functioned as a marketing support for its own members but also for third parties. By 1995 the share of imported flowers had reached 10 per cent. The foreign incursion met with some resistance, in particular in 1992, when for the first time a slow-down was experienced in the flower trade. Growers then organized themselves into a pressure group and obtained a limit on flower imports. The quota operated in 1994 and 1995, but was then suspended, it being realized that far from restricting the supply of flowers on the world markets (flower traders from developing countries started to establish direct links to their customers), the quota was simply depriving the auctions of new trade and of information on new developments in the market. The conflict illustrates an important point concerning the different interests and perspectives of growers and auctions. Growers facing competition from newcomers wish to protect their markets, but they cannot easily influence production elsewhere, since new channels of trade can always be developed. The auctions see the opening of these new trade channels as a threat and to maintain their pre-eminent role in the price-forming process have to ensure the largest flow of products through their jurisdiction. That role remains paramount: flowers traded directly from a country like Colombia (to say Tokyo) are still sold in reference to the day's prices at Aalsmeer.
Flowers are cut normally in the afternoon or evening. Growers of high-quality flowers -- e.g. roses -- may harvest very early in the day and deliver their flowers directly to the auction. Most growers have their harvest collected in the evening, overnight storage being assured in cooled halls. Flowers are arranged on trolleys rented from the auction so as to obviate the need for a reload. Between 5 a.m. and 6 a.m. inspectors sort the trolleys according to quality, the bottom-line principle of Aalsmeer being "no junk in front of the clock", consistent quality being the cornerstone of this auction. At 6.30 a.m. trolleys start to pass the clock, of which there are 13 in five halls at Aalsmeer. More than 50,000 daily transactions are effected involving 15 million flowers and 2 million plants.
The Aalsmeer auction has a vast floor surface, not so much for the auction per se but for the unloading and collecting activities. Directly adjacent to the clock-rooms are other halls where space is rented to traders/exporters. The total area of the auction is 730 hectares, including a parking lot for workers and halls for the clients where they can prepare their newly purchased flowers for dispatch to final destinations. Plans exist to add another 300 ha to the auction (also at the Holland auction). All markets within a circle of 800-900 kilometres from Aalsmeer -- northern Italy, Austria, Switzerland, Germany, Poland, France, Belgium -- are served by trucks. Destinations further afield are served by air, the Schiphol airport coming into its own here. To facilitate ancillary processes the auction also includes servicing suppliers like banks, carriers, restaurants, etc. Total employment at the auctions is about 4,500, Aalsmeer leading with 1,823 employees in 1995, 1,443 male and 380 female. The majority (1,061) are in logistics, the next highest category being those involved in transactions and price-forming.
Although the number of traders is high, concentration is very much the watchword here: the top 5 per cent control 46 per cent of the market, while the bottom 82 per cent have only 19 per cent (table 5). Around 200 or so only operate in the national market. Export-line drivers control 33 per cent of the national Dutch market. There were 1,449 exporting wholesale traders in 1995. The number of traders with less than Dfl.1 million turnover is diminishing and turnover growth is mostly confined to traders with sales of more than Dfl.10 million. The two biggest trading companies have sales of over Dfl.500 million. One trader, part of a bigger company called DIMON (the number two company in the world in tobacco trading and processing) discloses some data in its consolidated annual report. DIMON operates in the flower sector with its subsidiaries Baardse at Aalsmeer, Florimex at Frankfurt and Floramor in the United States. Its sales and operational profits/losses over the last three years are shown in table 6.
Table 5. Ranking of exporters/traders according to turnover in 1995 (in Dfl. million)
| Traders | Turnover share | ||
|---|---|---|---|
| Nos. | % | % | |
| 0-5 | 1 190 | 82 | 19 |
| 5-10 | 116 | 8 | 13 |
| 10-25 | 92 | 6 | 22 |
| 25-50 | 31 | 2 | 16 |
| 50-75 | 9 | 1 | 8 |
| 75+ | 11 | 1 | 22 |
Table 6. Sales and profits of a DIMON associate (all figures in million US dollars)
| 1994 | 1995 | 1996 | |
|---|---|---|---|
| Total turnover flowers | 369 | 385 | 397 |
| Europe | 295 | 326 | 334 |
| United States | 42 | 24 | 21 |
| Others | 31 | 35 | 42 |
| Operating profit (loss) | 2.5 | (3) | 8 |
The auction has to service 1,700 traders (exporters plus a number only operating on the national market). Many are small, with a turnover of under Dfl.400,000 and a number have their inscription without functioning as traders. The bigger and more active traders have formed their own association: the VGB (Association of Wholesale Traders of Flowers), with a membership of 500 of the 1,000 active traders that operate in the market. Together these 500 control 60 per cent of the export market and 85 per cent of the seedlings market.
The responsibility for the flowers switches to traders once they (the flowers) have passed the clock, which is the case for 95 per cent of the flowers, the last 5 per cent being flowers that are handled directly by the Bloemen Bemiddelingsbureau (BB) Aalsmeer, a mediation office for flowers. The BB mediates demands of specific customers and growers in terms of price and quality, the price being based on the price of similar products passing the auction clock. Traders prefer passing the clock because that way they are covered against all kinds of risks; for example lower qualities or quantities of flowers do not have to be bought or may be bought at a discount. The large traders are always developing new ways of selling their products, their most common strategies being reduction of costs in the chain, shortening of the whole chain, reduction of transport moves (transport constitutes up to 50 per cent of the cost of traders), backwards and/or forwards integration in the chain, and adding value instead of competition based on prices. The larger traders are very much involved in experimental forms of cooperation with retail chains in different countries to develop concepts that will raise flower sales. Sometimes they develop a kind of preferred supplier position: Baardse (DIMON) became the supplier of flowers at the Barcelona Olympics in 1992, while another trader has the monopoly for supplying EuroDisneyland.
Transport to the auctions is organized in various ways. Aalsmeer is supplied by 60 transporters who collect the harvested flowers every afternoon/evening. Some farmers bring their own products to the auction and some even export and transport to foreign markets directly. Aalsmeer receives products of 8,000 suppliers, 4,500 of whom are members/suppliers, the rest being mostly foreign suppliers.
To facilitate handling and to shorten the chain of handling, the auction has 100,000 trolleys or pallet carts. Half of these are leased to suppliers/growers and buyers/traders all over Europe. The other half are used at the auction and fan out over Europe after the trolleys are delivered to the exporters. Quick transport is vital at the auctions, a fact that accounts for the concentration of auction employees in logistics. Another important part of the transport chain is the dispatch of flowers to customers. Many traders or exporting companies own trucks that deliver fresh flowers every day to individual florists by the lijnrijder, the liner driver. Drivers may even have keys to effectuate delivery at night. In the normal scenario flowers cut on Monday afternoon are collected and brought to the auction that evening, auctioned Tuesday morning, repacked during the day by the trader/exporter, delivered to the florist by Tuesday evening, and on the shop-floor by Wednesday morning.