Changing times for global floriculture

Realignment of competitiveness

Without clear strategy in several areas targeting the various changes in world cut-flower trade, investment in floriculture will continue to yield declining profit margins and erode shareholder value in the long term - particularly in Africa.  This is what has already caused some investors to quit, and others to merge as they seek consolidate and drive down operating costs – which is only a temporary measure.

The Netherlands has for a long time remained the center of the global floral business, with the first floral auction having started in The Netherlands in 1887.
Though The Netherlands continues to play a vital role in the development of floricultural genetics, intense flower cultivation in small farm areas, and the extensive use of pesticides and fertilizers, has caused the soil in The Netherlands to become heavily polluted.  Leading floral trading cooperatives from The Netherlands and elsewhere have for this and other reasons gradually shifted their attention to countries where the climates are better, land cheaper and more easily accessible, and labour costs lower.  Production costs in these emerging grower locations are also lower, with less use of chemicals and fertilisers, use of natural heating, and generally lower costs of energy.
Change in grower locations
Emergence of new grower locations has further been enhanced by the various benefits that Governments such as Ethiopia, have offered investors in support of investments in flower farming.  Floriculture, today, accounts for 20% of Kenya’s exports.
As a result of this shift, The Netherlands has moved away from traditional flower production to flower trading, with the flower auction at Aalsmeer maintaining its status as the largest flower market in the world, despite the sharp decline of cut flower production in The Netherlands.  Today, The Netherlands is still the world’s largest exporter of flowers providing in excess of 50% of all floral products sold in the world, followed by a distant Columbia at 13%, Kenya and Ecuador.  It is projected that the global floral trade will peak USD 200 Billion by the year 2015.
Notwithstanding The Netherlands’ hold on the global cut flower trade, the Dutch horticulture industry is half the size it was ten years ago.  Costs have risen steadily in the Dutch cut flower sector in recent years, while the sales price per stem has fallen.
With the spread of flower farming out of The Netherlands, independent growers in Kenya, Ethiopia, Ecuador and Colombia have brought tough competition to the global market and put Dutch prices under pressure.  Holland’s horticulturists have responded by introducing increasingly efficient cultivation techniques and by continuing to focus on cost reduction.
Change in distribution channels
Distribution of flowers is also changing, with supermarkets competing with traditional flower shops, which in turn compete with online florists, particularly in the U.S.  Even within the auction system, wholesalers no longer have to walk around the auction to physically inspect the goods; through the internet, they are now able to follow multiple auctions at the same time.
Despite these changes in the world’s flower trade, 60% of the world’s cut flower trade, is still transacted through The Netherlands, though with a significant amount of cut flower products now finding their way to new markets in China, Japan, Russia, and Hong Kong, among other emerging economies.
Change in customer demands
Both wholesalers and retailers now want flowers that are versatile and trendy, as the end-user begins to gain more and more control of the floriculture supply chain.  Tastes and preferences are rapidly changing too; one day people want highly scented varieties, the next day they want huge blooms, and then they want new colours too!  Since a grower can only change a variety once approximately every four years, it is difficult to keep up with these changes, without well thought out, and efficiently implemented strategic actions.
Change in terms of trade
The cut flower business particularly in third world countries is the target of pressure from activist groups championing the protection and preservation of women and children’s rights, environmental preservation, and equitable gain from the exploitation of natural resources.
Fair Trade is an organized social movement that aims to help producers in developing countries to make better trading conditions and promote sustainability.  In doing this, Fair Trade levies fees and various, stringent operating standards for local producers in exchange for the respected “Fair Trade” label that, in turn, enhances acceptance of the producers’ products in markets that support Fair Trade principles.  The global flower trade is one such industry in which Fair Trade is a significant player.
Change in compliance requirements
Much as the cut flower trade across the world seeks to self-regulate, there has been growing concern for three main things:
i.       the  high levels of toxic waste that large flower farms generate;
ii.      management of the water resources on which flower farms are dependent for their production;
iii.     continued use of environmentally unfriendly chemical fertilizers
These three have continued to put the global cut-flower trade under pressure to comply with various local, regional and international regulations.  The ISO 14001 is an international standard and part of the European Union‘s Eco-Management and Audit Scheme (EMAS) aimed at achieving the following in organisations whose operations are deemed to have significant impact on the environment:
i.       minimize the extent to which operations in such organisations negatively affect the environment;
ii.      enhance the level of compliance with applicable laws and regulations, that such organisations achieve;
iii.     continually improve such organisations’ performance in the two areas above.
While ISO 14001 is not a legal requirement in many areas of the world, it is an important differentiator of environmentally responsible firms and affords such firms direct market benefits.
The need for new strategies
Until fairly recently, floriculture in many parts of the world outside the Netherlands was a highly profitable an almost exclusive business.  Changes within the industry emanating from diversification of growers, diversification of distribution channels, diversification of markets and the shifting supply-chain relationships between propagators, growers and marketing companies calls for fresh and innovative strategies, especially considering the minimum level of profitable investment that the trade requires
New strategies in floriculture will focus on four main areas:
1.  Product quality;
2.  Product variety;
3.  Operational efficiency and supply chain management;
4.  Market development; and
5.  Environmental sustainability.
Without clear strategy in these key areas investment in floriculture will continue to yield declining profit margins and erode shareholder value in the long term.  This is what has already caused some investors to quit, and others to merge as they seek to consolidate and drive down operating costs – which is only a temporary measure.

ARTEMIS Transition Partners

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