The Case of Cut Flowers:
Biotechnology in
a nontraditional export sector
By
Peter Commandeur and Gerda van Roozendaal
| Keywords: |
Trade; Employment/Income; Technology transfer; Flowers/Ornamentals. |
| Correct citation: |
Commandeur, P. and Roozendaal, G. van (1994), "The Case
of Cut Flowers: Biotechnology in a non-traditional export sector." Biotechnology
and Development Monitor, No. 20, p. 3-4. |
Biotechnology could contribute to the establishment of a production
capacity in new export products with a higher added value, such as new
tropical fruits and cut flowers. The markets of these relatively recent
products are considered to be especially attractive since they offer new
opportunities to earn foreign exchange on markets in which developing countries
have comparative advantages over developed countries in relation to climate,
labour costs and counter seasonal production. In this Monitor issue we
address the experiences of some countries in the flower sector so far,
including the contributions of biotechnology.
The major consumer markets of cut flowers are found in the developed world.
In 1988, Europe (especially Germany) imported 81 per cent of the world
trade, while North America (mainly USA) accounted for another 16 per cent.
Japan is also a major consumer of cut flowers, but this country is largely
self sufficient. Europe not only dominates import, but also has a 76 per
cent share in world exports. The Netherlands is leading with 59 per cent
of world exports in 1990. The last decade, however, newcomers from developing
countries have increasingly expanded their export shares up to an estimated
24 per cent in 1992. Colombia is the world's second largest exporter.
The growth of the world demand for cut flowers has been calculated at an
annual 5 per cent, taking place mainly in Northern countries. Large profits
used to be made in the cut flower sector, but studies have pointed out
that transport, storage, and distribution create most of the value added,
with production only accounting for around 10 per cent of the sale price.
The future is not as bright as the past, however. Because growth of cut
flower production exceeds the growth of demand, prices of cut flowers will
come under pressure. Especially prices of 'bulk' cut flowers, such as carnation,
alstroemeria and roses, which are produced in developing countries, have
decreased dramatically or are expected to do so soon. The prices of fashionable
flowers and colours, mostly produced in industrialized countries, remain
at the same level.
Overproduction is likely to push Northern producers out of the markets
for 'bulk' cut flowers, as is currently taking place with respect to carnations.
But it will also intensify competition among developing countries. For
several developing countries it might be difficult to respond to the changes
on the world cut flower market because of structural disadvantages in marketing
and technology.
Marketing in the North
Some developing countries, such as Mexico, India and Thailand, have
significant domestic cut flower markets. Most producing developing countries,
however, almost exclusively export their flowers. Kenya and Colombia, for
example, export between 80 and 98 per cent of their cut flowers to Northern
countries. Although exports contribute to foreign exchange earnings, several
disadvantages are linked to it which were nonexistent or less dominant
regarding traditional exports.
Dependence on foreign traders. The world trade in cut flowers is
dominated by importing companies and auctions in the North. Unlike their
Northern colleagues, Southern producers face structural difficulties related
to transport: higher air freight costs (which are even predicted to increase
due to the imbalance between incoming and outgoing air freight); longer
travel time which results in lower prices for fresh flowers; and higher
risks due to the more complicated transport factor. Besides, higher commissions
and handling rates at the auctions, the extra cost of the importers and/or
import levies affect the competitiveness of these flowers. The situation
of Colombia and Thailand seems to be better, since they put a lot of effort
in their own marketing abroad.
Consumer preferences. Consumer preferences regarding flower varieties
and colours are subject to change. It is especially in the new fashionable
varieties that the profits are higher. For producers located far from consumer
markets it is not only more difficult to assess future tastes in the importing
countries, but it is also more complicated to get planting material of
the new varieties in time. Besides, the demand throughout the year is strongly
fluctuating, depending on national holidays and special events in the import
countries. Due to these unpredictable fluctuations in demand and preferences,
production in developing countries is mostly limited to some 'bulk' flowers
in order to reduce production risks as much as possible. These are, however,
the flowers, whose prices are under pressure due to overproduction.
Demands on production conditions. In several Northern countries,
and especially in Europe, consumer organizations make specific demands
regarding environmental and labour conditions under which the imported
flowers are produced. Beside the fact that this could partly eliminate
the comparative advantage of several developing countries, the consumerset
production conditions are defined in the North. It may turn out that they
will be easier to meet for Northern producers than for producers in developing
countries.
Breeding concentrated in the North
Most cut flower producing developing countries are fully dependent
on breeders in Northern countries for their planting material. Breeding
is a capital and knowledgeintensive activity which is highly
concentrated in a few companies in the North. The knowledge of breeding
is kept in secrecy, as is described in the article on Colombia's cut flower
sector.
Reliance on foreign varieties raises production costs as royalties have
to be paid. Access to the newest and most profitable varieties is complicated
by longer communication lines, negotiations on licensing contracts, and
additional testing of new varieties in other climates from those in which
they were developed.
Only a few countries, such as India, are involved in breeding. In Colombia,
private companies show interest in starting their own breeding after establishing
their position as major producers. India has been working the other way
around: it made an effort in breeding, followed by an export stimulation
policy. However, also India, at least in the short term, expects more from
varieties brought in via joint ventures with foreign partners to increase their cut flower export, than from their domestically
developed varieties. Thailand is very active in the breeding of orchids,
which are being exported to Japan, the USA and Europe.
The very limited breeding activities in developing countries reduces the
importance of biotechnology to the production phase, including mainly micropropagation.
In several countries micropropagation facilities are set up with public
and private investments in order to meet the demand for large quantities
of virus free, uniform planting material.
Economic impact
The value of the exports of cut flowers from Colombia and Kenya are
estimated at respectively US$ 380 and 35 million, which ranks them among
the most important agroexport products of these countries. However,
not all money is reinvested in the country of production. In Colombia and
Kenya the sector generates a significant amount of employment, estimated
at about 100,000 and 30,000 employees respectively.
Other main inputs, such as plant varieties, fertilizers, pesticides and
other production technology are imported. Therefore, in several countries
the linkages between the cut flower industry and the domestic economy are
mainly limited to labour, and could hardly be considered as a new and integral
part of the national economy. Additionally, the knowledge generated in
this sector is hardly linked to national agricultural research in many
countries.
The development of the cut flower sector often involves large governmental
investments in infrastructure, such as roads and cold storage facilities,
to enable the fast export of the perishable product. Only a small portion
of the investment is recovered through tax income, as is the case in Kenya.
This makes it an expensive sector to invest in, especially for governments
that suffer from declining budgets.
Peter Commandeur/Gerda van Roozendaal
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