Commodity Analysis — Don't Just Say it With Words: Say it With Flowers

Spend Matters welcomes a guest post from Nick Peksa, at Mintec Ltd.

I'm sorry, I love you, congratulations, thank you and happy anniversary are just a few of the things that you can say with flowers, but this is nothing new. The world has a rich and varied history of floriculture stretching back thousands of years. References to flowers and their uses are inscribed in an ancient Sanskrit document dated as far back as 3000 BC. The only difference is that in the modern era, commercial floriculture is a global agri-business close to 7 billion euro per annum.

Cut flowers are highly perishable and as such, the supply chain is very similar to fresh produce (and in some cases, even more complex). During their transport from the growers to consumers, the floral organ continues to grow and ensuring quality, freshness and longevity requires certain conditions. The correct temperature is necessary to slow down respiration, which (with the exception of some tropical flowers) is just above the freezing point. The right level of humidity (93-95%) needs to be maintained to avoid high rates of water loss, and finally the blooms need to be handled very delicately to avoid crushing and damage.

The top ten traded flowers
Below is an indication of the top ten cut flowers sold in the world. This will of course have regional variations and be dependent on the proximity of trade. For example, India is a major rose exporter to Japan, whereas the US will tend to source from South American importers like Colombia and Ecuador.

Rose
Chrysanthemum
Tulip
Lily
Carnation
Gerbera
Freesia
Cymbidium
Alstroemeria
Gypsophilia
Gladiolus

Each of these cut flowers can in fact be further broken down into a number of different varieties. For example, a few well known rose varieties are:

Eiffel Tower, Queen Elizabeth Montezuma, Papa Meilland, Christian Dior, Kiss of Fire, Golden Giant, Garde Henkel, First Prize, First Red, Grand Gala, Konfitti, Ravel, Tineke, Sacha, Prophyta, Pareo , Super Star, Vivaldi.

The global marketplace behind flowers
The global market for floriculture is wide reaching and geographically diverse. The major players in the marketplace are the Netherlands, Colombia, Ecuador, Kenya, Israel, Malaysia and Thailand. The most significant is the Netherlands, accounting for close to 50% of all the world trade (some 3.3 billion euro).

In recognizing the potential increase to profit margins through low cost production (cheap land, labour and other resources) several export-oriented units have been set up in countries like Bolivia, Peru, Costa Rica, Honduras, El Salvador, Guatemala, Nicaragua, Panama, Afghanistan, Bangladesh, Bhutan, Cambodia, Laos, the Maldives, Myanmar, Nepal, the Solomon Islands, Western Samoa, Yemen.

To help contextualize the quantity of flowers produced by a nation, Kenya, a major rose producing and exporting country is a case worth exploring.

In 2007 the flower business was blooming, as Kenya exported 2, 553, 192, 992 stems of roses, which is around 6,800 metric tonnes. When Iceland's glacier-covered Eyjafjallajokull volcano erupted in 2010, airfreight was halted across Europe. The knock effect for Kenya was enormous, as the transportation of around 450 metric tonnes of flowers per day was suddenly interrupted and stocks quickly perished. Cost-wise, we can equate that to around 1.5 million euro's worth of flowers being thrown away for each day of the crisis. The total loss to the Kenyan flower market was around 15% of its annual earnings for the sector (normally about 480 million euro).

The costs of production
To achieve the successful production of saleable cut flowers, a number of different elements need to be considered, including the planting material. This can come in one of many forms: seeds (marigold), bulbs (lily, gladiolus), cuttings (carnation, chrysanthemum), divisions (gerbera) budding and grafting (rose) or finally micro propagation (tissue culture) which is the modern method being used for mass production of planting material for numerous species.

Other aspects of production that would be considered by a European grower are shown with a breakdown of their percentage value. This includes onward distribution to the retail florists:

  • Labour costs (36%)
  • Capital costs (27%)
  • Planting materials (14%)
  • Fertilizers, pesticides, logistics (13%)
  • Energy for heating glasshouses (10%) - Water, Soil

Additional costs

  • Packaging materials (10%)
  • Transportation (10%) - refrigeration

In less developed countries the model above is reversed slightly with lower overheads on labour and heating, but replaced by higher transportation costs and across some regions, import duties.

Market Movements:

- Nick Peksa, Mintec Ltd.

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