As they say in the real estate business, “location, location, location.” The majority of the cut flower farms in Ecuador are located between 2,000 and 3,000 m, right along the equator and have an average temperature of 19°C during the day and 9°Cin the evening. Ecuadorian cut flower growers enjoy consistent year round production levels; a large educated labour pool, a good infrastructure, and relatively modern production facilities. You would think that having such advantages means life for Ecuadorian growers is all rosy, but a shortage of viable freight options and the uncertainties earlier this year regarding the Andean Trade Preferences and Drug Eradication Act (ATPDEA) are harsh reminders that a powerful position in the world cut flower industry comes rarely without its own challenges.
Industry experts estimate that there are between 4,000 and 4,200 ha of cut flower production in Ecuador, mainly taking place in the northern part of the Ecuadorian sierra around the districts of Quito, Cayambe and Pedro Moncayo. Dario Hinostroza, general manager for Ball Ecuador, says, “The most important crops in Ecuador are roses, gypsophila and hypericum. Because of our unique climate, the growers are able to produce a distinctly high quality product. And while roses dominate cut flower production, representing nearly 70%, specialty cut flowers are a small but slowly expanding sector. The size of an average rose grower is about 10 ha compared to about 5 ha for a specialty cut flower grower. Right now, it is hard for growers to compete internationally in specialty cut flowers because the crops are relatively unknown to them.”
Limited by over-regulation
The Ecuadorian and Colombian cut flower industries started at around the same time, but due to over-regulation in Ecuador, many feel that the Colombian industry has been able to capitalize and develop quicker. According to Dean Rule, a 19-year industry veteran employed by the Hills Floral Group: “The governmental rules in Ecuador are challenging; we have a socially-minded government. If we want to fire an employee, we have to pay a month’s salary for every year they have worked for the company and cut flower growers must reserve 15% of their profits to share with their workers at the end of the year.” The average worker takes home about $220 a month, but what really puts the Ecuadorian growers at a disadvantage in Rule’s opinion, is the working hours. “In Ecuador, a working week is 40 hours, whereas in Colombia it is 46 hours plus two hours of training. Additionally, approximately 50% of the farms in Ecuador are set up by wealthy families as social projects to help sustain the local area. Many owners are happy as long as their farms break even. However, by having working regulations similar to those in Colombia, they would be able to compete more effectively and ultimately provide even more jobs.”
Sustainable and niche options
Several growers have started implementing sustainable practices, which can result in a high quality product with little more effort than conventional methods. Their timing could not be better as many of the major cut flower markets are now demanding sustainable-, organic- or Fair Trade products. The sustainable step a partial solution to the limited, local availability of tools commonly found in more developed countries; for example, chemicals for disease and pest control. A similar entrepreneurial spirit evident in the efforts to improve both productivity and flexibility. Some growers propagating their own young plants, conducting trials on new products and practices, and adopting new technologies to decrease labour costs and increase efficiency.
Flexibility, along with swift decisions due to the size of the farms, enables a focus on niche markets, such as Russia. The Russian consumer is an admirer of the large, colourful flower heads produced by the Ecuadorian grower. Hinostroza says, “Not all flowers can meet the high quality requirements of the Russian consumer, but $1.50 for one of our roses in Russia is a noticeably high price. A similar rose in the US brings 30 cents. The 80 – 90 cm stem length and larger flower heads for Russia, compared to the 50 – 60 cm stem length for the US, does reduce productivity. The price premium, however, does mean that many growers are actively selecting varieties based on Russian preferences.”
Freight costs dilemma
Growers can typically ship their flowers to the airport in 75 to 120 minutes. The road conditions are good, but there are not many to choose from, and it can be busy during main shipping hours. Most flowers are packaged for export by the growers. On arrival at the airport in Quito, the flowers are delivered to freight-handling companies who ensure the product is palletized and loaded on the plane. Although Ecuador is located relatively close to the US market (only a four hour trip in a passenger plane), freight faces a much longer trip.
Flights from Quito have to go via Guayaquil, or Colombia, giving an average farm to market transfer time of six hours (up to 14 hours). Unfortunately, because of the location of Quito airport, the problem cannot easily be resolved. “The runway is insufficient,” explained Rule. “It is too short for large cargo planes to land and take-off with a full load. Freight companies sacrifice fuel for valuable cargo, but always need to make a refuelling stop before Miami.” As a result average freight costs are 30% higher for Ecuadorian growers compared to Colombian growers, placing the Ecuadorian growers at a competitive disadvantage and limiting their product assortment. Both countries attentive to the demand for mixed bouquets, making up an estimated 30% of all cut flowers sold in the USA. Ecuadorian growers have had to put together savvy bouquet mixes to remain competitive despite the higher freight costs.
Learning from challenges
Ecuadorian growers have overcome challenges before, however. When the US dollar became the official currency a few years ago, the cut flower growers were immediately saddled with the national economic issues. Many farms had lived off the difference they made, as they annually readjusted costs based on a fluctuating currency. Removing the exchange rate significantly cut into their already tight profit margins. “Dollarization was harsh, but ended up being very positive for the growers,” explained Andrew Reitz, from the LatinFlor flower trading company. “It helped us become more efficient by encouraging us to analyze our business practices.”
Reitz ends, “Dollarization, freight costs, the ATPDEA - What we should learn from all this, is that challenges will continue to arise. If we intend to remain competitive, we will need to have more foresight and be more pro-active. We need to learn to work together, because this business is a team sport. Finally, we need to be more analytical and creative so that we can continue to tighten up our business models and push efficiency. If this can be accomplished, challenges such as the freight issue and ATPDEA can be addressed and overcome, and the future of the cut flower business in Ecuador will indeed be rosy.”
Biggest challenge yet
Ecuador’s roses have enjoyed duty free status due to the Andean Trade Preferences and Drug Eradication Act (ATPDEA). It was introduced in 1991 to help Andean countries (Bolivia, Colombia, Ecuador and Peru) combat the production and trafficking of drugs, by providing preferential duty rates to aid the establishment of legitimate industries. The Act was set to expire on June 30, 2007. It has since been extended through to February 29, 2008, but the sector was distinctly nervous earlier this year before the new legislation was signed by President Bush. It would have been the biggest challenge yet to face the Ecuadorian floral industry – some believe it would have been the last straw for many growers.
It is estimated by the Ecuadorian Embassy that in a country of just over 13 million people the ATPDEA has created more than 350,000 jobs, while the Association of Flower Producers and Exporters of Ecuador (Expoflores) estimates that the Act is directly responsible for creating 60,000 flower farm jobs and an additional 100,000 jobs indirectly. Andrew Reitz, from the LatinFlor flower trading company believes that without the Act growers would be encouraged to switch some of their rose production to summer flowers, taking advantage of duty free exports under the General Systems of Preference (GSP), granted a two year extension. He adds, “Unfortunately the Act deadline ‘surprised’ us as an industry. In my opinion our lobbying efforts were not strong and happened way too late.”
Despite the possible switch to summer flower production, significant job losses, increased migration to find work, increased anti-American sentiment and ultimately job losses in the USA would have resulted. Dean Rule from the Hills Floral Group says, “Unfortunately the US government does not understand the economics of our business. A rose that is sold for $0.18 to a US flower company is sold to the consumer for $0.50 or more. The extra value benefits the country that purchases our cut flowers.” Expoflores estimates that in the US flower industry alone, more than 150,000 jobs have been created by imports from Ecuador. Of the total cut flower production in Ecuador, nearly 70% goes to the US market.