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feature
story growing concerns
A look at the challenges facing South
American and U.S. growers and how they are faring in an uncertain
economic climate. South American flower growers are finding themselves in tough economic times and facing uncertainty about the future of duty-free trade with the United States. These challenges have ripple effects throughout the U.S. floriculture industry, which relies on Colombia and Ecuador for the majority of its imported cut flowers, particularly standards such as roses, carnations, Alstroemerias and spray chrysanthemums.
The U.S. Congress in late June passed an eight-month extension to the Andean Trade Promotion and Drug Eradication Act (ATPDEA), which guarantees duty-free exports to the United States from four Andean nations: Colombia, Ecuador, Peru and Bolivia. This extension gives South American flower producers a brief reprieve. But concerns about the future of such flower exports to the United States remain close to the surface. The eight-month extension expires Feb. 29, 2008.
peso value a challenge At the same time, Colombian growers are experiencing tight times as the U.S. dollar has continued to weaken against the Colombian peso. Growers, who are paid in dollars but whose costs are in pesos, receive fewer pesos for their products each time the dollar slips and can find it more and more difficult to meet their expenses. The peso over the past four years has gone from a high of 2,906.50 pesos per dollar on June 3, 2003, to 1,993.83 pesos per dollar at press time, Oct. 10, 2007, according to currency Web site www.oanda.com.
"We've lost more than 30 percent of our income," says Ernesto Vẻlez, chairman of the board of directors of Asocolflores, the Colombian Association of Flower Exporters, and president of grower and exporter Suasuque S.A. "That's devastating for any business."
A Miami Herald article from May 28, 2007, "The Downside of a Higher Colombian Peso," cited a statistic that five major flower growers in Colombia had either scaled back operations or gone bankrupt in the past year, and total jobs in Colombia's cut-flower industry have dropped by 10 percent, or 12,000 jobs, since 2005. Mr. Vẻlez says a 10 percent reduction in supply of floriculture products from Colombia is expected this year.
Economists assure Asocolflores that the peso's strength is cyclical and that the currency is going to depreciate in value eventually, Mr. Vẻlez says. He says one indicator is Colombia's overall trade deficit - imports outpacing exports - that has emerged in the past year. "If this continues, there will be more and more pressure to buy dollars to import products, and so that may reverse the trend," he explains.
For Ecuadorean growers, however, Colombia's currency woes are helping them to compete. "The effect has been positive. Before Colombia's peso was revalued, Colombian growers used to sell at low prices with which it was difficult to compete," comments rose grower Gustavo Alzate, financial manager of Hacienda Santa Fe in Pifo, Ecuador, and a member of the board of directors of Expoflores, the Ecuadorean Flower Growers and Exporters Association. "It is a temporary situation that if changed could immediately cause a problem to the Ecuadorean flower grower if [Colombian growers] decide to lower their prices again in compensation for a possible peso devaluation in order to reconquer or win markets."
long-term effects Christine Boldt, executive vice president for the Association of Floral Importers of Florida (AFIF), says she foresees several possible devastating effects for the United States should such conditions continue to barrage Colombian flower growers. They could find other countries to which to sell their products, "meaning they go to Europe or Russia instead of the U.S. because their [currencies] compared to the Colombian peso are not as weak," Ms. Boldt explains. Currently, Colombia exports 85 percent of its cut flowers to North America.
Fully 67 percent of all cut flowers sold to consumers in the United States in 2006 were imported, with the majority of those coming from Colombia and Ecuador. This number is up from 58 percent in 2002 and around 50 percent in 1993.
Or, Ms. Boldt cautions, farms could be forced to cut back on benefits afforded their workers. "If youÕre a company running on the verge of bankruptcy and youÕre offering 100 percent health care to your people, you say, 'OK, now I can't offer that to you anymore,'" she notes.
trade deadline With the Feb. 29, 2008, trade extension deadline looming, growers both in Colombia and Ecuador find themselves in limbo. Diego Ucrós is general manager of rose grower Emihana Company Ltd. in Cayambe, Ecuador, and a member of Expoflores' board of directors. He says it is good to be assured that Valentine's Day 2008 trade will be free of taxes, "but after that we do not have positive expectations. We need long-term policies. To manage an industry and a business with six- and eight-month extensions is difficult," he says.
Colombia already has negotiated and signed a Free Trade Agreement (FTA) with the United States, as has Peru. If ratified by the U.S. Congress, these FTAs would supersede the ATPDEA and provide permanent duty-free status to exports to the United States.
Ecuador, however, has not negotiated such an FTA, and it looks unlikely that such talks will start. Ecuadorean President Rafael Correa has said he won't sign an agreement with the U.S. "because it will destroy our agricultural sector." In an Oct. 1 interview with The Washington Post, President Correa, who has two diplomas from the University of Illinois, explained, "We would like to improve our commercial cooperation with the U.S. É [But] when you are trading with a country with huge subsidies for the agricultural sector like the U.S., the impact of this free-trade agreement would be dangerous for our farmers."
Ecuador in 2006 seized U.S.-owned Occidental Petroleum's assets in that country following the oil company's sale of part of an Ecuadorean oil field to a Canadian company without Ecuador's approval. The United States ended free-trade negotiations with Ecuador following that incident. At that time, Ecuador was under the leadership of President Alfredo Palacio.
While there has been some recent activity designed to garner support for passage of a trade agreement with Colombia, it appears unlikely that it will happen before the end of the year or even before the Feb. 29 expiration of the ATPDEA. On Oct. 5, however, the U.S. Senate Finance Committee approved the FTA with Peru in a significant step toward ratification by the U.S. Congress.
On Oct. 9, U.S. Secretary of State Condoleezza Rice spoke to the Council on Foreign Relations at the Organization of American States in Washington D.C., urging Congress to pass free-trade agreements with Colombia and Peru, saying that defeat of those agreements would send a message across the region that the United States cannot be trusted to keep its promises. Some U.S. lawmakers, however, are concerned that these free-trade deals could jeopardize American jobs.
U.S. growers also are facing tough economic times, with overall sales relatively unchanged. In 2006, total sales of all U.S. floriculture crops (which includes cut flowers and greens; flowering and foliage plants for indoor or patio use; bedding and garden plants, both annuals and perennials; nursery stock; and propagative materials) increased by $52 million from 2005, a marginal gain over almost $17 billion in gross receipts.*
Domestic-grown crops that experienced increases in wholesale value in 2006 were cut flowers, cut greens, and perennial bedding and garden plants. Sales of potted flowering and foliage plants, annual bedding and garden plants, and propagative materials fell in 2006. Although there were other factors, these sales decreases are largely attributed to a weakened consumer demand due to higher energy and food prices.
cut flower sales Wholesale sales of domestic-grown cut flowers totaled $411 million in 2006, which is about 4 percent more than in 2005. (Almost 77 percent - $316 million - came from California growers.) The quantity of U.S.-produced cut flowers sold, however, was up only about 1 percent.
While wholesale sales of domestic-grown cut flowers experienced an increase in 2006, not all crops shared in that rise. U.S. cut flower crops that experienced decreased sales in 2006 included roses, carnations, spray chrysanthemums, Gladioli, Irises, Lisianthuses and Delphiniums/larkspurs. Many of these flowers, particularly roses, carnations and spray chrysanthemums, faced strong competition from imports, mostly from Colombia and Ecuador. (See chart above.)
Conversely, the dollar volume of tulips, lilies, Alstroemerias, Gerberas, snapdragons and orchids sold continued to increase, mainly because of higher prices but also because demand for these U.S.-grown flowers remained strong despite competition from imports, especially for orchids and lilies. Domestic-grown orchids, the majority of which are produced in Hawaii and California, showed the greatest price increases. (See chart above left.)
In California, by far the largest cut-flower-producing state, expanded sales of lilies, Gerberas, snapdragons and Alstroemerias helped the state earn 4 percent more receipts in 2006. Regarding prices per stem or bloom, however, except for orchids, cut flowers from California exhibited relatively flat to lower prices in 2006.
The 2006 wholesale value of cut greens produced in the 15 surveyed states reached $109 million, a 2 percent increase from 2005. Florida's value, at $79.4 million, is up 1 percent and represents nearly 73 percent of the total.
* Figures presented represent the production of growers in the 15 largest producing states only, which generate more than 90 percent of all floriculture crops production in the country. This is a change from 2005, when the U.S. Department of Agriculture (USDA) monitored growing operations in 36 states. Year-to-year comparisons include only figures from the same 15 states.
Source: Floriculture & Nursery Crops Yearbook, September 2007; published by the Economic Research Service (ERS), U.S. Department of Agriculture (USDA), Washington, D.C. For more information, go to www.ers.usda.gov/publications/flo/2007/09Sep/FLO2007.pdf
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Ecuadorean
rose grower Mr. Alzate says growers in his country will not be able to
compete with Colombia and Peru if those countries' Free Trade Agreements
are accepted while no such agreement exists for Ecuador. "Having an
extension for only a few months instead of five years as requested
leaves the sector in weak conditions," he says. And Mr. Ucrós, of
Ecuadorean rose grower Emihana, says his company is making efforts to
increase its business in markets beyond the United States. 