Call us at 1-800-355-8086
Tariffs and weather affect trade
South American flower growers are dealing with the effects of
unforeseeable circumstances.


by Amy Bauer

From political wrangling on trade to continued economic hardships to unrelenting rains, South American flower producers have had a challenging year and have had to deal with a number of factors beyond their control.

We spoke with several industry leaders to assess the state of South American floriculture, which plays a crucial role as the source of the vast majority of U.S. flower imports. Weighing in are Christine Boldt, executive vice president of the Association of Floral Importers of Florida (AFIF); Stan Pohmer, CEO of Pohmer Consulting Group; and Peter Ullrich, chairman of Esmeralda Farms, whose experience in South America dates to 1971 and whose operations there consist of nine farms in Ecuador, two in Colombia and three in Peru.

As Mr. Pohmer describes: “It’s like the perfect storm. Any one of those things would be serious unto its own, but when you combine them all, it’s very challenging for the growers. I think that’s the most critical piece right now—it’s all hitting them at the same time—a simultaneous cumulative effect.”


waterlogged

Unseasonal rains during Colombia’s normally dry period last year coupled with a heavier-than-normal rainy season throughout this spring, which meteorologists blamed on the “La Niña” weather phenomenon, hurt agricultural operations as well as Colombia’s citizens. A May report in Time magazine estimated more than 3 million people (about 7 percent of Colombia’s population) were displaced or had experienced damage from the water, the effects of which had touched 28 of Colombia’s 32 departments [states]. Ecuador also suffered some flooding, though to a lesser extent.

imports to u.s. by country
(Based on stem count; numbers rounded; figures from 2010)
Colombia         
Ecuador
Mexico
Netherlands
Costa Rica
Thailand
Guatemala
Peru
Kenya
India
Dominican Republic
Israel
Australia
Other*
Total stems imported              
3.5 billion stems
1.1 billion stems
307.7 million stems
139.2 million stems
84.9 million stems
65.1 million stems
29.7 million stems
21.3 million stems
11.0 million stems
9.7 million stems
9.2 million stems
9.2 million stems
5.9 million stems
49.1 million stems
5.3 billion
65.6 percent
20.4 percent
5.8 percent
2.6 percent
1.6 percent
1.2 percent
0.6 percent
0.4 percent
0.2 percent
0.2 percent
0.2 percent
0.2 percent
0.1 percent
0.9 percent
100 percent



*Some of the named countries here also may have stem counts in this “other” category because of the way the USDA records its data. Countries only have a count in each flower type once they have reached a specific number of stems.
Source: Agricultural Marketing Service, U.S. Department of Agriculture (www.ams.usda.gov/mnreports/wa_fv281.txt)

Augusto Solano, president of the Association of Colombian Flower Exporters, Asocolflores, had estimated to The Miami Herald in late April that 5 percent to 15 percent of national production could be affected at that time. While supplies of some flowers were tight at Mother’s Day, Ms. Boldt reports importers were able to shift some buying to other countries and fill all holiday orders.

Mr. Ullrich says that while some Colombian flower farms were affected to varying degrees, he knows of none that have gone out of business due to rains or floods. The continued wet conditions have made it a greater challenge to keep crops disease-free, he explains, noting that farms under economic stress, with limited cash flow, would have a more difficult time taking measures to keep their crops clean.

As the beginning of the expected dry season began in July, farms were assessing damage and checking the condition of their soil for any needed rebuilding, reconditioning or replanting. “Hopefully those farms that were affected heavily are able to recover, replant and reproduce,” Ms. Boldt says.


tax on trade

U.S. importers since February have been paying duties ranging from 3.4 percent to 6.8 percent* on cut flowers from Colombia and Ecuador after the Andean Trade Promotion and Drug Eradication Act (ATPDEA) was allowed to expire.
Ms. Boldt estimates the cost to south Florida flower importers at $2.5 million per month in unforeseen duties. “We haven’t had to pay duties except one time in 20 years,” she describes, “so who would have anticipated or budgeted for that? Not anybody who’s really been in business for the last 20 years.”

While some of those costs are being passed on to wholesalers and retailers, and ultimately consumers, some supermarket and mass-market retailers remain locked in long-term contracts negotiated before the duties began. “So [in those cases] the importer is having to pay that additional cost without any ability to pass that on,” Ms. Boldt says. “Most of the margins for the importers are very slim, so adding an additional 6.4 percent or 6.8 percent is very difficult for the importers to handle.”

 

* Current duties on flowers from Colombia and Ecuador:
3.4 percent on spray carnations, 6.8 percent on roses and 6.4 percent on all other flowers.

free trade agreement

Relief could come in the form of the Free Trade Agreement (FTA) between the U.S. and Colombia. As of press time, Aug. 5, the wait continued to see whether the FTA, originally signed in 2006, would at last make its way to Congress. Any action was pushed back past Congress’ Aug. 8 recess as debt-ceiling negotiations dominated Capitol Hill throughout July. It was moving in tandem with trade agreements between the U.S. and Panama and South Korea.

The Colombian FTA, which applies to floriculture among a number of industries, would open permanent two-way duty-free trade. Colombian flowers, and other products, have entered the United States duty free under the ATPDEA, which has continually come up for renewal.

Included in the FTA discussions was the prospect of renewing the ATPDEA, which would cover the 18 to 24 months that it would take for the trade agreement, if approved, to go into force and once again offer duty-free imports to the United States. There also had been talk of making the ATPDEA retroactive, meaning that duties paid since its February expiration could be refunded.

ATPDEA renewal also would return duty-free status to imports of Ecuadorean blooms. Ecuador has been covered under the ATPDEA, but President Rafael Correa has said he is not interested in a permanent free trade agreement with the United States. Peru already is covered by a free trade agreement.

state of the economy

Mr. Ullrich reports he anticipates the FTA will be signed, but among his concerns are continued low prices of floriculture products in the face of oversupplies and the strong Colombian peso.

The U.S. dollar remains weak versus the Colombian peso, which leaves a gap for flower growers, who receive fewer pesos per dollar than in the past. But on the flip side, Colombia’s economy is booming, Mr. Ullrich describes, noting that the strong peso increases citizens’ buying power, has attracted foreign investment and reduced the country’s dollar-based debt. He notes inflation rates have fallen into the single digits.

“I don’t think that any government that wants to get elected or re-elected is going to go on an inflationary path, is going to devalue the currency, that a few exporters will benefit from,” he says. “No matter how much we would like it to happen, it’s not going to happen.

“It just makes sense to have a strong currency for Colombia, and I think, as flower growers, we have to adjust to reality and raise prices accordingly.”

Fuel costs remain higher, which affects transportation costs and fertilizers, and Colombia’s housing and construction boom has meant that flower farms now must compete for workers with industries paying two to three times as much, Mr. Ullrich describes.

He explains that the Colombian government several years ago had offered loans to farms in the country’s agricultural sector to help keep them in business, but in some cases he thinks those loans have simply forestalled eventual closures. Two years ago, he says, Ecuador saw some flower farm closings, and he anticipates that some Colombian farms may go through a similar adjustment period soon as their revenues become insufficient to keep up with the increasing costs of doing business. And with land values increasing as development encroaches, Mr. Ullrich says some growers may find this a good time to sell their operations.
“The business has not really improved for the remaining players because of oversupply,” he shares. “Perhaps by the end of 2012, supply and demand will be coming back to an even keel, and then prices will increase, and I think everybody, in the end, is going to make more profits and more money.”

Colombian President Juan Manuel Santos announced an eight-point initiative to stimulate Colombia’s floriculture industry at Asocolflores’ annual meeting in late March. Among its provisions were eliminating an import tax on agricultural chemicals and fertilizers, expanding access to credit, and allocating money to innovation and technology. President Santos marked a year in office in August.

Mr. Pohmer comments: “President Santos is aware of the challenges the flower industry is going through, and he understands the importance of the flower industry on the export economy. While he can’t wave a magic wand and make everything work again, whether it’s make the rain stop or get our Congress to pass the ATPDEA, he can do some things internally that make life a little more bearable for the farms, even if it’s on a temporary basis. And that’s what he’s trying to do.”


other markets to watch
Mexico

Mr. Pohmer notes that a trial provision agreed to in early July under NAFTA (North American Free Trade Agreement), allowing Mexican trucks greater access to the United States, could have effects on the floral industry. Previously, trucks with product from Mexico could travel only a certain distance past the border before having to offload the product to a U.S.-domiciled carrier. During the trial, which could last up to three years, Mexican carriers would be allowed operating authority in the U.S. and U.S. carriers the same in Mexico.
“So from a handling standpoint, it cuts one touch out of the cost of the product,” Mr. Pohmer says. “So you have to look at what impact that’s going to have on Mexican flowers coming into the U.S.”

Africa

While African growers remain interested in the American marketplace, both Mr. Pohmer and Ms. Boldt remark that they have had a difficult time competing because transportation issues have hampered their ability to bring product to the United States in a cost-effective manner.
“In the past five years, I’ve had a lot of contact from growers in African countries, but the biggest barrier was the cost of getting their product here,” Ms. Boldt explains.
Most African flowers are going to auction in the Netherlands, Mr. Pohmer describes. And product coming to the United States generally is coming from Africa via Europe, Ms. Boldt says.
Keeping the costs of transporting flowers directly from Africa to the United States high are several factors: the limited number of direct flights, the price of fuel for such long flights, and the limited goods that can serve as “backhaul” and fill planes returning from the U.S. to Africa to help subsidize the freight costs. But Ms. Boldt reports that as African economies grow and their exported products—and demand for U.S. products—grow, more shipping opportunities may open up.

proflora 2011
The biennial international flower trade show Proflora celebrates its 20th year—and its 11th incarnation—Sept. 28 to Sept. 30 in Bogota, Colombia.
Proflora 2011 will include 30 percent more exhibition area in a new pavilion all under one roof and a new technology area. Highlights include matchmaking business meetings, farm tours, an outstanding varieties competition and a golf tournament.
Proflora 2009 hosted 1,500 international visitors from 40 countries and 334 exhibitors from 15 countries.
To register, or for more information, visit www.proflora.org.co.