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Feature Story

South America: Overcoming challenges



Colombian and Ecuadorean growers are looking for solutions to stay competitive as ongoing trade issues affect the floral industry.

by Amy Bauer


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 vast majority of its imported cut flowers, particularly standards such as roses, carnations, Alstroemerias and 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, which followed a similar six-month delay that was to have expired June 30, gave 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.
 
 
proflora 2007
 
 
Thousands of visitors and exhibitors are gearing up for the eighth biennial international flower exposition sponsored by Asocolflores, the Colombian Association of Flower Exporters. Proflora 2007, which will be Oct. 3-5 at the Cartagena Convention Center in Cartagena, Colombia, is expected to draw more than 5,000 visitors, including more than 1,000 buyers from 40 countries. They will view nearly 500 flower varieties and products from leading growers and breeders.
Michael Kronenberg, of Corporate Business Strategies, North America, in a review of Proflora 2005 posted on the event’s Web site, wrote, "Colombia welcomes you with such a nice face and with such a warm heart that none of the participants in the fair will forget this trip and this country ever. Its nature is beautiful, and the people impressed me with their smile and their friendship.”
To register for the event, or for more information, visit www.proflora.org.co, e-mail proflora@asocolflores.org, or call 011-57-1-257-9311, Ext. 0138-0140.

 


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 1,924.00 pesos per dollar at presstime, July 20, 2007, according to currency Web site www.oanda.com
“We’ve lost more than 30 percent of our income,” says Ernesto Vélez, chairman of the board of directors of Asocolflores, the Colombian Association of Flower Exporters, and president of grower and exporter Suasuque. “That’s devastating for any business.”
Mr. Vélez says farms have been working to reduce costs and increase efficiency and productivity. But such measures can’t go on forever. “You can only increase productivity or reduce expenses to a certain extent,” he says. “And we’ve reached those limits.”
Christine Boldt, executive vice president for the Association of Floral Importers of Florida (AFIF), says many of her association’s members not only work with South American farms but have ownership stakes in farming operations there; therefore, they feel the pinch even more directly.
In July, she noted, the farms were trying to collect their money from Mother’s Day sales. “Because the peso is not the same value it was in May, when they sold the product, they’re losing money every day and not really doing anything to lose that money,” Ms. Boldt explains. “So, because of that, the farms are suffering every day. They’re losing money on a daily basis when they don’t receive their money for the product they sold.”
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. Vélez says a 10 percent reduction in supply of floriculture products from Colombia is expected this year.
Ms. Boldt says similar to operations in the United States, many farms must take out bank loans to maintain their cash flow. But as their returns on each dollar diminish, it becomes more difficult to pay back those loans.
She points out, too, that incentives for the Colombian government to take action to change the peso’s value versus the dollar are not necessarily there. As the Miami Herald article describes, the peso’s relative strength is drawing a great deal of investment into the country. Imports are growing at a 23 percent annual rate, and construction permits were up 26.5 percent over the prior year.
Economists assure Asocolflores that the peso’s strength is cyclical and that the currency is going to depreciate in value eventually, Mr. Vélez 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, the current situation is having some positive effects. Ecuador felt such currency challenges as it converted its money supply to the U.S. dollar in 2000. And while Ecuadorean growers, too, face rising freight and fuel costs, Colombia’s current currency woes are helping Ecuador’s growers compete.
“The effect for the Ecuadorean flower grower has been positive, as before Colombia’s peso was revalued, [Colombian growers] used to sell at very low prices with which it was very 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.”

 
expoflores backs flowers for kids
 
 
Expoflores, the Ecuadorean Flower Growers and Exporters Association, along with many Ecuadorean growers, is among the sponsors of the Flowers for Kids® program, which brings cut flowers and information into U.S. middle-school classrooms to teach children about floriculture and ultimately help expand U.S. consumers’ demand for cut flowers. In June, with Expoflores’ help, Flowers for Kids offered a class called “Flowers 101” at the American Embassy in Quito, Ecuador, to emphasize the country’s floriculture industry and its commercial relationship with the United States.
The class was composed of U.S. Embassy employees, including U.S. Ambassador to Ecuador Linda Jewell. It included an explanation of how the industry works and a brief presentation of how to take care of flowers. At the end of the class, all participants made their own bouquets.
“In this way, we try to keep and strengthen bonds with the United States, one of our most important flower markets,” Expoflores wrote in describing the recent class on its Web site, www.expoflores.com.

 

long-term effects
Ms. Boldt 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 dollars compared to the Colombian peso are not as weak,” Ms. Boldt explains. Currently, Colombia exports 85 percent of its cut flowers to North America.
Or, Ms. Boldt cautions, farms could be forced to cut back on benefits afforded their workers. “The same thing occurs in the United States,” she notes. “If you’re a company running on the verge of bankruptcy and you’re offering 100 percent health care to your people, you say, ‘OK, now I can’t offer that to you anymore.’”

trade deadline
With the February trade extension deadline looming less than six months away, 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 are not seeing signs in order to approach the problem.”
“We really need long-term policies,” Mr. Ucrós explains. “To manage an industry and a business with six- and eight-month extensions is very difficult.”
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 a free-trade agreement with the United States. Bolivia also hasn’t had negotiations on a free-trade agreement.
Spanish news agency EFE reported on June 27 that Ecuadorean Vice Chancellor Rafael Wells hadn’t excluded the possibility of the country’s asking for a further extension of the ATPDEA in 2008, should the eight-month time period expire. And President Correa in late 2006 said he would like to extend the trade preference act.
Ecuadorean rose grower Mr. Alzate says growers in his country will not be able to compete with neighbors such as 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.
The timing of the current extension’s expiration in February also concerns some; by then, the 2008 U.S. presidential contest will have begun in earnest. AFIF’s Ms. Boldt notes, “Once February comes around and we have the preliminaries for the presidency, no one in Congress is going to sign anything from February until the end of the year, so it really leaves, again, our business in complete limbo.”
She calls the recent trade extensions simply “Band-Aids” because most supermarket and mass-market buyers negotiate contracts months out. “At this point, if they’re negotiating past February, the importer has to pretty much predict whether there’s going to be duties or not,” she says. “So it’s very hard to do long-term planning or long-term selling if you have an uncertainty that’s as big as this.”
Mr. Ucrós, of Ecuadorean rose grower Emihana, says his company is making efforts to increase its business in markets beyond the United States. He notes that 60 percent of Ecuadorean roses are shipped to U.S. markets.

 
shop introduces products to colombian consumers
 
 
Asocolflores, the Colombian Association of Flower Exporters, in May opened a first-of-its-kind retail flower shop selling premium Colombian flowers to the country’s residents. The shop, featuring the “Colombia, Land of Flowers” brand, is in the El Retiro shopping center in Colombia’s capital, Bogotá.
The shop will not only raise awareness among Colombians about their country’s significant flower-exporting sector but also support Asocolflores’ social programs. Proceeds from shop sales will go to the association’s School of Floriculture, which trains residents displaced by violence to obtain jobs in the floral industry.
The school, which pays the workers as they are trained and offers them the opportunity to join a flower-growing operation after one year, was started in 2003. Between 2003 and 2005, the program benefited 1,027 people. Between 2006 and 2008, the program is expected to help 1,380 displaced families.
Asocolflores plans to open similar specialized points of sale in large capitals of the world to sell Colombian flowers under the “Colombia, Land of Flowers” brand, the association stated in its news release announcing the new shop.

 

sharing the “green” spotlight
Ms. Boldt identified another challenge that she sees for South American growers selling their products in the United States. She notes that Colombian and Ecuadorean growers and their growers’ associations are having to work harder to get the word out about their ongoing environmental and social certification programs as U.S.-based certification programs are being unveiled and touted to retailers and consumers. The Florverde program, created by Asocolflores, turned 10 last year, and Expoflores’ FlorEcuador program was started two years ago.
“I think that’s one of the biggest things that they’re facing now is trying to defend what they’ve been doing for so long,” Ms. Boldt says.
Asocolflores’ Mr. Vélez says he is concerned that some in the industry are promoting organic flowers to the exclusion of other sustainably produced floral products. “If we have people going around saying, ‘If it’s not organic, it’s bad,’ that, I would say, is bad for the industry because it will confuse and scare consumers, and we all need more Americans to buy more flowers more often,” he says. Ms. Boldt concurs, “Sustainable floriculture is really where we would rather focus our efforts.”
Asocolflores has created a Web site, www.florverde.org, to promote its Florverde program, which has certified 137 companies representing 167 farms and 50 percent of Colombia’s acreage devoted to cut flowers. Augusto Solano, president of Asocolflores, noted in an April interview with Super Floral Retailing magazine that his association is working to create awareness of the label among flower consumers. “Since 1998, Florverde farms have reduced their use of pesticides by an average of 38 percent,” he explains. “Our certification program includes not only environmental practices but also specific labor and social standards.”
FlorEcuador, Expoflores’ certification program, is a required component for all 180 Expoflores members. And as of April, 35 farms had achieved Chapter 1 certification, and the rest were working toward that certification. It, too, has standards for water and irrigation management, reducing pesticides, providing health and other family services to workers, and ensuring worker safety.

Photos of Colombian operations courtesy of Asocolflores, the Colombian Association of Flower Exporters.

You may reach Amy Bauer by e-mail at abauer@superfloralretailing.com or by phone at (800) 355-8086.

 

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