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African Producers in the Cut Flower

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Nicholas Aria

on 30 October 2014

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Transcript of African Producers in the Cut Flower

African Producers in the Cut Flowers and Foliage Trade
Natalie Antoon, Jessica Nakhle, Karan Dayal and Nicholas Aria
The Cut Flower and Foliage Industry
How much value does the agent or distributor add to a bouquet of flowers or bunch of roses from Africa before it reaches the final consumers?
• Floriculture trade involves the production, export, and consumption of cut flowers and plants

• US$6 500 000 billion of cut flower global exports in 2009

• African industry growth
– Kenya $245 million exports in 2010
– Mainly to European Union
African Cut Flower Trade
Reasons for Offshoring?
Challenges
• Why do European consumers no longer produce their own flowers locally?

• Pricing considerations
– Lowering expenses such as cost of labour to plant, tend, harvest and deliver flowers

• Pricing considerations
– Lowering expenses such as cost of labour to plant, tend, harvest and deliver flowers

• Environmental conditions
– Weather and climate suitable, farming space

• Proximity to target market (Europe)

• African local cut flower markets limited to purchases from hotels
– Not culturally practiced
– Focus on exports instead
• Perishable nature of cut flowers

• Logistics and distribution

• price competition aim conflicts with aim of
maintaining product quality and freshness

• High costs of freight
Question 1
One of the challenges African flower producers face is the need to ensure that the products reach the final consumers in good quality. Must they then produce and market their own products that are more tolerant to the stresses of long shipping, or continue to produce traditional European flowers, which are difficult and expensive to transport?
Question 2
What type of upgrading can producers in Africa conveniently adopt to ensure increased recognition and participation in the floriculture chain?
- High cost of labour and energy

- Concern for environmental pollution

- The search for new tropical plants

- The need to promote trade between the north and south
- It has an impact on large and small firms

- Producing more efficiently

- Benchmark methodology

- This will ensure producers supply:

- Good quality fertilizer

- Suppliers of quality packaging material

- Have a reliable freight forwarder and specialist exporter

- recognise trends in consumer choice

- technical advice

- Cool room and refrigerator

- Reliable agent
Producers need a greater understanding of their demand in order to promote trade between north and south.

Kenya and Ethiopia have taken lead in this sector which have organised trade into strong clusters.


OVERVIEW
• The African cut-flower trade’s biggest market: the EU.
• The main African producers: Ethiopia, Kenya and Ghana.
The primary distributors:


Netherlands (the auction market)
FloraHolland Auction
Aalsmeer Auction
The European retailers (i.e. supermarkets)
Value Adding Dutch Auctions
• Expert quality assurance (Melese & Helmsing, 2010, p. 50)
• Digital ‘clock systems’ – cut to the chase (Melese & Helmsing, 2010, p. 50)
• Environmental guarantees
– Milieu Programma Sierteelt (MPS) certification scheme (Tallontire et al, 2005, p. 565).
Value Adding European Retailers
• Bypass wholesalers – cheaper prices (Riisgard, 2009, p. 328).

• Environmental standards – GlobalGAP (Riisgard, 2014, p. 444).

• Provide consumers with a larger variety
– Unlike Dutch flower auctions which buy in bulk.
(Gebreeyesus & Sonobe, 2011, p. 344).
Calculating Fair Prices?
How are prices calculated now?
- Price elasticity of demand? Quite low.
Higher prices = substantially lower demand. (Girapunthong & ward, 2003, p. 17).

- Demand fluctuates

- Seasonal changes (Belwal & Chala, 2008,p. 217).
- Fashion trends (Mathee et al, 2006, 513).
Calculating Fair Prices?
How are prices calculated now?
- Market differentiated pricing.
- Take advantage of price inelasticity.
- Take advantage of fluctuating demand.

GOOD FOR DISTRIBUTORS
BAD FOR AFRICAN FARMERS
Hughes et al, 2012, p. 223; Hale & Opondo (2005, p. 317).
Calculating Fair Prices?
• How it should be done?

– Cost plus strategies.
• Price = Fixed Costs + Variable Costs + Profit margin.
• Higher costs ok b/c of Price inelasticity of demand.
• Can be varied in case of demand fluctuations.
Calculating Fair Prices?
• Fairtrade International Price and Premium info.
4. Knowing that flower production depends on the availability of water, how long can the water bodies in Africa continue to feed flower production and still have enough for human consumption and, importantly, remain unpolluted?

• Complex planning process – growth, harvest, transportation
• Influenced by factors (Ahumada and Villalobos, 2011, p. 677)
– Freshness (Amoriam et al, 2012, p.89; Dong, Kouvelis and Tian 2009, p.325; Chew, Lee and Liu, 2009, p.145)
– Level of technology
– Distribution processes
– Timing (weather and demand) – Maximising yield
– Cost of labour

All affect COSTS.
- Determines the breakeven point and then the price (but must stay competitive).

Amorim, P, Gunther, H, Almada-Lobo, B 2012, ‘Multi-objective integrated production and distribution planning of perishable products’, International Journal of Production Economics, vol. 138, no. 1, July, pp.89-101.
Omar, A, Villalobos, R 2011, ‘Operational model for planning the harvest and distribution of perishable agricultural products’, International Journal of Production Economics, vol. 133, no. 2, October, p.677-687.
European Flowers or African Flowers?
European Flowers: Strategies
• Implement pull-model supply chain(distributors place orders and producers determine export quantities) (Xiao and Chen, 2012, p.812)
– Right products to right customers at the right time
– Minimise wastage by being timely

• Refrigeration throughout distribution (Fitzgerald et al, 2012, p.1885).
– minimise spoilage

• Reusable sustainable packaging(Drezner and Scott, 2013, p.301).

• Single distribution centre (Drezner and Scott, 2013, p.301).
– Keeps flowers refrigerated in the interim



African Flowers: Strategies
• Research and develop local species
– innovation (Mathee et al, 2006, p.519)

• Crop resilience focus
– lowering long term shipping costs

• Less water intensive focus – reduce usage
of clean water on flowers (Mekonnen et al, 2012, p.3725).
– approximately 7-13 litres per rose
– 90% of a flower is water
– Government increasing water costs to deter

Mathee, M, Naude, W, and Viviers, W 2006, ‘Challenges for the floriculture industry in a developing country: a South African perspective’, Development Southern Africa, Vol. 23, no.1, October, p.511-528.

Pricing and Recommendations
Scarcity of Water and Increasing African Populations.
The Floriculture Industry: Benefits and Dangers
Household and Farm Solutions
Government and Consumer Solutions
Questions?
Thank you.

Due to factors such as urbanisation, changing climate patterns and population growth

Estimated in the next 40 years that Africa's population will more than double.

By the year 2030 agricultural production will increase by 49%


(Jansen et al, 2006: 593), (Cleland, 2013: 543), (Monteiro et al, 2010: 2218)
(Mekonnen et al, 2010: 7)
Benefits:
- Employment
- Income
- Infrastructure e.g. Schools and Hospitals
Dangers:
-
Utilise a majority of water bodies
- Biodiversity Issue such as contamination and
pollution


(Mekonnen et al, 2014: 463), (Egboka et al, 1989: 63),
Conventional Treatment Plants
- Distribute clean water into households
- 4 methods: Thermal, Photolytic, chemical and filtration

Solar Water Distillers
- Estimated to reduce 96.3% of contamination
Large Scale water recycling systems
- low environmental impact
- economic benefits to farmers
- utilises existing resources
Introduction of legislation that:
- Monitors
- Regulates
- Assesses
Water similar to South Africa's National Water Act 1998
Product certified Label for foreign Consumers
Cut flowers have the highest productivity per unit of water than any other agricultural trade within African countries
(Kremer et al, 2008: 9), (Smieja, 2011: 549:553), (Antwi, 2011: 333), (Naddeo et al, 2013: 289), (Nomquphu et al, 2007: 306-308)
(Gorger, Hull, Barrientos, Gereffi, Godfrey, 2014)

(Gilsing, 2013 pg. 12).
(Kadi, Njogu Njau, Mwikya, Kamga, 2011, pg 13)
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