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Feature Story

South America
                       looks ahead


Growers in Colombia and Ecuador combat economic challenges by emphasizing quality, innovation and new market development.

by Amy Bauer

    In addition to their own economic woes, South American flower growers continue to fight rising fuel costs and the uncertainty of future trade status with the United States. But these challenges, which have been ongoing in recent years, are being faced with hope, say representatives of the Association of Colombian Flower Exporters, Asocolflores, and Expoflores, the Ecuadorean Flower Growers and Exporters Association.

tax-free trade
    Imports of cut flowers from Colombia and Ecuador continue duty-free into the United States at least through the end of this year, after the U.S. Congress passed another extension of the Andean Trade Promotion and Drug Eradication Act (ATPDEA) through Dec. 31, 2008. The trade pact, which also allows duty-free imports of many products from Bolivia and Peru, was to expire Feb. 29. The continued extensions—this is the third since late 2006—have kept the entire industry in long-term limbo.
    Colombia has signed a Free Trade Agreement (FTA) with the United States, which would supersede the ATPDEA and make duty-free trade permanent, but it too remains in limbo. President Bush has campaigned for Congress to approve this pact, and, according to a July 13 story in The New York Times, “Colombia Trade Deal Is Threatened,” has won the endorsement of nearly 100 newspapers and a number of top Democrats.
     Since August 2007, according to The Times, at least 55 members of Congress have visited Colombia. Asocolflores has hosted many of these delegations, one of which included U.S. Secretary of State Condoleezza Rice, in visiting flower farms and discussing the effects of the deal on the floriculture industry.
     But Democratic leaders in Congress have opposed the agreement, as have U.S. labor unions, and are seeking aid for American workers in exchange for approval. The presidential candidates also are split on the trade deal, with Sen. John McCain, R-Ariz., supporting the FTA, while Sen. Barack Obama, D-Ill., has opposed it. Sen. McCain visited Colombia in early July and urged passage of the agreement.
    “We still think the FTA has a chance,” says Augusto Solano, president of Asocolflores. “Of course, there is political uncertainty.” He referenced the Colombian government’s early July rescue of longtime hostages, including three Americans, from leftist rebels. “I think the rescue of the hostages and the success of [Colombian President Alvaro] Uribe with this rescue has confirmed that he is the strongest, most faithful ally of the United States in South America,” observes Mr. Solano, who spoke in a telephone interview from his office in Colombia. “We hope that will make members of the Congress who were not in favor think it over again. This is just giving fair-trade opportunity to a country that has been an ally.”
    But Mr. Solano says even if the FTA is not approved by the end of the year, he anticipates another temporary renewal of the ATPDEA. “So we’re confident that we will get it one way or the other,” he explains.
     Ignacio Perez Arteta, executive president of Expoflores, shared his perspective on the most recent extension in an e-mail interview. “It has given a relatively short relief because the extension was given for just 10 months,” he says. “Both our customers and our associates [the growers] are expecting a solid long-term arrangement.”
    Ecuador has not negotiated an FTA with the United States, and President Rafael Correa has said he won’t sign such a deal. Instead, he has pursued a long-term extension of the ATPDEA to maintain duty-free trade status for Ecuadorean goods into the U.S. market. Relationships between the two countries have been strained; the Bush administration broke off trade talks with Ecuador in 2006 after the country revoked the contract of U.S. company Occidental Petroleum, and President Correa has said he won’t renew the United States’ lease on a military base in Ecuador when it expires in 2009.
     Mr. Arteta says, “We aim that the next U.S. leader will bring a different view of the region, and if that is the case, we do see our government willing to sit down and possibly begin some type of long-term agreement—not necessarily the Free Trade Agreement.”

currency pinch
    The U.S. dollar’s value also has continued to slide over the past year versus the Colombian peso, continuing a trend that has been evident over the past five years. As of July 9, the exchange rate was 1,764 pesos per dollar, versus 1,924 pesos per dollar in late July 2007.
    “The devaluation of the dollar has put more pressure on the growers as income has decreased at a time when the costs of production are still increasing,” Mr. Solano explains. Because growers are paid in dollars for their products but their costs accrue in pesos, for many it is a losing proposition. Mr. Solano says some farms have been forced to close, and all are trying to find ways to keep costs down. “The oil prices and the weakening of the dollar—that’s an explosive mix,” Mr. Solano observes.
     Ecuador’s currency is tied to the U.S. dollar, so while it doesn’t face the same currency gap, it does face the decreased buying power that comes with the dollar’s fall. Mr. Arteta says Expoflores is watching the presidential election closely because policies that affect the U.S. economy also may affect Ecuador’s currency.

  agriflor, international flower trade exhibition

 
 
    The biennial international flower exhibition celebrating Ecuador’s flower trade—FlorEcuador, Agriflor 2008—takes place this fall. Maria Elena Flores, of organizer HPP Exhibitions, says about 2,000 attendees are expected to visit Quito, Ecuador, between Wednesday, Sept. 24, and Saturday, Sept. 27, for the 12th edition of the show. More than 200 exhibitors are expected.
     An opening party, with the theme “Quito, Closer to the Sun,” is scheduled for Thursday, Sept. 25, at the city’s Crystal Palace (Itchimbia). An international jury will judge the Growers & Breeders Quality Competition, and growers can take part in farm tours in addition to trade-show activities. Registration details are available at www.florecuador-agriflor.com.


 


  florverde adds certification

 
 
    Florverde®, the socio-environmental certification program of Colombia’s Asocolflores, has gained additional international clout with its certification by GlobalGAP (The Global Partnership for Good Agricultural Practice). Products from the more than 100 Florverde-certified farms will carry the GlobalGAP seal, and the two standards are now equivalent, Asocolflores announced in June.
    GlobalGAP, formerly EurepGAP, is a private-sector organization that sets voluntary standards for certification of agricultural products worldwide, with the goal of establishing a single standard. Florverde also has been asked to join in the organization’s development and governing committees, which set its standards.
    “Retailers and flower wholesalers around the world will be able to recognize and feel more confident than ever before that Florverde meets these high international standards,” Asocolflores President Augusto Solano commented in a news release announcing the certification. GlobalGAP studied Florverde operations for more than a year.

 

 

escalating costs
    The high price of crude oil affects more than just the cost of shipping flowers. Farm inputs tied to crude, such as oil, fertilizer and even plastic containers, are similarly seeing price spikes.
    “This has increased our production prices dramatically and, as the markets cannot pay more, so this has affected our margins,” Mr. Arteta explains. He estimates costs for growers have increased 60 percent.
     In Colombia, Mr. Solano estimates that transportation costs make up 25 percent of the price of cut flowers being shipped to the United States, making the rapid rise in fuel costs over the past few years especially painful. And Colombia also is experiencing high interest rates, near 10 percent, making the cost of capital for growers more expensive.

pushing productivity
    While growers continue to try to increase productivity and look for value-added opportunities, such efforts already have been ongoing and have limits during these continued times of economic crunch, Mr. Solano observes. He expects these increased costs must be passed on to buyers, and he notes that the challenges extend through the floriculture industry as a whole.
    “We have to struggle for the disposable income of the consumer,” Mr. Solano remarks. “So quality, service, innovation, they’ve been part of the business always, but now, more than ever, we have to use that as a way to face the challenges of the weak economy.”
    Stan Pohmer, CEO of Pohmer Consulting Group, says that while all segments of the floral chain have experienced significant cost increases, this isn’t being reflected in higher retail price points; most of the costs are being absorbed at the expense of profitability. “Granted, sales are soft, we’re in an oversupply situation and we’re a deferrable purchase, but we’re one of the only categories in the supermarket that hasn’t passed on our increased input and logistics costs to the consumer,” he states. “The consumer is conditioned to expect retail increases in today’s economy, and we need to use this opportunity to our advantage.”

new trading partners
     Both Colombia and Ecuador have been diversifying their international markets in recent years, reducing their dependence on American buyers in this time of trade uncertainties. Mr. Arteta says demand and the prospect of better prices, in addition to the threat of trade falling through with the United States, have pushed Ecuador to new floral markets. Three years ago, 75 percent of Ecuador’s flowers were sent to the United States, and today approximately 55 percent reach the U.S. market, he reports. New markets include Russia and other countries of the former Soviet Union, European countries, Canada and Chile, Mr. Arteta says.
     Colombia recently negotiated a free-trade agreement with Canada, which, at press time, was awaiting approval by the countries’ congresses, so more flowers are expected to enter that market. Asocolflores also has promoted Colombian flowers to Russia, the United Kingdom and Japan, but it also is focusing on more European countries. In Europe, Colombia is negotiating a trade deal similar to the ATPDEA. Mr. Solano says that is taking more time because Europe wants to deal with the Andean countries as a group rather than individually. Switzerland and Norway also are in Colombia’s sights. “For Colombia, it’s important to have a more diversified market for sales,” explains Mr. Solano. “However, I think the U.S. will remain the main market.”

Reach Contributing Editor Amy Bauer at abauer@superfloralretailing.com.

Some photos courtesy of the Association of Colombian Flower Exporters, Asocolflores.

Super Floral Retailing • Copyright 2008
Florists' Review Enterprises, Inc.