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Volume Production Keeps Floriculture
Prices Low
Dana Rayl West, USDA/ERS
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The trend toward mass marketing of floral crops, while increasing
convenience and affordability for consumers, is forcing the industry
to restructure. Prices of fresh-cut flowers, bedding, and garden
flowering plants have been generally flat since 2000, and short-term
prospects offer scant relief. Now sold alongside common household
products in supermarkets, home centers, and discount stores, floriculture
crops are increasingly produced in large volumes.
These developments, although a boon to consumers, are subjecting
floral crop growers to downward price pressures on what had been
higher margin crops. Real wholesale prices have actually fallen
in the past few years, particularly for cut flowers, which face
unrelenting competition from cut flower imports. Bedding and garden
plants, such as mums, geraniums, and impatiens, remain at 2000
wholesale prices, in part due to higher production volume.
Throughout the 1990s, floral and other ornamental crops achieved
the fastest sales growth among U.S. crops. With a farm production
value of $14.4 billion in 2003, ornamental crops now rank fifth
among the top eight agricultural sectors that gross at least $13
billion in annual cash receipts, and trail only corn and vegetables
among crops. The recent U.S. economic slowdown, however, not only
flattened sales growth, but pushed down prices as well. To at least
maintain former sales receipts, many producers boosted production,
especially of bedding and garden plants, but low unit prices have
squeezed profit margins across the industry. The weak economy,
along with high labor costs and competition from imports, forced
growers to cut costs and boost productivity.
Labor costs in the floriculture sector are among the highest in
agriculture. The labor-intensive and seasonal nature of the ornamental
crop industry makes it dependent on hired workers. Growers are
responding to higher labor costs with automation, year-round greenhouse
production, and outsourcing of seedling propagation, which is increasingly
located in Mexico and Central America. But these trends have also
raised capital costs and overall debt.
Import competition has also been a catalyst for industry restructuring.
More than half of fresh-cut flower sales are from imports, but
there is hardly any import competition for finished flowering,
bedding, garden, and foliage plants, except from Canada. Thus,
in place of cut flowers, growers increasingly produce bedding and
garden plants, which now account for half of total floriculture
sales.
Mass marketing and volume production have led to a greater use
of contract growing of ornamental crops. Contract growing reduces
the market risk of ornamental farmers because sales are guaranteed
in long-term contracts. Some buyers also ensure product quality
by supplying such inputs as seeds, seedlings, fertilizer, and technical
expertise. These emerging practices in the industry are encouraging
specialization in product lines aimed at volume production, but
they are also intensifying price competition.
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