
Case
Ecuador: a Rosy export Future?
Rose is a rose is a rose is a rose —Gertrude Stein, “Sacred Emily” from Geography and Play (1922)
Stein intended her line to illustrate what a word can invoke. Given the many uses of “rose” throughout the ages, the word brings a nearly unique image and
emotion to each of us.63 It has been a name for daughters, an adornment for a garden or vase, a representation of a deceased versus living mother on
Mother’s Day, a mark of love on Valentine’s Day, an ingredient for perfume and medicine, confetti of strewn petals, and even the symbol of opposing armies
during England’s War of the Roses.
Some Global Changes
Although growers have sold roses for centuries, their perishability (they should usually be sold within three to five days of being cut) prevented extensive
export before there was timely, dependable, and economical air service. Today, roses compose about half the $14 billion cut-flower export industry.
Developing countries, many without significant domestic cut-flower markets, have accounted for the most recent export growth. The world’s largest exporter
is Colombia, with Ecuador and Kenya running neck and neck for the second and third positions. Given that consumers purchase roses as discretion rather
than as necessities, most exports are to high-income countries. Given the need to reach markets quickly and inexpensively, most exports are regional—Kenya
sends most of its flowers to Europe, Taiwan to Japan, Colombia, and Ecuador to the United States. However, chilling technology may soon allow cut flowers
to be sent in containers on ships. In addition to feasible air service, other logistical improvements have speeded the connection between growers and
consumers. Take, for example, flower imports into the United States. About 85 percent of the annual market enters by air through Miami, which has more
than 50 wholesalers and importers. These flowers, mainly from Latin America, are packaged where they are cut and air-freighted the same day. The
packaging often includes address labels and tracking information so as to avoid the costly and time-consuming process of re-packaging for transshipment.
On arrival in Miami, the roses are placed at once in refrigerated warehouses, where U.S. government customs and agriculture inspectors clear shipments by
spot-checking packages to ascertain their invoice accuracy and absence of insects. Of course, long before the growth in export markets, many countries
produced flowers for nearby sale, and some are still domestically focused. China and India have larger land areas under flower cultivation than any other
country, but their quality is insufficient to compete much internationally. Japan, the world’s second-largest cut-flower market has purchasing power, but it fills
most demand with domestic production. However, in many other countries, imports have largely displaced domestic output. For instance, the United States
now imports more than twice the value of its domestic flower production.
Ecuadoran Advantages
Developing countries have a labor cost advantage in the rose market because production is very labor-intensive at almost every stage—planting, fertilizing,
fumigating, pruning, removing thorns, assembling by size and rose variety, and packaging. Although Ecuador has this overall advantage, it has a labor cost
disadvantage with Colombia, its main competition, because its monthly minimum wage is almost $100 more. Further, its transport cost for roses to the
United States averages 20–30 percent more than Colombia’s. However, Ecuador has almost unique advantages in rose cultivation. Because the equator runs
through the country, the sun is
almost directly overhead throughout the year, which speeds growth and allows for year-round temperature consistency. It grows roses at high altitudes
(averaging about 2000 meters, or 6561 feet) that provide the very cool nights that are ideal. Seventy percent are grown north of the capital of Quito, and 30
percent to the south. These areas obtain water from the mineral-rich melting snow of the Andes. The result is that Ecuadoran roses have very large buds,
stems up to a meter in length, vivid colors, and extended vase life. The growers sell them at about a one-third price premium above Colombian exported
roses. In addition, because Ec-uadoran growing areas have less rainfall variation than those in Colombia, they enjoy a lower climatic risk. Nevertheless,
damage from weather conditions, particularly wind and rain, is uncertain for growers everywhere. In addition, the growing area south of Quito, because of its
higher altitude, can produce more premium roses (bigger buds and longer stems), but it is subject to a greater risk of frost than the area to the north.
Market Structure
Ecuador’s cut-flower exports, of which 73 percent are roses, have become very important to its economy, employing over 100,000 people directly and many
more in supporting industries. Its rose farms are typically owned by individual families, who engage in a mixture of cooperation and competition. They
cooperate through a producers’ association, Expoflores, to negotiate better airline carriage rates and find means to improve production methods; they
compete vigorously with each other for customers abroad, and it is common for them to sell below cost if they are short of cash and have excess supplies
that might otherwise perish. For Ecuador’s largest market, the United States, growers sell to both importers and wholesalers. The importers sell to large
customers, such as wholesalers, mass-market retailers (including grocery chains), and hotels. Wholesalers, in turn, sell to mass-market retailers or florists,
who then sell to final consumers. The farms have been trying to sell more directly to wholesalers in order to capture some of the margin in sales between
importers and wholesalers; however, too much effort to do so could jeopardize their existing sales to the importers on whom they depend. Given final
distribution fragmentation, it is impractical for farmers to sell directly to retailers abroad. Sales to importers and wholesalers are generally highly
personalized, handled via verbal agreement rather than a written contract, and dependent on trust. In most instances, there is a buyers’ market for cut
flowers, so exporters seek to develop confidence and trust among buyers to help secure repeat sales. For instance, if a farm cannot supply what it has
promised, perhaps due to adverse weather conditions, it will typically try to buy supplies from other producers in order to fulfill its commitment and build
buyer confidence. Negotiations take place largely via e-mail, but exporters make occasional visits to importers and wholesalers to help cement personal
relationships. Contacts, both in person and via e-mail, also help the growers plan the quantity of future production by date and rose variety. Growers generally
extend credit to the importers and wholesalers; however, if importers do not pay as agreed, then exporters require payment by letter of credit in future sales.
Sales are f.o.b. Quito, which means that growers keep title only until the roses are loaded on the aircraft; thus, they do not have legal responsibility if the
roses arrive damaged or no longer fresh. (They are responsible for damage caused by disease and for sending a different variety of rose than was ordered.)
However, the personal relationship in transactions means that importers, wholesalers, and growers work out the responsibility in such circumstances.
Although wholesalers and importers try to maintain high quality on roses sold to final consumers, there is an underground market for older and damaged
roses that is difficult to control


