Horticultural Trade Follows the Overall Political Situation
Horticulture is showing that it is largely stable and optimistic in spite of the many economic and political uncertainties on the markets. Notwithstanding Brexit, the embargo on Russia and terrorism, the flower and plant worlds are continuing to revolve even if not always in the traditional orbits.
The characteristics of the last few years in the global trade continue to exist. The worldwide demand for flowers and plants is concentrated in the European countries, China, Japan and the USA. The Netherlands remain the undisputed number one as the hub for the trade inside the EU. They are responsible for almost 70 % of the export activities of flowers and plants inside the EU. As indicated by the latest figures from EUROSTAT, the trend towards rising imports of flowers and plants into the EU is persisting as far as both the quantity and the value are concerned.
In 2015, a total of 504,952 tonnes (+ 8.2 %) worth Euro 1.68 billion (+ 5.3 %) was imported by the EU. As in the previous years, the cut flowers which account for 78 % of the total imports into the EU are mainly responsible for the rise in the imports. At 5.3 %, their growth in terms of value exactly corresponds to the total growth. The increases in the imports may be attributed almost exclusively to the cut flowers; cut flowers are the sole driving forces behind the growth in the EU’s foreign trade.
The fact that the import quantities are rising at higher percentages than the import values shows that the trend towards increasingly higher-value products in the last few years is no longer persisting. In contrast, the longterm development in the shift with regard to the countries of origin is continuing even further. With approx. 27 % of the imports, Kenya remains the undisputed number one amongst the EU’s countries of origin, followed by Ethiopia, Ecuador and Colombia. As classic cut flower producers, these countries are responsible for the described increase in the EU’s imports. They are consolidating their market positions as exporters to the EU even further.
In contrast, export countries such as Israel, the USA and Costa Rica are displaying a declining trend.
The EU’s Export Values are Rising – Its Export Quantities are Not
According to EUROSTAT, flowers and plants in a quantity of 664,000 tonnes and a value of Euro 1.98 billion were exported from the EU in 2015. In comparison with the previous year, that is a decline of 3.1 % as far as the quantity is concerned. The EU’s exports which have exhibited an upward tendency for ten years are thus declining for the second time in succession since 2013. At the same time, it is possible to establish an increase of 5.1 % in the value which relates to all the ranges of flowers and plants. Falling export quantities with rising export values mean that increasingly higher-value products are being exported by the EU’s member states.
Trade Surplus Continues to Exist
In spite of the EU’s increased imports of cut flowers and thus the repeated extension of the negative balance of trade in the segments of the cut flowers and the cut foliage (in 2015: approx. – Euro 620 million / in 2014: approx. – Euro 500 million), the EU’s balance of trade turns out to be positive. The overall consideration shows a trade surplus amounting to approx. Euro 300 million in the case of flowers and plants. The trade surplus has now been detectable since 2002 and may primarily be attributed to the exports of flower bulbs and tubers from the EU. Target Markets of the EU’s Exports Only with Slight Alterations At first glance, the target markets of the EU’s exports turn out to be similar to those in thepast. Russia and Switzerland remain the countries with by far the strongest demand for European flowers and ornamental plants. In 2015, the EU exported, in each case, 20.5 % of the export value to Russia (compared with 21.3 % in 2014) and to Switzerland (compared with 20.7 % in 2014), followed by the export markets of the USA (11.2 %), Norway (8.2 %) and China (5.9 %). At second glance, it is conspicuous that the declines in the exports to Russia are being compensated for by the growth of the other target markets. This means that the EU’s member states are extending their core export markets even further. At present, the individual exporting countries in the EU are making correspondingly intensive efforts to gain footholds in countries which they have neglected in the past. For example, countries such as Turkey, Ukraine, the United Arab Emirates or also Japan are being courted to an increasing extent. Federal Minister of Agriculture.
Schmidt recently stressed that Germany’s close partnership with Turkey in the agricultural field would be continued while Dutch firms at Flower Expo Ukraine 2016 affirmed that they wanted to strengthen their cooperation with Ukraine. With the exception of Ukraine, it is possible to establish slight rises of up to 1 % with regard to all the target markets of the EU’s exports. The ranking of the different target markets in relation to the sales value thus remains constant.
Two Discussion Subjects are Dominating 2016
The EU’s rising imports and exports of flowers and plants are an indication of stable to increasing trade in the sector. Precisely the export values not only of the Dutch but also in Germany are exhibiting record values and might ensure an optimistic outlook in the sector. For example, the positive development of the Dutch exports is persisting in the autumn of 2016, too, after 2015 had already yielded a record export value of Euro 5.6 billion in total. Nevertheless, uncertainty is spreading around the European market in 2016. “Brexit” and “Russia” are the central subjects in this respect.
Brexit – All Quiet on the Western Front!?
With Great Britain’s decision to withdraw from the European Union in the summer of 2016, it is possible to establish a degree of uncertainty in both the European and worldwide trade in flowers and plants. Until 2016, Great Britain imported flowers and plants from suppliers and traders in the EU’s member states for a market value of approx. Euro 1 billion per year. Already since 2011, Great Britain has thus constituted the second-largest import market for ornamental plants inside the EU. The Britons were and are one of the most important trading partners for suppliers and traders not only from the Netherlands but also from Germany, Italy, Denmark and Belgium. The trade relationship between Great Britain and the Netherlands is close: In 2015, the Dutch exported 17 % of their total exports of ornamental plants (approx. Euro 925 million) to Great Britain. That corresponds to 80 % of all the cut flowers and 70 % of all the plants imported by the Britons.
Great Britain also accounts for a large proportion of the general rise in demand for flowers and plants in the EU. Great Britain exerted an extremely positive influence on that slight increase in the turnover resulting from sales of flowers and plants in the EU which was registered in 2015, i.e. by 0.5 % in total to Euro 32.4 billion. The trading partners, particularly from the Netherlands, are correspondingly nervous about the as yet unforeseeable effects of Brexit.
This nervousness is existing justifiably although the purchasing behaviour of the Britons has not yet altered according to surveys conducted by the Dutch auctioneers Royal FloraHolland. After a short-term decline in the sales quantities by approx. 5 % directly after the referendum in June 2016, the sales are currently turning out to be exactly the same as in the previous year with regard to the plant types and quantities.
One interesting fact is that the British traders are keeping the consumer prices of flowers and plants on the same level as in the previous year in spite of the devaluation of the British pound (more expensive purchasing). At present, the selling prices are thus being “subsidised” or compensated for at the expense of the British flower traders’ own profit margins. Therefore, the problem has been borne by the British traders until now – for how much longer?
Although this sales behaviour is preventing declines in turnover and is leading to constant sales figures, it will put the Britons off trading in flowers and plants in the long term. At the latest when additional customs duties are imposed and the lead times are delayed, the goods imported from the EU until now will become increasingly unattractive to the British traders. Many of them will look for solutions. In this respect, three scenarios are conceivable:
- Passing the more expensive purchasing prices on to the ultimate consumer: The traders increase the final selling prices of flowers and plants corresponding to the exchange rate losses with the dangers that the Britons will generate a lower demand for the products and the demanded quantities will decline. In the long term, precisely the customers of the specialised retail trade will be unable to avoid increases in the selling prices if they still want to afford the “expensive” goods imported from the EU.
- Extending the trade relationships to and direct imports from suppliers in third-country states: Trading companies which, as individual companies or as purchasing cooperatives, are large enough to be able to buy their goods directly in the production countries in Africa and Central America will set up corresponding trade relationships, will divert their flows of goods as direct imports and will no longer take the route via the Netherlands. In the case of this scenario, it will be interesting what customs duties will be applied later on and what effects these will exert on the direct imports.
- Extending the domestic production: The British producers could extend their production. Because of the energy and cost situations, a domestic extension is rather unrealistic but conceivable on a small scale.
Thus, it must be feared that the trade in flowers and plants inside the EU will inevitably come under pressure in the long run because of Brexit. In expert circles, it is being assumed that the major effects of Brexit will only become discernible in two years.
Precisely the central purchasing departments of the supermarkets such as Tesco, Asda, Aldi, Lidl and co. which already have market shares of over 54 % for cut flowers and 32 % for house plants in Great Britain at present will look for purchasing alternatives and service providers outside the EU and contribute to an alteration in the flows of goods. The trend towards direct imports of the system trade can already be observed throughout Europe and will be accelerated once more in Great Britain due to Brexit.
In this respect, the British purchasers will certainly focus on countries such as Kenya, Colombia, South Africa, Turkey, Israel and Morocco even more strongly than until now.
New Sales Markets in the Field of Vision
It is a fact that particularly the Dutch flower wholesalers have intensively been on the lookout for new sales markets since Brexit. In this respect, their thoughts are heading in all directions, both inside and outside the EU (e.g. the USA or China). According to Royal FloraHolland, precisely China is “mad about flowers made in Holland” and, in spite of an economically tense situation, remains a very interesting growth market for the exports of flowers and plants. Experts estimate that the per-capita consumption of the Chinese will alter considerably because of the transformation of the society in China (15 million Chinese are rising out of poverty into the middle class), similar to the growth markets in Mexico, Brazil or Argentina. If that were the case, experts estimate that the market potential for flowers and plants on the consumer level in China would treble from Euro 5.5 billion at present to Euro 16.5 billion.
Against this background, Royal FloraHolland’s export targets of wanting to raise its export value from Euro 10 million at present to Euro 200 million in 2020 might be realistic. It remains to be seen to what extent other EU states will be allowed to and will participate in the upswing and in a “Made in the EU” designation.
Russia – and Its Embargo
How important it is to find new, reliable sales regions for flowers and plants is also shown by a look at Russia as a market partner. Because of the embargo on agricultural imports for the states oriented to the west (the EU’s member countries, the USA, Canada, Australia and Norway), Russia is continuing to lose its significance as the most important target market for the EU’s exports.
As an answer to the EU’s sanctions against Russia, the Russian market will continue to remain closed to a large proportion of the European agricultural products and food until the end of 2017, too, for the “protection of the national interests of the Russian Federation”. This state of affairs will be exacerbated by the political situation in Syria.
The Netherlands, the undisputed number one and the “hub” for the exports of flowers and plants inside and outside the EU, are once more illustrating how dramatic the decline is. For example, 44 % of the cut flowers sold in Russia in 2015 came from the Netherlands (Ecuador: 36 % / Colombia: 13 %). The Netherlands’ share of the exports to Russia has more than halved in the last three years. While Russia still occupied fourth place amongst the top-ten export countries of the Netherlands in 2014, Russia no longer appeared on this list at all in September 2016. Already in the spring of 2016, Russia’s export share fell below the 3 % limit to approx. Euro 44.5 million (in comparison, Germany’s export share: 30 %). At the same time, Poland exhibited an export growth of 13% to Euro 55 million for the Dutch. However, as can be seen on the markets for fruit and vegetables, the loopholes for goods from the EU to Russia are becoming smaller.
Persisting Alterations
While, at the beginning of the Russian crisis, many traders and experts were confident that the EU’s export activities to Russia would be restricted in the short term only, ever more indicators are currently suggesting that the effects and alterations caused by the embargo on Russia will be more long-term.
According to experts, Russia is currently consolidating its trade relationships outside the EU and is extending its own production. It is difficult to imagine that these measures (once installed and implemented in a functioning way) will once again be replaced by the EU’s exports at a later point in time. Thus, not only India and Vietnam but also Japan are currently showing great interest in Russia as the world’s fifth-largest importer of flowers and plants. They are inspecting the market and are studying the needs of the Russian consumers and traders precisely.
For example, Vietnam has recently set up direct flights to ten Russian cities for cut flowers in order to position itself as an allyear- round producer of fresh flowers and plants, primarily direct flights to the Moscow metropolis and its surroundings. According to experts, over 40 % of the cut flowers purchased in Russia meet the demand solely in the Moscow region and it surroundings. This concentration of the market is making its exploitation easier. Vietnam is thus establishing itself as a permanent fixture in Russia’s international trade.
In addition to the setting-up of new sources of supply outside the EU, Russia is increasingly placing its faith in extending its degree of self-sufficiency. It is well-known that there are increasing investments in high-tech greenhouses in Russia (status in 2015: approx. 168 ha). Experts estimate that the Russian production of cut flowers has risen by at least two-and-a-half times in the last four years. Accordingly, approx. 15 % of the domestic market share is being served by cut flower production from Russian sources at present. An impressive growth rate which, however, also simultaneously shows that Russia still has high import needs.
These import needs are also continuing to exist and may increase even further in spite of the endeavours to increase the degree of self-sufficiency. Flowers have a very high status in Russia in the case of festivities and the Russians have recently discovered flowers for their own needs, too. Similar to the case of China, the question also being asked here is when and how the EU will be allowed to participate in this trend. The sector is hoping that the Russian crisis should be overcome in ten years at the latest and unrestricted trade between Russia and the EU will take place once again. It is not advisable to rely upon that. In the past (even before the embargo), Russia has not always proven to be a reliable trading market.
Beneficial Outline Conditions in Germany
According to initial findings, the German markets for flowers and ornamental plants are turning out to be stable to positive in 2016 irrespective of any turbulences on the market (Brexit / persisting embargo on Russia). This fact is based on the positive consumer confidence and is thus associated with a good consumption mood.
Similar to 2015, a stable development on the labour market with increasing employment and rising real wages (+ 2.6 % in the first quarter / + 2.3 % in the second quarter of 2016) is ensuring distinct income optimism with an undiminished consumption appetite. In contrast with Great Britain, the consumption climate in Germany is proving to be absolutely resilient in spite of Brexit and terrorist attacks (note about Great Britain: in the autumn of 2016, 60 % of the Britons are uncertain about the future and will presumably reduce their personal expenditure on fashion, lifestyle, home and living).
According to the forecast made by the Consumer Research Association (GfK), the private consumption expenditure (as an important pillar of the economic development in Germany) will rise by approx. 2 % in 2016. The traders are also noticing this stable consumption climate on a good level. For example, after the first half of 2016, the German Garden Industry Association (IVG) and the Trade Association for DIY, Construction and Gardens (BHB) are, in spite of the unfavourable seasonal weather conditions, reporting slight growth in the sector which, by the end of 2016, will reach at least the same level as in the previous year.
In its autumn forecast in 2016, the federal government is assuming stable growth of the German economy. Accordingly, the economic growth is stable at 1.8 %. Also in countries such as Poland, Portugal and Turkey, the consumption mood is good and there is a persisting trend towards a rising demand for flowers and plants. Another beneficial factor in Germany is that the outline conditions for horticulture will improve according to the future strategy in horticulture. At the end of October 2016, a resolution entitled “Strengthening Horticulture as well as Horticulture and Landscaping as Innovative Branches of the Economy and Making Them Fit for the Future” was unanimously passed in the Lower House of the German Parliament.
Mother’s Day – The Measure of All Things
In 2016, too, most of the German wholesalers were satisfied with the Mother’s Day business as one of the most important days for selling flowers and plants. Thus, the Association of the German Flower Wholesale and Import Trade (BGI) is reporting stable prices with a tendency to slightly increased sales quantities. Veiling Rhein-Maas is also reporting good sales with the second-highest total turnover in the last six years. One interesting observation made by market experts is that it was possible to trade, above all, high-value products at very good prices. That corresponds to the objective of German horticulture, i.e. higher value added due to higher appreciation.
Prices Good – Everything Good!
Accordingly, high-quality products are in the ascendant outside the Mother’s Day business, too. However, the phenomenon of the higher prices is being reported only occasionally by just a few traders. Although the Federal Statistical Office has established rising consumer prices for garden products (cf. index in 2010 = 100, index in 2015 = 112.4) every year since 2010, the prices on the wholesale level are stagnating according to the statements made by wholesalers in BGI. In contrast, the prices of pot plants have risen by 53 cent per unit (plant or tray) on the ultimate consumer level within the last six years according to the Agricultural Market Information Company (AMI).
The situation looks different as far as the Dutch are concerned. The export increases established in the Netherlands are caused almost exclusively by rising prices. Thus, the average prices of Royal FloraHolland rose month by month in 2016 and reached a price level which had never existed in the history of Royal FloraHolland. It is astonishing that the high price level relates to all the ranges of flowers and plants.
At the start of October 2016, the highest average price of all time, i.e. 37.7 cent, was achieved at the marketing organisation. The average price thus rose by 5.6 %. At the same time, the proportion of the deliveries declined by 1.5 % at the start of October. Slightly altered sales channels towards the retail trade which had led to more fixed price agreements are presumed to be causes of the high average prices. This setting-up of “more reliable value added chains” can also be observed in the German flower and plant trade but, according to experts in the sector, was not implemented consistently enough because suppliers and wholesalers in Germany are hardly profiting from the rising consumer prices.
Conspicuous Features in 2016
German wholesalers are establishing that the specialised retail trade is increasingly focusing on aspects such as quality and regional production when purchasing flowers and plants. This observation is also being made in France where the “Fleurs de France” label is becoming more significant in the trade and the sales.
In the summer of 2016, the Dutch (Royal FloraHolland) made an analysis of the causes of the decline in the exports of plants to Germany in 2015 (- 3.8 % = Euro 83 million in comparison with 2014). Not only an increasing degree of self-sufficiency in Germany but also, above all, the trend towards regional products are being made responsible for the decline.
Will there also be an increased regional trend in the case of ornamental plants, just like in the fruit and vegetable sectors? The attitudes to regional, ecological and fair are known from consumer typology (Altmann, Kaim and Fluck, 2012) for the German market for ornamental plants. Accordingly, the consumers in all age classes have one thing in common, i.e. the wish for regionality is increasing but the purchases are not exclusively regional or German. In this respect, the knowledge that cut flowers in particular are coming from overseas seems to be decisive.
Instead, the purchasing decision is influenced by a large number of individual aspects. Thus, sustainable production (ecological/fair) is becoming ever more important in addition to the regional aspect. Here, it is interesting that the wish for a fair trade label is dividing the consumers. The advocates are 60 years’ old and more; not so much the young people. This is presumably the founder generation of the green movement from the 70s/80s who have retained their attitudes.
The main decision characteristic is and remains the quality (product & process). To this extent, it must be stated that German consumers also like to resort to imported goods if they feel addressed by the quality and the indicated values (respect for people and the environment). “Sustainability” and “regionality” thus promote the sales but, with regard to the purchasing decisions of the German consumers, are always seen in connection with the quality.
In addition to the regional aspect, the wholesalers established another peculiarity in 2016. The retail food trade is becoming more professional and extending its range. Accordingly, the retail food trade is increasingly daring to take on flowers and plants which have classically been reserved for the specialised retail trade until now and, in search of market shares, is “poaching” in the range of the specialised retail trade: A finding which is forcing the specialised retail trade to act and must be observed precisely.
Another peculiarity or observation in the wholesale trade is that, in the stagnating market of the pot plants, growth is occurring almost exclusively only via new and innovative products and concepts. Messe Essen’s “hortivation” fair staged in this connection for the first time in 2016 is thus pursuing the correct approach in order to sensitise the sector to innovations.
Conclusion
The worldwide flows of goods are in a state of flux. We have a stable demand in the EU and growth potential outside the EU.
Also in Germany, the flower and plant markets are proving to be stable and will ensure demand with a high consumption mood of the consumers in 2017, too.
One pleasing aspect relates to the rising prices on the retail trade level which, however, are not reaching everybody in the value added chain.
In 2016, Brexit and Russia are two dominant subjects whose effects will only be shown in the long term. Nobody should rely upon everything turning out alright. All the countries will do well to set up alternative sales channels and target markets for themselves, even if it is by intensifying existing trade contacts inside or outside Europe. Due to these reorientation measures, it may be assumed that, in 2017, the flows of goods will alter in conjunction with changing consumption behaviour in a few EU countries.
In this respect, the increasing direct purchases from the major central trading organisations in the production countries will certainly be a driving force.
It will be shown whether the EU has passed through a small referendum with a big effect or a big referendum with a small effect. It remains exciting – from east to west!
Sources: Expert discussions as well as EUROSTAT, AMI, BGI, GfK, VBG, TASPO and Gabot.
Dr. Marianne Altmann: CO CONCEPT, on behalf of Messe Essen for IPM ESSEN 2017