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December 17, 2008

South African flower exporters hit by high production costs, global economic downturn

by Penny Haw

Many in the cut flower industry believe the wilting period will persist for some months to come as the full impact of the financial crisis rocks the global economy, but most are encouraged by the continued development of new markets and potential for trade with other previously untapped countries.

Costs for transport, fertiliser, heating and cooling have gone up. This increased production costs for growers, distributors and exporters. To make matters worse, with the recent widespread financial chaos has come a 20% decline in average cut flower prices compared to this time last year in some international markets.

"Growers in particular have experienced tremendous financial pressure this year," says René Schoenmaker who, as the Johannesburg director of major flower exporting company Bergflora and a member of the South African Flower Growers Association, is a key figure in the flower export trade. "But I believe the economic crisis is going to further impact everyone in the industry. Flowers are luxury items and it is inevitable that, in addition to the pain of lower returns we have experienced already, we are going to feel the sting of reduced consumer spending in future months."

In the face of uncertainty, Schoenmaker believes it is essential for organisations in the industry to remain "financially solid" by keeping costs as low as possible, working smarter, and standing firm when it comes to inevitable requests to extend credit and collecting outstanding debt promptly. "Now, more than ever, I think it is important to be realistic and cautious, and to safeguard businesses against the probable effects of the imminent slump," he says.

On the other hand, Schoenmaker is optimistic about the future for exports by SA's cut flower market. He believes business will flourish where companies continue to extend existing trade, and where they make the best of opportunities in new sectors and where gaps from other export countries allow.

Bergflora is one of a handful of local organisations that have, in recent years, taken advantage of the burgeoning cut flower market in the United Arab Emirates (UAE), which has blossomed as a result of increased demand in the tourism industry and the general improvements in the standards of living in the emirates.

Industry experts in the UAE claim that the cut flower and plant market has been growing by about 9% a year and estimate that at least 200000 rose stems are brought into the emirates every week. Other fresh-cut flowers that are in particular demand include chrysanthemums, orchids, cymbidium, carnations and lilies.

The market is further boosted by the fact that, in Dubai alone this year, the municipality undertook more than 100 landscaping and beautification projects, worth an estimated $125m. These projects added a total of 113ha of greenery to the city.

Accentuating its quest to be recognised as the floral hub of the Middle East and strategically located at Dubai International Airport, the new Dubai Flower Centre has become the primary export, transit and redistribution centre for flowers and plants in the region. The highly-automated centre, which has a floor area of 100000m' and handling capacity of more than 300000 ton s of perishable product a year, is said to be among the world's most sophisticated cool chain structures.

In March Bergflora exhibited at International Plants Expo Middle East, which took place on more than 6000m' at Airport Expo Dubai and attracted an international audience from 51 countries. Some 250 exhibitors from 25 different countries presented nursery plants, blossoming pot plants, green plants, cut flowers, soils, peat, substrates and products for plant protection, as well as horticultural and irrigation technology.

"It was an extremely valuable event," says Schoenmaker. "Not only did we cement relationships with customers in the Middle East at the exhibition, but we were able to extend our business in Japan through contacts made there."

The cut flower market in Japan is estimated to be worth R84bn in terms of retail value and is expected to grow by 25% to around R105bn by 2010. South African flower exporters can reasonably be expected to benefit from growth in that market.

New cut flower markets are also emerging in Eastern Europe and, while Schoenmaker cautions that importers in countries in this region "still need to get their house in order in many cases", he is optimistic new trade opportunities will transpire there in future.

The International Plants Expo Middle East exhibition will take place again at Airport Expo Dubai from March 3-5 next year. The event coincides with the premiere of the World Of Perishables Middle East, which is a dedicated trade exhibition for fresh produce taking place alongside the plants expo. International Plants Expo China takes place in Foshan from December 1-3 , while International Plants Expo Essen is in Germany from January 29 to February 1.

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