Floriculture is one of the industries that have grown to be a major global industry across the globe. The annual consumption of the commercially grown flowers fluctuate by source and varies from $50-$70billion. 90 percent of the usage on the demand part usage is however accounted for by five countries including Britain, Netherlands, United States, France and Switzerland.
Therefore, while global consumption has been on the increase simultaneous, buyers also have been more stylish in acquisition of new products. Niche markets in the US for example are becoming lead expansion prospects. For fulfil the increasing and changing demand, production has also continued to shift from countries that have been clients and growers conventionally compared to new producing countries.
The larger part of the US market for flowers that are freshly cut are also supplied by imports. This paper therefore aims at outlining the importation strategy for my new flower business that also intends to import flowers that are freshly cut from Ecuador.
The U.S Market
The usage of fresh flowers per family in the United States was estimated at $10.96 on average in the year 2010 with two thirds served by import, up from one and half in 2008. This rate of growth surpasses the demographic usage as well as progress in other agricultural products. The effect of growth in usage on prices has also changed in different flower varieties. For example in the case of roses, prices have been steady with a minimal increase in 2009 up approximately 50 cents by stem (Holt & Watson, 2008).
My proposed venture will import flowers freshly cut from Ecuador and sell them to supermarkets in the US and florist shops.
Effect of Bilateral Trade Agreement
A privileged trade agreement between Ecuador as well as principle ally, the US, the Andean Trade Preferences Act (ATPA) was signed in 1989 and later in 1990 sanctioned by the congress. Andean countries since then have witnessed no trade barriers when accessing US markets. Before 2006, flower exports were punished with barriers ranging from 6.5 to 6.9 percent.
The current trade preferences system was also set to complete at the beginning of 2008.while importers had protested that traditionally, Ecuador has an ATPA successor, the Andean Trade Preferences and Drug Eradication Act (ATPDEA) expired in the year 2007.
The US congress had to extend the law for a period of 8 months (Ponte & Gibbon, 2005). Ecuador’s president since the year 2006 has constantly made it clear that his government would settle for another extension as opposed to paying for damages that importers experience. The current mutual policy environment is also positive. In this regard, major importers foretold uncertainty of climate in Ecuador’s foreign trade method.
Ecuador in 2011 also settled for a free trade agreement in concession with US and it is now awaiting consent by the congress. Apart from enhanced business environment in Ecuador, a solid business relationship with the US has also created a balance in inward freight flows and led to a lesser outbound airfreight charges.
US Trade Measures
The cumulative trade overshadowed the average duty rate for all products that were enshrouded in the industry as per the 2012 imports and duty rates of the same year which was only 2.2 percent ad valoren; the average trade weighted duty rate was 8.3 for taxable products in preferential business programs.
Over three fourths of recorded imports under the Andean Trade Preferences Act however supported Ecuador and Colombia. Imports from Ecuador and Peru additionally record the highest import number under the same program.
The only nontariff standard affecting a fresh floral business is the phyto-sanitary rules. All fresh flowers imported must undergo thorough examination by the Animal and Plant Health Inspection Service (APHIS) of the United States Department of Agriculture to avoid the spread harmful plant pests (Holt & Watson, 2008). Many of cut flowers however do not permit despite the fact that they require documentation inspection from its country of origin for some species.
Examiners in general often necessitate that a box of flower selection or grower selection in every shipment should be unfolded. The examiners scrutinize flowers taken out from the shipment for any controlled plant organisms or pests. Cut flowers that are established to contain harmful animals are subject for apprehension and should at all times be destroyed if they can’t be treated successfully.
Foreign destination activities: Marketing and Distribution
Flowers are sold and distributed across the United States via different channels. There are two probable marketing scenarios once flowers are cleared by the United States Customs and APHIS. Conventional channel including the importer, retailer, wholesaler or channel that is typified by vertical amalgamation by various wholesalers with larger retail links for example Wal-Mart can be utilized by importers.
This kind of business will be applicable by the vertical integration system by wholesale supermarkets and bigger florist’s shops. The flowers will additionally be imported from Ecuador and marketed through alliances with other vertically unified import businesses in the US. Surprisingly, only 40 percent of flowers from Ecuador are enhanced using this kind of approach. Under the same scenario, about 80 percent of flowers will be imported through Miami and will be sold outside Florida. From the destination, the shipments will take to any state in the US in not more than a week via trucks (Ponte & Gibbon, 2005).
Since many clients make floral procurements from florist’s stores or supermarkets, the channels will sustain up to three quarters of all freshly cut flower transactions. Florist and supermarket outlets in the US have also achieved value as retail channels for the cut flowers simply because of the charges and urgency of conventional discount chains lost sales.
Additionally, the business will open an online those for anyone who wishes to make floral purchases online. Clients are slowly making their purchases for freshly cut flowers online and many of them are floral arrangements. Even though online sales may represent a small share of the total purchases, it is additionally becoming a fashionable floral sales spot.
International Transportation Costs
Ecuador has been chosen because of its lower transportation charges compared to many other countries. A common assertion that many importers of freshly cut flowers have in Ecuador is that transportation expenses are relatively lower in other countries thus, enhancing competitiveness considerably. In this relevance, debates confirming the assertion have been quite objective because of the ‘’asking price’’ rate that a commodity forwarder is more likely to quote.
When compared to equals from Colombia, importers confirm that the rate of cargo is $1.60 per kg while it is only $ 0.96 in Ecuador. By IATA data point comparison, a freight charge is estimated at $2.31 and $2.38 per kg, (Holt & Watson, 2008). Other approximations mean that the expenses incurred as a result of transportation of flowers from Ecuador often compromise up to 28 percent of wholesale unit value of a stem in the United States and 34 percent in Europe.
The Valentines Effect
Since this kind of business will in February start operations, it will be greatly influenced by the Valentine’s effect. The study means that the cost of transportation is relatively lower because of different factors. There is an additional capacity in air transportation fleet because of lower demand in the system somewhere else or additional space on some aircraft and low demand for flower shipment driving the cost of aggressive transport down.
What’s more, there are some demands in the same month that leads to low cost forward contracts for services carriage therefore, reducing general charges of outbound and inbound goods travel (Ponte & Gibbon, 2005). This means that establishing a flower import business in the month of February is a good idea and a success prospect because of low international transportation charges in the same month.
Cut flowers market prices are often susceptible to demand and supply conditions. Despite the fact that there are often huge budget from retailer alliance especially on holiday policies to a year on prices and sales for the flowers, the price is usually high in some festivals when the demand reaches a climax. Growers decide on the materials through their pinching and tactical planting programs as well as the weather.
During climax production, prices vary if the production does not equal demand. Physical features on the other hand including color, stalk length, outer shell and freshness are additionally essential in determining the prices for freshly cut flowers. The higher purchasing power of group companies and larger suppliers or importers is also essential features in the decision of the value of freshly cut flowers.
The low priced imports have also kept the prices of flowers freshly cut relatively lower. Minor importers have also had their profit levels significantly reduce as a result. My business will be in a position to sustain income by quantity discount negotiations with their transporters and cutting down on their charges.
My strategies for reducing the costs will include prolific flower varieties importation by breeders mainly in the 30-40 centimeter lengths designed for larger markets thus enhancing the quantity to import and reducing per stem charges as well as contract for courier companies that are more efficient (Ponte & Gibbon, 2005).
Road transportation infrastructure
The public transport of Ecuador includes 43, 198 km of roads and only 6, 468 km are cemented. Since many farms are located a few hours from the two main cities, there are freight agencies that are in good form thus facilitating transportation.
Guayaquil’s International Airport (GYE) and Quito’s International Airport (UIO) have state of the art refrigeration tools for perishable cargo. Besides, there is various freight forwarders specifically branded as freight agencies. More than 100 agencies have the refrigeration facilities and the ability of sending off automobile fleets to transfer semi-merged consignment to the airfield.
The ways to deal with problems, given the distance between Ecuador and the U.S Airport Infrastructure
The Quito internal airport is located approximately 2,815 meters within city limits and above the seal altitude. It is also functional between 5.00 a.m. and 1.00 a.m. on daily basis. During consumables peak season, in line with the Ecuador General Civil Aviation Directorate (DGAC), it operates round the clock. This is tailor made to ensure successful flower importation throughout the year (Ponte & Gibbon, 2005).
Fresh products transported by air as in the case of many consignments need to be put on top of roof pallets. The service provider or the airline with the airline carries out this undertaking generally. Charges considerably vary depending on whether the client is a consignment agent or an airline. Palletization costs range from $ 0.24 to $0.56 per box (Holt & Watson, 2008).
As for the process of palletization, despite many attempts being put in place to help maintain frozen flowers, it is not a rare scenario for airlines consignment palletization by agents under open environment cases because of lack of sufficient facilities.
U.S International Airports
Flowers from by business will be received at the Miami International Airport (MIA). MIA is the US flower delivery system focal system. The airport is followed closely by the New York International Airport, Los Angeles, and Dallas receiving more than 75percent of flowers utilized in the United States.
Flower imports via MIA in 2012 were valued at $ 992 million. Up to 140 importers run offices as well as refrigeration facilities of more than 140,000 square meters and employs up to 7,100 staff members. MIA receives between 40,000 and 90,000 boxes daily considering the time of the year.
Evaluation by the US Department of Agriculture Animal and Plant Health Inspection Service (APHIS), testing flowers for maladies and pests that can endanger agriculture in America can take up to five hours (Ponte & Gibbon, 2005). US Customs also frequently sign in the flowers using electronic means before landing and APHIS officers carry out examinations on 24hr basis throughout the year. Only 4 percent of the shipment is however realized to be non-compliant under the standards set by APHIS.
The United States is an important market for growers overseas and more specifically from South America because of high demand and high disposable salaries. In 2013, imports were estimated at $620 up from $ 580 million in 2012). Imports were also about 60 percent of the US market in the 2011-2013 periods with Columbia offering more than 50 percent of the same imports (Holt & Watson, 2008).
Freshly cut flowers are used for decorative purposes for example bouquets in official functions and vase placements, marriages designs, gifts for Mother’s day, Valentine’s day, in times of sickness, during funerals and during festivals for instance Easter and Christmas. More than 200 distinct types of fresh cut flowers are often traded in the U.S.
These details create the basis of my proposal for starting an import flower business from Ecuador to the United States. Importation of flowers also appears quite intricate but it is also a promising venture especially in the United States of America.
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Holt, D., & Watson, A. (2008). Exploring the dilemma of local sourcing versus international development–the case of the flower industry. Business Strategy and the Environment, 17(5), 318-329.
Ponte, S., & Gibbon, P. (2005). Quality standards, conventions and the governance of global value chains. Economy and society, 34(1), 1-31.