Floriculture Demand Collapses Dramatically Under Coronavirus Pressure
Coronavirus (Covid-19) has spread rapidly across the globe. Measures to prevent further spread of the virus are affecting the global ornamental sector via demand, logistics, supply chains, and the general state of the economy. Potential effects will differ from day to day and are related to the specific characteristics of certain flowers, plants, companies, and countries.
Economies are being impacted in various ways. Many people are working less hours. Consequently, productivity and private consumption of flowers and plants have declined. Investor sentiment has turned negative. Trade has become cumbersome and more expensive, with prolonged waiting times at customs, less air freight, and port closures. The measures that have been or are currently enacted to slow the spread of coronavirus, like closing florist shops and garden centers and event cancellations, are having a major impact on floriculture around the globe.
Floral Sector Demand Has Collapsed
Floriculture Sales Rely Strongly on Events, Occasions, and Specialized Stores
For floral products, in particular cut flowers, demand has collapsed in many countries, as these sales are highly occasion- and event-driven, and a large share depend on sales through specialized stores, like florist shops and garden centers. In Europe, the lockdowns have resulted in a demand decrease of more than 70% for cut flowers. A high share of cut flowers are bought as a gift for birthdays as well as nationwide celebrations. Flower growers usually peak their production for special ‘flower days’ like Valentine’s Day (February 14), Easter (April 12), or Mother’s Day (usually the second Sunday of May). So springtime is an especially important period for cut flower growers. The impact of the ‘corona-crisis’ is very heavy because businesses can’t stop production within a short period. For some products, the effect is very severe. For example, in the Netherlands, forced tulips are produced by specialized companies between January and May. Initial estimates expect that at least 30% of their tulip production will not be sold this year.
Cut Flowers and Potted Plants
In Russia, Spain, and Italy, cut flower sales depend on the gift market for almost 90% of sales. In the Netherlands and Germany, the gift market counts for 50% of sales. In the US and UK, the gift market counts for approximately 70%. Furthermore, florist shops have been forced to close down in various countries, like Italy and Spain, or have closed because people do not currently visit the shops. In southern Europe, about 70% of cut flowers are sold via florist shops. In the UK , florist shops account for only about 25% of cut flower sales. In countries where supermarkets or DIY stores have a larger share in flower and plant sales, the total volume of sales has declined less dramatically.
Bedding and Patio Plants and Nursery Products
Bedding plants and nursery products (trees, shrubs, outdoor plants) realize over 70% of their annual revenue in springtime. So for Europe and North America, the current short-term period of March to May is very important. Much of this turnover is at stake, as more and more garden centers and gardeners are closing down business because of government regulations. Bedding plants can’t be kept in stock, so the production will end up on the compost pile if sales by garden centers and DIY stores are not possible. Also, sales to the so-called institutional market (state forests, municipality projects, etc.) might be postponed due to the crisis. Therefore, hedges, trees, and shrubs may not be sold this spring, and companies will likely run into liquidity problems.
High Uncertainty for International Trade
Floriculture traders selling abroad have to deal with additional challenges caused by border closures, port lockdowns, flight cancellations, and other logistical hiccups. Increasingly, countries around the world have closed borders. At some borders, formalities will delay transportation times, leading to additional costs. Flight disruptions have resulted in problems for some specific products, like cut flowers that are flown on passenger jets. A large share of Europe’s supply of cut roses originates from Kenya and Ethiopia. As air freight has been cut off and demand has collapsed, the East African flower industry is strongly impacted. Over 100,000 jobs in the Kenyan and Ethiopian flower industries are at stake.
The uncertainty about the situation and potential new challenges popping up are affecting the market. Prices of globally traded products like roses have dropped dramatically since Covid-19 began spreading internationally. Changes in exchange rates are another potential drag on trade flows. The USD index, for example, has risen 6% since March 9. For countries that are net flower exporters, such as Kenya, Colombia, or Ethiopia, this rise in the US dollar could soften their losses (Ecuador uses the US dollar as their national currency).
Longer-Term Effects Remain Hard to Predict
In such a fluid and rapidly changing situation, it is difficult to foresee how things will evolve. The type of ornamental product, customers, destination countries, and channels supplied define how and how much businesses will be impacted. Companies with cut flowers or bedding plants are generally more at risk compared to companies that supply indoor plants, trees, hedges, or shrubs. Businesses that have to cope with a strong drop in demand, logistical issues, and high labor costs have to react quickly by cutting down variable costs and deciding what activities to continue and what to cancel.
The long-term effects of this crisis are hard to predict, but in general, the ornamental sector is highly sensitive to an economic recession. After the global financial crisis of 2008/09, this became clear. Overall demand for flowers, plants, bulbs, trees, and shrubs decreased by 10% to 20% in Europe and North America, and it took over five years to revert to the sales levels of 2008.
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