Seasonal Commodity: Year-Long Distribution

Whether buying roses for an anniversary gift in May, as a congratulatory offering after a recital in October, or for a loved one on Valentine’s Day in February, roses are always available for purchase in stores across America. When buying roses, the thought of the consumer is most always on the recipient of the flowers themselves rather than how this seasonal commodity continues to be sold in stores throughout the U.S. regardless of the season. Although these flowers are easily obtainable year round by the consumer, the producer does not have this same luxury.

If the consumer were asked to actualize the ideal conditions to grow roses, one might recall the saying, ‘April flowers bring May flowers’ or helping grandma garden in the spring. Neither of these examples apply to the production of these delicate flowers in the harsh winter months which leads to the question, how do producers supply roses year round without dramatic price increases imposed upon consumers?

The answer to this question lies in the innovative technology of greenhouses which are able to maintain optimal growing conditions for roses year round.

Although able to generate a year round yield, greenhouses have negative effects on production costs, introducing new fixed costs such as heating, cooling, and ventilation systems as well the building itself. These additional production costs present a new challenge for U.S. rose producers who already endure high labor costs in a labor demanding field. Stemming from this problem, a second option of growing roses in Latin American countries with substantially lower labor costs, such as Columbia, was introduced.

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By analyzing the difference in production costs of both producers in the United States and producers overseas, it will be determinable as to which process is more effective in reducing price inflation in the off season. Additionally, it will be understood how a rose, a seasonal commodity, is available for purchase year round. Evaluation of the difference in costs that both the U.S. and Latin American rose growers face, such as labor costs as well as costs that only one or the other face such as overseas transportation and packaging methods, is vital to the understanding of how these consumer prices do not dramatically inflate in the off season. Due to the low wages in Columbia and the ability to specialize in the rose growing business, allocation of rose production overseas delivers a lower total cost than American production despite the packaging and transportation costs.

Just a generation ago, when asked where roses are grown, the answer would have been somewhere in the northeastern United States, mainly New York and Pennsylvania, due to their proximity to major cities during a time lacking plentiful transportation methods. In terms of production costs however, the northeast was the least desirable region for rose production in the United States for several reasons. The need for greenhouses was prevalent due to the unfavorable growing conditions which presented higher operating expenses such as heat and fuel costs. There was also a high need for labor paired with the high price of labor exemplified in 1949 when labor costs were almost 45% of the total cost. Additionally, there was the lack of farmable land offered in the northeast, resulting in high land values. To offset these high production costs, northeastern rose growers were forced to charge a higher price for their good, making roses a luxury item. However, this control over the flower market did not last long as regularly scheduled commercial airlines were introduced in 1950, allowing roses to be grown in both western and southern regions of the United States, lowering the total cost and in turn the price of roses presented to the consumer.

Today, when asked the same question of where roses are grown, the correct answer would be South America, mainly Columbia. This switch from domestic to foreign growth is a commendation of the free-trade agreement established between the United States and Columbia, fortified by John Kennedy’s Alliance for Progress of the 1960’s. This alliance began in August 1961 with the intent of combatting communism through the enhancement of economic cooperation by the United States and Latin American countries. Columbia was one of the main targets of the alliance and worked closely with the U.S. Agency for International Development (USAID), receiving development projects that focused on agriculture for export. Walter Tatum, the USAID Market Promotion Specialist in Columbia, quickly discovered that this Latin American country was ideal for rose growing for a number of reasons. Offering a 12 twelve-month growing season, favorable temperatures, and fertile soil, Columbia provided a more than optimal growing location for these roses. Coincidentally, Columbia’s fertile growing land is located just miles from Bogotá’s El Dorado International Airport which is able to receive and depart planes to Miami Florida’s International Airport which has mass storage capabilities. Lastly, on the production front, labor wages are nearly five times less than what would be expected in the Unites States. With the advancement in transportation technologies in the 1950’s such as air transportation, refrigerated trucks, and expansion of interstate highways, these foreign roses were able to be transported anywhere in the U.S. within a matter of hours. Through this entry into the flower market, flowers were no longer considered a luxury, providing consumers with lower prices and increased access year-round.

Through this allocation of production to Columbia and other areas of Latin America, U.S. consumers are able to take advantage of a year-round growing season in a low labor cost area that is not presented in the United States. Extending production of roses beyond the seasonal growing period provides year round access to consumers in America as well as lower prices than previously experienced. The low labor costs of Columbia are crucial in such a labor-intensive industry, employing over 150,000 people both directly and indirectly. The low wages stem from the lack of gender equality in Columbia resulting in white male power over mixed-race and female workers.

The labor laws of Columbia differ greatly than those of America, providing a much lower salary to the workers in rose fields in Columbia to those in America. The monthly minimum wage in Columbia in 2018 is 781,242 pesos, or $265 USD. Compared to the minimum wage in the United States which is currently $1,200-1,300 per month with opportunity to rise depending on the state, Columbian labor wages are unmatchable by U.S. producers. Paired with these low wages, each rose can travel thousands of miles at approximately $1.50 a stem. Additionally, the process to fulfill the year round demand for roses in the United States is indeed more extensive when outsourced overseas. Jetting flowers from Columbia to Miami, Florida, requires extensive planning and packaging, ensuring that the flowers are stores at a temperature below 32 degrees Fahrenheit to ensure that they do not wilt. Once in Miami, they are then loaded onto refrigerated trucks, repackaged into bouquets or arrangements, and distributed to retailers across the U.S via a third mode of transportation. With this extremely reduced labor cost in Columbia, mass packaging and transportation costs are able to be afforded and still obtain lower production costs and remain more profitable than domestic rose growers.

Today, “over 25,000 traditional florist retailers, selling flower arrangements to consumers, and nearly 1,000 wholesalers that supply these retailers, source 60% of their product from Colombia. Supermarkets chains, such as Wal-Mart, Kroger, Safeway, Wholefoods, Albertson’s, Costco, which have an overall flower market share in the United States of about 50%, also source most of their flowers from Colombia.” Utilization of the agricultural status of Columbia is crucial to maintaining a steady availability of roses throughout the entire year in America. With the main reason for the low foreign production costs being low costs of labor, rose growers in America have trouble competing. In 2013, Colombia exported $365 million worth of roses $1.34 billion worth of flowers with 75% of that $365 million coming from trade with the United States. Due to this allocation of production, “the American flower industry has seen its production of roses drop roughly 95 percent falling from 545 million to less than 30 million”

Through the trade of roses from Columbia to the United States, roses are able to be sold in an abundance at a price in which consumers are willing and able to purchase in stores across America year-round. Retailers are inclined to maximize their budget and when presented with two identical products, tending to buy product that is at the lowest cost, making the consumer essentially feel wealthier. Due to the low wages and high efficiency of producers in Columbia, retailers will be more inclined to purchase foreign rather than domestic roses, which satisfy the need for low production costs as well as low prices to attract the consumer.

Due to Columbia’s specialization in rose growing paired with low cost of labor, Columbia is able to produce and deliver roses faster, and at a lower cost, than native growers. Retailers in America have begun to realize that the consumer tends to favor roses that are sold at a lower price rather than roses that are ‘locally grown.’ With year round consumer demand for roses driving the sellers, leading retailers shift to buy large quantities of roses from overseas producers, offering lower production costs and higher consumer attraction.

Roses, a seasonal good, are demanded by consumers year round due to events such as special occasions or holidays such as Valentine’s Day in February. The seasonal factor of rose growing does not deter the demand for these flowers, raising the problem of how to supply this limited good year round and at a price that consumers are willing to purchase. To satisfy the need for roses to be sold year round in America, foreign production methods are imperative. Due to the low wages in Columbia and other Latin American countries and the ability to specialize in the rose growing business, allocation of rose production overseas delivers a lower production cost than American production despite the additional packaging and transportation costs endured by a foreign producer. By allocating the majority of production to rose growers in Columbia, retailers are able to sell roses year round at a consumer-friendly cost due to the low production costs and specialization of production that is not obtainable within the confines of the United States.

References

  • Conlon, Michael. ‘The History of the Columbian Flower Industry and Its Impact on the United States.’ Global Agricultural Information Network, February 06, 2015. Accessed November 27, 2018.https://gain.fas.usda.gov/Recent%20GAIN%20Publications/The%20Colombian%20flower%20industry%20and%20its%20partnership%20with%20the%20U.S._Bogota_Colombia_2-6-2015.pdf
  • ‘Global Minimum Wage.’ Reuters. Accessed November 27, 2018. https://www.reuters.com/subjects/global-minimum-wage.
  • McQuaid, John. ‘The Secrets Behind Your Flowers.’ Smithsonian.com. February 01, 2011. Accessed November 27, 2018. https://www.smithsonianmag.com/travel/the-secrets-behind-your-flowers-53128/.
  • Paletta, Damian,’In Rose Beds, Money Blooms.’ The Washington Post. February 10, 2018. Accessed November 27, 2018. https://www.washingtonpost.com/news/business/wp/2018/02/10/feature/colombia-rose-trade-industry-valentines-day/?noredirect=on&utm_term=.88f29dc184a8.
  • Wade, Jared. ‘Colombia Raises Minimum Wage by 5.9% in 2018 to 781,242 Pesos per Month.’ Finance Colombia. December 31, 2017. Accessed November 27, 2018. https://www.financecolombia.com/colombia-minimum-wage-colombia-will-increase-5-9-2018/
  • Wright, Caroline, and Gilma, Madrid. ‘Contesting Ethical Trade in Colombia’s Cut-Flower Industry: A Case of Cultural and Economic Injustice.’ Cultural Sociology 1, no. 2 (2007): 255-75. doi:10.1177/1749975507078190.

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Seasonal Commodity: Year-Long Distribution. (2021, Apr 26). Retrieved from http://studymoose.com/seasonal-commodity-year-long-distribution-essay

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