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  • CUT FLOWERS: A MULTI-MILLION DOLLAR INDUSTRY BLOOMS IN RURAL CHINA

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    Cut Flowers: A Multi-million Dollar Industry Blooms in Rural China

     

     
     
    © International Trade Centre, International Trade Forum - Issue 4/2004

    Photo: ITC

    More than 20,000 Chinese farming families have been lifted out of rural poverty in a remarkable economic success story that has seen Yunnan province in south-west China become one of the leading cut-flower centres in Asia.

    The area has emerged as a major player in the booming worldwide trade in high-quality cut flowers and has shown how export-led growth can be a powerful antidote to rural poverty. For decades, communities in China's Yunnan province languished as an economic backwater, dependent on farmers growing subsistence crops.

    This has now changed thanks to the rapid growth of the cut-flower sector. In little over a decade, Yunnan's cut-flower industry has grown from a mere 16 hectares to more than 10,000 hectares of production and has yielded a thriving export trade.

    In fact, the growth of the industry in Yunnan has been so successful that it is now a business partner of the world's largest cut-flower auction, the Verenigde Bloemenveilingen Aalsmeer (VBA) - Aalsmeer flower auction - in the Netherlands. The VBA has a strong long-term interest in ensuring that Yunnan meets international standards.

    ITC has played a pivotal role in supporting the growth of Yunnan's new export industry and, through international linkages, has enabled local Chinese companies and producing households to sell ever-increasing volumes of cut-flower products abroad. In doing so ITC has helped the local population diversify away from the production of low-value crops to high value-added cut flowers that are ready for export. Furthermore, this is being done in full respect of the environment. The evolving industry is laying the foundation for long-term economic vitality for the communities involved.

    Multi-million dollar export success

    In little more than a decade, 21,400 household growers and 390 enterprises have taken their place at the heart of a flower industry that is gaining international recognition, notably for the quality of its products. The Yunnan cut-flower business is currently worth US$ 415 million and accounts for 50% of the Chinese domestic market.

    A series of critical developments during the 1990s saw the village-level industry grow rapidly, and subsequently gain entry to international markets. Key steps included:
    • In 1994 the farmers in Yunnan created a cooperative and their annual production of 210 million cut-flower stems outstripped that of Shanghai.
    • By 1995 success brought provincial government attention and the critical decision that the public authorities would support the industry's growth. A biological resources development plan was established to further diversify production away from stagnating tobacco and low-margin vegetable crops.
    • Between 1994 and 1996 the tobacco industry, formerly the province's dominant sector, invested more than US$ 1 million in the evolving cut-flower industry, a move that encouraged other investors to back the new industry. This investment facilitated the crucial introduction of international expertise.
    • Industry and market analysis by cut-flower experts highlighted important challenges for Yunnan's rapidly growing cut-flower sector. These included: insufficient understanding of the markets, both domestic and international; logistical issues; and technical challenges related to the introduction of new varieties. The resulting report saw the creation of the Yunnan Flower Association (YFA) in 1997. Within one month this new professional body had linked with ITC to address these challenges.

    Knowledge, network and access to expertise

    ITC's knowledge, network and access to expertise provided the international bridge to speed the transition of Yunnan cut flowers from a primarily domestic product to a significant foreign currency-generating export. ITC supported several important developments to secure the mid- to long-term growth of this embryonic industry:
    • ITC catalysed discussions and built links between the Yunnan flower auction in Kunming and VBA, the Dutch flower auction.
    • It organized study tours to deepen understanding of how to sell into complex and increasingly competitive international markets and to learn from the experiences of their counterparts.
    • ITC supported the development of an export strategy for cut flowers in Yunnan province.
    "When we formed the YFA we still lacked basic understanding of how to forecast the future of the industry. We realized the key to success was to create a complete enabling environment for growers but we lacked outside support services," comments Li Gang, current Vice President of the association. "The ITC project was the right project at the right time to help develop the industry," he adds. Among the missing links which the flower association experienced prior to its collaboration with ITC were:
    • low production standards and quality;
    • lack of trained farmers and managers;
    • lack of knowledge of international markets;
    • absence of effective trading channels and business contacts;
    • inadequate support infrastructure; and
    • high export costs.
    Xuejun Jiang, ITC Senior Trade Promotion Officer in charge of the project, explains that although ITC already had experience in the flower industry, it decided to tap expertise available in the world's leading flower-producing and -exporting countries. "We helped the province to identify its own weaknesses. This involved, amongst other things, study tours to Israel and the Netherlands. After many discussions on the future direction of the Yunnan flower industry, one of the strategies decided upon was that of an auction. And it emerged that Yunnan as a production base for cut flowers was very similar to the Netherlands when the Aalsmeer flower auction - the largest in the world - was established."


    Project document signing ceremony, May 1999, in Kunming, Yunnan. Front, left to right: D. Dreyer, Ambassador of Switzerland to China; Y.T. Long, Vice Minister of China's Ministry of Foreign Trade and Economic Cooperation and Chief Negotiator for China at the WTO; J. Denis Bélisle, Executive Director, ITC. Back, left to right: two officials from China; Huang Binsheng, Vice Governor of Yunnan; Kerstin Leitner, UNDP Resident Representative. (Photo: ITC)

    Matchmaking with the Dutch flower auction

    Mr Jiang explains how ITC played a matchmaking role between the Dutch flower auction and Yunnan province, helping to forge links and build trust. "Both sides soon realized that this could be a successful partnership. More than 100 people from Yunnan visited the Netherlands, and ITC organized the training of auction managers in VBA, the Dutch flower auction. Eventually VBA signed a commercial agreement with Yunnan's new flower auction and now participates in its management as a shareholder," he says.
     
    In addition to the commercial and technical assistance and collaboration with the Dutch, the Yunnan flower industry has now attracted 40 joint venture investors from Taiwan (Province of China) and the Republic of Korea, targeting the huge and rapidly growing demand for cut flowers in South-East Asia. Critically, 2003-04 market indicators suggest that Yunnan's flower growers have crossed an important commercial threshold into the Japanese market. Exports to this highly demanding market - where insistence on high-quality cut-flower products is paramount - have jumped to 70 million stems, up from 33 million in 2002. Meanwhile, Yunnan's total international exports in 2003 reached US$ 30 million, exceeding the target set for 2010.

    ITC helped the Yunnan Flower Association develop via a three-year technical assistance programme, which was funded by the Swiss State Secretariat for Economic Affairs (seco) and ran until December 2003. During that period ITC worked closely with the association and other stakeholders to:
    • develop an export strategy for cut flowers and a sectoral strategy for the floriculture industry in the province;
    • design and create a collectively-owned flower auction and logistics centre;
    • train 500 technicians and provide on-the-spot advice to assist local farmers develop top-quality products;
    • facilitate the introduction of modern technology for flower growing and post-harvest treatment;
    • improve support services - such as customs, quarantines, quality inspection, cooling systems and air and rail transportation - for the cut-flower industry; and
    • establish a core group of model farmers and firms for cut flowers in the province.
    The Yunnan Flower Association and ITC are now cooperating to map out the next phase of the industry's development. This involves finding ways to overcome several important new challenges. For example, in order to move significantly into European and North American markets, the association needs to find ways to overcome existing logistical limitations. With no direct flight from Kunming to the international cut-flower distribution centres that would serve these new markets, guaranteeing the essential "cooling chain" is a major problem to be addressed.

    Understanding intellectual property

    Additionally, as YFA members become more active on international markets they will need to deepen their understanding of intellectual property issues that pervade the use of existing cut-flower varieties and the development of new products, such as unique Chinese flowers developed to serve specific market demands.

    "By 2010, through both product and market diversification, we aim to provide a decent livelihood for 50,000 farmers and employment to a million individuals. Our vision is that Yunnan province will build itself into the largest production, export and trading centre for cut flowers in Asia," says Mr Li.

    Commenting on the development of the cut-flower industry in Yunnan, Hendrik Roelofsen, ITC's Director of Technical Cooperation Coordination, notes: "The experience of this province in exporting cut flowers is on all accounts a success story. It is a success story for export diversification; it is also a success story for poverty reduction, with thousands of farmers now gaining a decent livelihood where previously they had none. This underscores ITC's firm belief that trade can be made to work for the poor."

    The success of the Yunnan Flower Association/ITC partnership can be found in a public-private model of collaboration that is flexible, focused and results-oriented. The farmers and Yunnan flower companies were receptive to the type of commercial, administrative and operational changes required to steer the industry from a few hectares under cultivation to a growing industry serving international markets.



    ITC promotes alternatives to commodity exports

    Since the early days of its existence ITC has been involved in exploring market opportunities for off-season fruit and vegetables, as well as cut flowers, as an alternative to commodity exports from developing countries. Through field projects in a number of countries in all developing regions, it extended technical cooperation to help farmers take advantage of these opportunities.

    With hindsight it is safe to say that ITC assessed the developing country potential for flower exports correctly. In 1980, the world import market for cut flowers amounted to US$ 850 million. By 2002, the market had increased almost fivefold to over US$ 4 billion. In 1980, developing countries held less than a 10% share in this market. In 2002, they accounted for a market share of over 30%.



    Cultivating success

    A retired teacher's part-time moneymaking scheme turned Yunnan's cut-flower industry into a multi-million dollar export success story that is the toast of China. Hua Zhongyi of Dounan village first spotted the moneymaking potential of cut flowers on a trip to the city of Guangzhou in the late 1980s. Once the income-boosting potential of Mr Hua's new business was proved, his fellow villagers soon began replacing their traditional vegetable crops with lucrative cut-flower varieties. A burst of construction activity, as villagers built themselves multi-storey houses, witnessed the growing affluence of Dounan as its new trade flourished.

    Mr Hua was not the only entrepreneurial spirit in the story. Lu Cuihua, another local man, steered the organic growth of the Dounan flower wholesale market after discovering that the wholesale price of swordleaf orchids in Shanghai was seven times that in Yunnan.

    From such grass-roots beginnings, the farmers of Yunnan, a province with rich biological resources and an ideal climate for growing delicate cut flowers, are now linked with the world's largest international flower auction at Aalsmeer in the Netherlands. A combination of entrepreneurial spirit, strong strategic and technical support from ITC, close attention to quality through the supply chain, and a willingness to embrace foreign partners, have seen the province's cut-flower industry thrive.



    Outcomes of ITC/Yunnan collaboration

    • An export strategy for cut flowers
    • A flower auction market and logistics centre (investment: US$ 26 million)
    • Streamlined export procedures and enhanced support services
    • 30 farmers and firms assisted and 500 growers trained
    • Cut-flower exports increased by 400% in four years


    Writer: Alison Clements-Hunt

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