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March 03, 2009

Floriculture: Wilting a bit

Business Today has an article on how the recession in the West is taking a toll on the Indian floriculture industry.
But for the Indian floriculture exporters, the party was over—at least for this year. This is because roses account for 99 per cent of total Indian flower exports, which, according to Agriculture and Processed Food Products Export Development Agency (APEDA), aggregated to Rs 340.14 crore ($84.49 million) in 2007-08. “Traders held back the orders due to uncertainty. One of the leading traders, who normally buys six million roses for Valentine’s Day, had firmed up orders for just one million by February 6,” says Ramakrishna Karuturi, Managing Director, Karuturi Global, one of the largest players in the industry, with a presence in both India and Africa. Adds Anne Ramesh, Chairman, Suvarna Florex, and a veteran in the industry: “Every year, we used to get firm orders for 70 per cent of the export quantity by February 1. This year, even as late as February 9, we had orders for less than 20 per cent of the volume. This meant that a huge quantity went into auction and prices, naturally, came under pressure.” If at all the exporters managed to liquidate the stocks, it was at the cost of realisation, which fell by 15-20 per cent, the sharpest decline ever since the industry began to export flowers some 15 years ago.

This development has a much larger impact on the sector as the ideal climatic condition for producing best quality roses in India is between December and March. It is only during this period that the flowers effectively compete, in quality terms, with other foreign firms in the global market and the exporters can earn maximum value. In fact, the money they make during this period helps them compensate for lower income during rest of the year. Inability to make money during the Valentine’s Day celebrations will impact the industry’s efforts to expand, develop infrastructure and experiment with newer varieties. Economies of scale are crucial to defray fixed costs. Indian farms are small and fragmented compared to those in Africa. Infrastructure facilities such as green houses, cold room and refrigerated vans need constant investments. More importantly, offering newer varieties is crucial for better prices. But it is a costly proposition as it involves paying royalty fees as high as Rs 50 a stem to the breeders. In fact, lack of new varieties is one of the reasons (apart from recession in Japan and competition from Kenya) that India lost the demanding Japanese market. In 2006-07, floriculture exports from India to Japan was Rs 325.54 crore. It crashed to Rs 32.77 crore in 2007-08.

...Local demand is good and is growing at around 15 per cent annually. The problem is the price, which is not only volatile, but half that of exported roses. “We need to build the local market in a big way. Once local demand increases, prices will move up, too,” chips in Ramesh. “I want to export out of choice and not compulsion. The domestic demand is clearly on the rise. Local orders for this year’s Valentine’s Day exceeded one million roses for us,” says Ahmed. “Domestic market growth is the key to the future,” sums up Karuturi.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in