ASSET MANAGER Market prices, transparency and responsibility

Due to the reduced availability of some products, the prices at the auctions remained at a consistently high level until March 2023. In addition, the last year was marked by delivery bottlenecks and worsened by the lack of personnel with in the industry, and also in the logistics sector.

The war, the return of inflation (Germany: 7.9%; the Netherlands: 11.62% in 2022) and the political measures in the fight against climate change have caused uncertainty and fears among end consumers, as well as in retail and regarding policies led. Private consumption has declined, not only in Europe but apparently also in the United States. It is yet still unclear how the decline in consumption combined with rising prices will ultimately affect European cut flowers sales. This can only be estimated.

When I hear again and again that in recent months farms have been selling to Europe far below production costs without any need, I ask myself what is the point. Nobody can seriously believe that it is possible to enter the market with very low prices and by doing so earn a lot of money.

The crisis of the ruble during 2014, should serve as a cautionary tale. It is easier and quicker to sell at cheap prices than to spend years laboriously recovering the pre-crisis price levels. If it is ever possible to get them back again.

Of course, there also is a relationship between quantity and price. The market participant who buys more, obviously also gets a better price. As a farm, I just have to be aware that, depending on the market, importers have to earn at least around an 18 to 20%.

The vast majority of European producers did not increase their production during this period. This was not the case of Africa and South America. Here, production areas have been greatly enlarged in some cases.

Production vs Price

With the sales figures obtained last year, things seem to have normalized, at least in Germany. According to statements by the AMI (Agrarmarkt Informations-Gesellschaft mbH), the German market for cut flowers shrank by around 12% in 2022 compared to the previous year, while sales figures increased by about 1% compared to 2019.

At the same time, the per capita consumption of cut flowers has fallen to pre-pandemic levels, amounting to approximately 37 euros. With minor variations, this was the level of sales during the ten years before 2019. During the pandemic, per capita consumption had risen to as much as 43 euros.

All these figures must be well thought out within the context of the war in Ukraine. The beginning of the war in February 2022, also had a strong impact upon European flower growers. The explosive developments in energy prices led to state aids for the sector in some European countries. Nevertheless, the production of some products has been cut back significantly.

Market responsability

For some participants with the market, the first two exceptionally quiet weeks of the cut flower market after Easter, were a foretaste of the period after Mother’s Day in Germany and the second half of the year. If these are right, we will have to brace ourselves for a very quiet second semester and a very slow market.

Excess production capacity will have a major impact upon prices. These will fall. According to the doctrine, this will continue to happen until the market self regulates, in other words, that there will be less production or the market goes back to paying more. The market is complex and each farm has to sell in order to finance its costs. But each farm also has a responsibility to the market.

If I am aware of this order of magnitude, it is obvious that I will force my other customers out of the market by discounting too much. In Kelsterbach, an industrial area opposite the Frankfurt airport, there were 28 importers of cut flowers 25 years ago. Today there are only two. This decline is due to many causes. One of them is that many producers have not given any thought to their brand and pricing strategies and still go on not doing so today.

It is clear to me that market responsibility is a noble goal and I am realistic enough to know that market mechanisms will again work during this year. This is why it won’t be long before I hear about the next very good farm that has a good product and yet has lost its market share anyway.