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El recorte de la Industria de las flores enfrenta desafos

El sector florcola del Ecuador ha florecido con los  beneficios del ATPDA y ha sido recientemente apuntado por el GOE como “sector productivo” garantizando incremento de apoyo gubernamental. Sin embargo, el  clima, incremento de los costos de mano de obra y produccin, competencia extranjera, e incertidumbre en la renovacin del ATPDA han desafiado al sector en los primeros dos tercios del 2008. Los productores respondieron expandiendo las exportaciones al mercado europeo.  Debido al desaceleramiento  econmico y posible recesin en los Estados Unidos y Europa podra estar enfrentando un debilitamiento de la demanda en sus dos principales mercados.

id: 174270

date: 10/17/2008 22:11

refid: 08QUITO995

origin: Embassy Quito

classification: UNCLASSIFIED//FOR OFFICIAL USE ONLY

destination: 08QUITO225|08QUITO409|08QUITO442|08QUITO601

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UNCLAS QUITO 000995

 

SENSITIVE

SIPDIS

 

TREASURY FOR MEWENS

USTR FOR BENNETT HARMAN

 

E.O. 12958: N/A

TAGS: ECON, ETRD, EAGR, EC

SUBJECT: ECUADOR'S CUT FLOWER INDUSTRY FACES CHALLENGES

 

REFTEL A: Quito 442

       B: Quito 409

       C: Quito 601

       D: Quito 225

 

1. (U) Summary:  Ecuador's flower sector has boomed with ATPA

benefits and has recently been targeted by the GOE as a "productive

sector" warranting increased government support.  However, climate

issues, increased labor and production costs, foreign competition,

and uncertainty over ATPA renewal have challenged the sector in the

first two-thirds of 2008.  Growers responded by expanding exports to

the European market.  Given the economic slow-down and possible

recession in both the United States and Europe, the industry may be

facing weakening demand in its two major markets.  End Summary

 

Flower Export Sector Strong...

------------------------------

 

2.  (U) Cut flowers are one of Ecuador's largest exports under the

Andean Trade Preferences Act (ATPA), which provides duty free access

to the U.S. for many goods from Ecuador and other Andean countries.

The flower industry has significantly expanded in Ecuador due to

ATPA.  Ecuador's Export and Investment Promotion Corporation

maintains that ATPA has led to 70,000 direct jobs in this

labor-intensive industry.  The industry has also attracted FDI from

Colombia and the U.S.  The flower sector has been particularly

successful in providing jobs to women, often in indigenous

communities, who frequently do not have other good options for cash

employment.  In June, Ecuador's cut flower industry was identified

as a "productive sector" by the GOE (ref A).  This means that

flowers and agriculture, along with nine other business sectors in

Ecuador, will be supported with $16 million over the next three

years through the GOE's Plan for Productive Development.  The funds

will be used to attract new investment into flowers and other

agricultural industries.

 

But Faces Challenges...

-----------------------

 

3.  (U) Ecuador's flower industry has faced challenges in 2008.  A

difficult rainy season in Ecuador affected the flower sector --

cooler temperatures and increased cloud cover kept some roses from

blooming, leading to reduced production.  In addition, tax and labor

laws, uncertainty over ATPA extension, and increased competition

from other countries affected the sector.

 

4.  (U) According to the Association of Flower Producers and

Exporters of Ecuador (EXPOFLORES), Ecuador's new tax law requires

companies to pay taxes on their property even if it does not return

a profit, adding to costs.  The new labor law prevents flower

farmers from hiring workers on an hourly basis, a major disadvantage

as hourly workers have always been an important addition during peak

harvest season (ref B).  As a result of the new labor law,

EXPOFLORES believes that 15,000 jobs have been lost in the sector.

EXPOFLORES also states that uncertainty over ATPA renewal has hurt

the sector.  While it welcomes the multiple extensions since 2006,

it notes that the short-term extensions complicate long-term

planning.

 

Increased Foreign Competition

-----------------------------

 

5.  (U) Ecuadorian flower exporters are also facing increased

competition from Ethiopia and Asia.  Ethiopia's industry in

particular has expanded rapidly; in the past seven years the

industry has grown from zero companies to 135 businesses with 1105

hectares under cultivation.  According to one Ecuadorian grower,

Ethiopian and other Asian firms now have a "dominant" position in

Europe and have made inroads penetrating the low-end U.S. market due

to low production and labor costs.  The grower noted, however, that

Ethiopia and Asia are currently unable to produce higher quality

flowers to compete with Ecuador's.  Another grower commented that

some Ecuadorian firms have responded by purchasing land and

investing in Ethiopia's flower industry, diversifying abroad in

response to increased competition.

 

Exporters Seek European Opportunities

-------------------------------------

 

6.  (U) The primary market for Ecuadorian flower exports is the

United States.  According to U.S. Department of Commerce data,

however, flower exports to the U.S. fell by 11% in the first six

months of 2008, and flower companies anticipate a further decline

due to depressed prices, a likely U.S. recession, and concerns over

the long-term status of ATPA.  The share of Ecuadorian flower

exports to the US fell from 74% in 2004 to 67% in 2007.

 

7.  (U) As the U.S. market grows more difficult, many Ecuadorian

flower producers are expanding into Europe.  EXPOFLORES claims that

a stronger euro has more than compensated for higher European

transportation costs vis-a-vis the U.S., and in 2007 flower exports

to Europe increased by 37%, with increased exports to Russia

accounting for 41% of that growth.  According to EXPOFLORES,

Ecuadorian growers earn 60 cents for each higher quality rose they

sell in Russia, versus 25 cents for a typical rose sold in the

United States.  This has led many rose growers within the sector to

focus on varieties for the European and Russian markets (ref C).

 

 

Vulnerable to Global Economic Downturn

--------------------------------------

 

8.  (SBU) Ecuadorian economists and industry insiders have expressed

concern that global financial market turmoil and apparent economic

slowdown in the United States and Europe could be harmful for the

Ecuadorian flower industry, since flower purchases will likely drop

in a recession.  In addition, since Ecuador is dollarized, as the

U.S. dollar rises against the Euro and the Colombian peso,

Ecuadorian flower exporters could lose competitiveness in their

second most important export market and against one of their closest

competitors.

 

Comment

-------

 

9.  (U) Ecuadorian flower exports grew rapidly after the

introduction of ATPA in 1992 (?), providing a catalyst for an

industry that is now one of Ecuador's leading exporters and

employers.  With that initial boost, Ecuador was able to take

advantage of its natural climatic advantage and become a leader in

the cut flower industry.  The industry has been able to adjust to

uncertainty about ATPA by diversifying its market.  However, it is

now facing additional pressure from domestic policy changes

(particularly large wage increases), a probable economic downturn in

its two most important markets, as well as new competitors.

 

HODGES

 

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