‘Total cost increase is imminent’

    Over the past couple of months, the flower growers have started to see how steadily their costs are increasing. It started with plastic and cardboard supplies. And over the past two months, warnings and price increase on fertilizers and chemicals have been going up.

    Cost of raw materials is going up because of two key factors. The first is the global logistical collapse, especially in maritime cargo. The second is the diminishing availability because of increased Chinese demand. These two factors have caused a third condition which is that because of the delays, big groups (importers) of different parts of the world are increasing their orders to have stock because of the uncertainty of when the next shipment is arriving.

    All these factors together have caused a severe bottleneck forcing freight and the producers to increase the price because of the increased demand, even though part of that demand is artificial and solely caused by freight complications.

    What does it all mean?

    Cardboard and plastic supplies have gone up around 15% each. This means that packaging has gone up roughly half a cent per stem, assuming a six-cent packaging cost for top-quality materials for roses. This by itself is not that high of an increase. However, if we combine this with a 30-40% increase in fertilizers and other products for the field, for example, a simple nitrate that used to cost $12 per kilo will now cost $18-20.

    We reach a rough increase of about 10%, meaning that roses, for example, assuming an average price of 30 cents at the farm, will now cost 33. This increase will not be felt at once; some of the costs have already increased, others have been growing gradually as the local stocks have decreased. Overall, it is estimated that the flower growers will feel the total cost increase by the end of September or mid-October at most. This is not a reality they can avert, it is imminent, and we must all be prepared to face it.

    Another interesting factor in Ecuador is the promised minimum wage of $500 by the newly elected president Guillermo Lasso, which increases 25% over the current minimum wage. The labor in flowers is 50-55% of the total cost of the product, meaning that this cost will also have to be factored in eventually. It is expected that the wage will increase by $25 per year.

    In the US and EU, we have seen that the price of most goods has gone up, and now the price of flowers will follow. This is something that we have not seen in a long time. Some would say that is long overdue. It is a move that we should support and embrace as it will allow for the continued operation of our suppliers. We must think about a win-win situation for all those involved.

    Therefore, we think of the health of our providers as well as our own. It is time to strengthen those strategic relations and expand ties with our providers, be it the farms or those facilitating their products.

    Luis Cadavid

    Luis optimizes business operations, introduces sustainability, and diversifies markets

    Click here to read more of Luis’ blogs.

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