A0112 Cut Flower Growing in Australia Industry Report

Seeds of hope: The rising prominence of supermarkets aids the industry
IBISWorld Industry Report A0112

January 2011
Cut Flower Growing in Australia

Suzannah Rowley
2
2 2 2 2
About this Industry

Industry Definition Main Activities Similar Industries Additional Resources
17 International Trade 19 Business Locations
32 Key Statistics
32 Industry Data 32 Annual Change 32 Key Ratios
21 Competitive Landscape
21 Market Share Concentration 21 Key Success Factors
33 Jargon & Glossary
3 4
4 4 5 8
Industry at a Glance Industry Performance

Executive Summary Key External Drivers Current Performance Industry Outlook
22 Cost Structure Benchmarks 22 Basis of Competition 23 Barriers to Entry 24 Industry Globalisation
25 Major Companies
25 Lynch Fresh Holdings Pty Limited
12 Industry Life Cycle
28 Operating Conditions 14 Products & Markets

14 Supply Chain 14 Products & Services 15 Demand Determinants 16 Major Markets 28 Capital Intensity 29 Technology & Systems 30 Revenue Volatility 30 Regulation & Policy 31 Industry Assistance
www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com
www.IbISwORLd.COM.Au
Cut Flower Growing in Australia January 2011
About this Industry

Industry definition
The Cut Flower Growing industry is part of the Agriculture sector. Industry companies grow flowers and foliage for cutting and displaying, and also undertake seed collection. This industry typically includes traditional flowers (e.g. roses, carnations and chrysanthemums), other exotic flowers, wildflowers and Australian native flowers.
Main Activities
The primary activities of this industry are Display foliage growing Flower growing Flower seed growing
The major products and services in this industry are Exotic flowers Native flowers Seed growing Traditional flowers
Similar Industries
A0111 Plant Nurseries in Australia This industry grows seedlings of ornamental plants (including flowers) to sell to clients.
IBISWorld writes over 500 Australian industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com.au
Additional Resources
For additional information on this industry www.daff.gov.au Department of Agriculture, Fisheries and Forestry www.flowersqueensland.asn.au Flower Association of Queensland Inc. www.flowersvic.com.au Flowers Victoria
Industry at a Glance
Cut Flower Growing in 2011 Key Statistics Snapshot
Revenue
$487.1m 0.6%
Profit Exports
Revenue vs. employment growth
20 15
2.1% $39.0m $16.7m 617

businesses
8 6
Annual Growth 06-11
Annual Growth 11-16
Market Share
Real household disposable income
Lynch Fresh Holdings Pty Limited 5.0%

% change
% change
10 5 0 5
4 2 0
Year 03 Revenue
p. 25
10
05
07
09
11
13
15
17
Year
04
06
08
10
12
14
16
Employment
SOURCE: WWW.IBISWORLD.COM.AU
Establishments
Key External drivers

Real household disposable income downstream demand from flower retailing Level of annual rainfall Trade-weighted index
7.9%
SA
4% 0.7% 0.2% NT
TAS ACT
27.6%
VIC
12.1%
WA
21.4%
QLD
p. 4
26.1%
NSW
SOURCE: WWW.IBISWORLD.COM.AU SOURCE: WWW.IBISWORLD.COM.AU
Industry Structure
Life Cycle Stage Revenue Volatility Capital Intensity Industry Assistance Concentration Level
Decline Low High Low Low
Regulation Level Technology Change Barriers to Entry Industry Globalisation Competition Level
Medium Medium Low Low Low
FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIx ON PAGE 32
Industry Performance
Executive Summary
Revenue in 2010-11 will rise 1.6% to $487.1 million thanks to improved growing conditions coupled with a continued rise in domestic demand for cut flowers since the global economic downturn. The full recovery expected for 2010-11 is likely to spill into the future, as industry revenue is expected to rise consistently every year through 2015-16. Overall, industry growth is trending up with revenue expected to rise at an average annual rate of 0.6% over the five years through 2010-11. The most prominent change in the way the industry operates has been the shift in downstream markets. Mass merchandising of flowers in the Australian market began in the late 1990s, and now consumers are more likely to purchase flowers from supermarkets or other massmerchandising stores than from retail specialists. Rising consumer incomes and competitive pricing have facilitated consumption growth. These
Executive Summary | Key External drivers | Current Performance Industry Outlook | Life Cycle Stage
developments have led to improved performance for industry participants that are able to supply large retailers and also those growers that alternative routes to market. Many of the horticultural industries are mechanising and automating processes to reduce labour costs in production. The floriculture industries are similar in many respects, but the highly specialised nature of cut flower growing means it will be some time before the growing process becomes largely automated. Employment numbers however, will still fall at 1.3% a year over the next five years. This will be as squeezed profit margins prompt some operators to pursue scale economies through mergers or exit the industry. The number of operators is expected to drop from 617 to 550 by 2015-16, which will reduce labour requirements. As the number of businesses diminishes, the value of operations for remaining plantations is expected to increase.
Key External drivers
Real household disposable income Demand for cut flowers is discretionary. Therefore, demand is expected to increase when real household income rises. Households with higher incomes are likely to spend more on flowers than their lower-earning counterparts.
Real household disposable income
8 6
Downstream demand from flower retailing Flower retailers are the major sellers of produce to the public. The retailing industry is principally affected by consumer spending levels. The sale of flowers by grocery and other stores
Downstream demand from ower retailing
8 6 4
% change
% change
4 2 0
2 0 2 4
Year
04
06
08
10
12
14
16
Year
04
06
08
10
12
14
16
Key External drivers continued
has increased exposure and boosted overall demand. Level of annual rainfall Rainfall influences flower growing in both an internal and external sense. Rainfall in part determines growing capacity and the level of cost, as well as increasing competition and market concentration in high rainfall regions. Water is an input cost; higher rainfall not only reduces that cost, but also the need for water from an external source. The level of rainfall also significantly
affects downstream demand: in times of low rainfall, consumers ability to maintain plant and flower life is diminished, lowering demand. Trade-weighted index Exchange rates affect competitiveness with imports and in export markets. Any increase in the value of the Australian dollar relative to other countries will make Australian flowers relatively expensive (compared with production elsewhere), and therefore reduce demand for Australian exports on the world market.
Current Performance
The industry is highly fragmented and lacking overall industry structure. For some growers the industry has been highly profitable, while for others, little understanding of production related costs and returns has undermined profitability. According to industry players, domestic consumption of flowers is stagnant and declining; however, the contraction in cut flower demand from
specialist florists has been offset by an increase in sales to supermarkets and convenience stores. This trend has benefited certain players at the expense of other less profitable suppliers who continue to be driven out of the industry. Over the five years through 2010-11, industry revenue will increase at an average annual rate of 0.6% to total $487.1 million.
Revenue
In the early part of the decade, the Cut Flower Growing industry grew strongly, as evidenced by the 18.3% jump in revenue for 2002-03. Overall, revenue has trended up over this period; however, the past five years has witnessed two corrections, which have dampened revenue growth. The industry achieved a revenue peak in 2007-08 at $491.3 million, but fell 3.4% the following year to $474.6 million as consumer spending declined in response to the financial crisis. Overall, IBISWorld expects industry revenue to continue recovering over the next year and thus exhibit a 1.6% increase to reach $487.1 at the end of 2010-11. As discretionary consumer items, cut flower growers would normally stand to benefit from the increases in discretionary incomes across most of the
current five-year period. However, increased competition from a large range of gift products has offset much of this benefit, especially during peak periods. In addition, exports have declined due to strong competition from low-cost countries and a strong Australian dollar. Native and exotic flowers are key growth segments, accounting for about 25% of revenue and 90% of exports. Overall, the past five years have seen revenue fluctuate, mostly in response to the negative impact of the millennium drought, which lowered water availability and consequently production yields. Fortunately, growing conditions are expected to improve substantially, along with disposable income levels, which should translate into increased revenue for 2010-11.
downstream demand
Retail and convenience stores are able to use significant bargaining power to exert downward pressure on prices and therefore reduce growers returns. There are a number of features of supermarkets and convenience stores that lead to lower per-unit returns for growers supplying such outlets. Flowers are usually an impulse purchase at supermarkets and convenience stores, making price a more important aspect of the product, while florists will often emphasise quality. Such stores are also less equipped to minimise spoilage, without the precise temperature controlled fridges used by florists, necessitating flowers that are more resilient as well as some margin for spoilage. Finally, retailers generally purchase from a small number of suppliers, thereby reducing the cost of sourcing produce. This allows only a few producers access to the mass market. At the same time, the increased presence of flowers in supermarkets, corner stores and convenience stores has increased the overall demand for flowers. Opportunities exist for growers that can establish supply relationships with these alternative retailers. Given the implication of logistics and lifespan of
The decline in cut flower demand has been more than offset by an increase in sales to supermarkets
produce, the largest growers may not necessarily be a competitive threat if they are not in close proximity to a particular retail centre. This requires producers to emphasise consistency of supply in adequate quantities. There are also opportunities for growers that are willing to produce bouquets, given that those produced for supermarkets usually involve a lesser degree of arrangement and simple packaging. Purchases of cut flowers peak on holiday occasions, particularly Valentines Day, Mothers Day, and to a lesser extent, Christmas. The number of commemorative occasions, predominantly weddings and funerals also props up demand. Commercial success in the production of cut flowers depends on (among other things) being able to bring the product to the market during these peak periods.
Profitability
Although industry volumes have been rising considerably over the majority of the five years through 2010-11, returns to growers have not expanded at the same rate due to price pressures from retailers and higher production costs. More specifically, there has been a large increase in energy, fertiliser and farm chemical costs over the period. On the other hand, industry consolidation has resulted in a smaller number of more efficient processors. Profitability has fluctuated considerably over the current period, but has increased overall from 5.0% of revenue in 200506 to 8.0% in 2010-11. The industry has concentrated on the supply of fresh flowers flowers that are
dried tend to be of poorer quality or damaged. However, dried flowers are increasing in popularity due to an improved drying and dying process combined with a shift away from artificial (plastic or silk) flowers. In the past, drying was a lengthy and somewhat unpredictable process, but now new technology enables fresh flowers to be dried and ready for handling and packing within 24 hours. This means that less storage area is required. Moreover, dried flowers can be dyed to the required colour for a particular occasion. Australian producers of dried flowers also face competition from producers in South Africa, India and Italy.
Operators and employment
The Cut Flower Growing industry is highly fragmented, as demonstrated by the large number of flower and seed growing plantations for which the value of agricultural operations is less than $150,000 per annum. Over the five years through 2010-11, the number of plantations is expected to decline at an annualised rate of 3.9% to reach 617. The number of enterprises operating these growing facilities however, is also expected to decline over this period at an average annual rate of 3.6%. This indicates increased consolidation across the industry, which is likely to consist of fewer highly valued operators. Industry employment is expected to fall alongside the decreasing number of establishments, largely due to pressure to cut costs by raising productivity via automating and mechanising industry processes. The decline employment is expected to be less than that for the falling number of plantations. The number of small establishments in this industry means there is likely to be a large proportion of employment on a part-time or casual basis. In particular, a report by the Rural Industries Research and Development Corporation (RIRDC) estimates that up to 60% of growers in the Western Australian Wildflower
There has been a shift from plastic or silk flowers towards dried flowers
industry work on a part-time basis. Despite the decrease in employment, wages have increased at an average annual rate of 1.3% over the five years through 2010-11, reaching an average $40,525 per employee. Greater use of specialist labour has increased the wage requirement of businesses, with more advanced storage systems and product development strategies required for larger operations. Fragmentation within the industry has been identified as a weakness in the industry, as it makes collaborative efforts difficult. In November 2006, traditional cut flower growers met at the Annual Flower Conference and recognised the need for a peak industry body. The establishment of such a body would facilitate research and development (R&D) investment and improve information and technical knowledge flows between growers, thereby improving some growers production processes. State-based organisations have filled the gap to some extent.
Global markets
Drought and global recession are partly responsible for the decline in Australias international trade. However, the biggest factor has been increased foreign competition, which has rendered domestic produce inferior in international markets. Europe, South America, Africa and Asia are the worlds largest growers, with a strong push to larger-scale growing in developing countries. Australias exports have decreased over the five years through 2010-11 at an average annual rate of 4.4%. Despite stronger domestic demand, imports have also fallen at the same rate over this period, partly due to the restrictive quarantine restrictions, which are expected to decline in the future,
leaving the industry vulnerable to foreign competition. Moreover, technology in greenhouses coupled with advances in growing techniques has also affected industry imports, as they allow most countries to produce whichever variety of flower and seed they choose. For Australia, the drought has forced many consumers to purchase native flowers, as foreign varieties will otherwise perish in the severe extremes of the Australian climate, which has facilitated a decline in cut flower imports. Finally, demand for imports also fell because of lowered discretionary incomes and consumer sentiment in 2008-09, following the global economic downturn. The Netherlands and Germany are the
Global markets continued
worlds largest markets for industry trade. The United States is also a prominent destination, for which Colombia is the major supplier. Japan sources cut flower supplies from a diverse base of countries including New Zealand, Europe, the Philippines and Taiwan. For Australian cut flowers, exports are mostly impeded by the nations geographic isolation. The major international markets are those with the highest per capita incomes including Japan, Europe and North America, and these markets are serviced by nearby, lower-cost producers in Latin America and Africa. The perishable nature of cut flowers will mean market proximity will remain a major barrier to international market growth for Australian producers. In other horticultural industries, international market access issues have often been addressed by industry peak bodies. Thus, the establishment of such a body could assist in increasing exports from this industry by promoting Australian cut flowers in foreign markets. Export earnings have been negatively affected by weak GDP growth in Japan, fluctuations in quantity and quality, and the lack of common quality standards for all growers. Approximately 90% of Australias
flower exports are wildflowers. The key commercial wildflowers are Geraldton wax, Kangaroo paw, Thryptomene, Stirlingia and species of Banksia, Leucadendron and Protea, with species other than waxflower increasing in relative importance and commanding premium prices. A move to an integrated quality management system to control insects cleared the way for the domestic industry to secure sales in high-value markets, particularly Japan and the United States. The move was instigated following research showing that the industrys earlier blanket spraying approach was unsuccessful and costly, in terms of both labour and insecticides. Geraldton waxflower growers were the first to adopt the recommended control measures and exporters of other flowers are moving to adopt similar protocols. Australian exporters still face increasing competition in the wildflower market; current share of the world market stands at approximately 25%. An example of competition within this segment is from New Zealand, where growers are producing the Australian Waratah and exporting it as the Kiwi rose. Currently, Israel is the biggest exporter of wildflowers. Other major competitors include Kenya, South Africa and Colombia.
Industry Outlook
Industry growth will rise in response to higher disposable income leading to increased per capital consumption of cut flowers. Gains will also be stimulated by an increasingly commercial focus by some cut flower producers, due to retail outlets such as supermarkets and convenience stores increasing their share of downstream demand. Downstream consolidation in flower retailing will affect growers profit margins. The relative power of buyers has been increasing due to the rising prominence
of supermarkets in flower retailing. Consequently, growers profit margins will decrease over the next five years. Indeed, growers are facing higher costs due to major retailers desire for growers to have quality-assurance schemes. Over the next five years, industry revenue is expected to grow at an average annual rate of 2.1% per annum, reaching $540 million in 2015-16. Throughout this period, production levels are expected to increase while prices remain largely stagnant.
Profitability and labour saving
The buying power of the larger firms erodes profit margins; the influence of this on smaller operators will be partly offset by an increase in the average size of these producers and the scale economies achieved. The number of produce plantations is expected to decline from 617 in 2010-11 to 550 by 2015-16. As a result, the value of each of these operations will increase to just over $1 million per plantation. Technological change should reduce average unit costs and increase product quality. The future success of the industry requires the introduction of automated plant management programs and processing
systems, the use of advanced harvesting techniques and improved airfreight services. Greater reliance on technology will lead to higher capital use and profit increasing as a ratio of revenue. Consequently, industry employment is forecast to continue declining at an average annual rate of 1.7% to reach 2,550 employees by 2015-16. However, the harvesting of flowers is likely to remain a highly labour-intensive task for a few years to come. The labour requirement reduction will result from the adoption of labour-saving technology coupled with industry consolidation over the next five years.
Key trends
Australia has about 6,000 varieties of native flowers, but only 50 varieties are being cultivated for commercial production. Production will increase as large plantations of proteas in New South Wales and Kangaroo paws in Victoria begin to supply the market. Production growth is also expected to increase in South Australia. Many wildflowers not currently cultivated could be produced commercially through hybridisation, breeding and selection. Furthermore, as Australian flora can be successfully grown commercially on open ground, these flowers are considerably less costly to produce than other flowers that are grown in heated greenhouses. Many native flowers have the advantage of a longer vase life than exotics. Research and development will be an increasingly important success factor for participants in this industry. This industry, particularly the wildflower segment, has previously been hampered by a lack of information on the current and future demands of the market. More research and intra-industry organisation is leading to better information flowing through to growers about the types of flowers demanded by particular segments. In order to address
This industry is likely to be affected by changing technology relating to plant development in the future
this issue, the RIRDCs Best Bets program has sought to identify wildflower species with the best chance of commercial success. Ultimately, access to information is critical for market segments where new varieties are viewed as the key to securing future markets. In addition, the development of Australian Standards for the growing and exporting of Australian native flowers will assist growers in that segment of the industry over the next five years. Furthermore, a report commissioned by the WA Department of Agriculture has focused on the need to undertake benchmarking in the industry to assist growers in examining their production and performance against industry standards. It also identified the importance of irrigation and fertiliser to improve crop quality and yields. Australia has a significant advantage in the development of floriculture for
10
Key trends continued
the world market owing to its climatic diversity, ranging from the tropical north to the dryness of Western Australia, to the mild-coastal areas of Victoria, New South Wales and
Tasmania. Thus, it is possible to produce a wide variety of flowers and greenery throughout the year. Long hours of daylight are also conducive to relatively rapid growth.
The global market
Australian exports of cut flowers and plants have fluctuated in terms of quality, thus prompting support for the introduction of a total quality management standard in the industry to be implemented within the next five years. The development of industry standards would enhance product quality and the image of Australian flowers on the international market. Although Standards Australia has developed some standards for Australian native flowers, compliance is not compulsory. Australias geographic location allows it to supply flowers mainly to Europe during the Northern Hemisphere winter; however, future growth in exports will most likely come from supplying Asian markets. Trade with the United States is likely to decline, as the market is highly price sensitive and production costs are relatively low in nearby countries that enjoy economies of scale thanks to US technology and capital. Moreover, Australian producers are likely to suffer due to high transport costs over the next five years compared with growing African producers who continue to develop their infrastructure. Overall, exports to Europe are likely to increase, but at a slower rate than those to Asian markets. Australias primary potential lies in the supply of native or exotic flowers for export however, the industry is yet to
realise their full value. For example, there is a loss of genetic material through over-picking, destruction of natural regeneration, illegal picking and overcultivation. To help overcome these issues, the Government is imposing licence restrictions on wildflower picking and encouraging the commercial growing of wildflowers. Currently, Australias export opportunities for exotic flowers are largely limited to off-season periods. This is because Australian producers cannot compete with low-cost producers in developing countries such as Thailand and Malaysia. Reliance on exports means that reliable and cost-effective transport to overseas markets is vital. Disease management and the commercial production of new varieties may boost exports of wildflowers. Exports of higher-quality Ixodia daisy wildflowers are anticipated, following a varietal improvement program and disease management project that was funded by the RIRDC. Key findings were that strong demand exists for dried Ixodia blooms in both export and domestic markets. This could extend the wildflowers harvest period, provide new products for dried and fresh flower markets and improve the quality of the wildflowers characteristics such as its resistance to disease.
Opportunities for growth
The key strategies for development and growth lie in fostering field trials and licensing of promising new flowers and foliage for new market opportunities; encouraging greater industry involvement in carrying out and funding R&D; ensuring effective flow to industry of information on research findings as
well as improving profitability through benchmarking. Industry demand may be increased if new plant varieties can be introduced and developed through local R&D efforts, access to overseas genetic materials (although this is restricted by quarantine provisions), the existence of plant variety rights that enable the
11
Opportunities for growth continued
developer to appropriate the gains, and technology. This industry is likely to be significantly affected by changing technology relating to plant development in the future. New growing techniques such as hydroponics will be used and new varieties will be created through micropropagation. The latter will enable the creation of plants and flowers with particularly desirable features such as large flowers, longer stems and desired colours. In future however, even greater changes are expected to result from genetic engineering. While only in its infancy, genetic engineering has the potential to alter the rate of growth and other plant characteristics. Plant industry scientists from the Commonwealth Scientific and Industrial Research Organisation have recently built on advances made on the systems involved in the flowering process of plants with the discovery of how to isolate the master flowering gene. Being able to control this gene will enable the flowering process to be encouraged or discouraged in response to changing environmental, climate and market conditions. This discovery has implications for the industry over the next five years, as it has the potential to
Industry revenue
30 20
% change
10 0 10
Year 03
05
07
09
11
13
15
17
allow control over the flowering calendar. In addition, it could also benefit exports by giving the industry a competitive edge over its international competitors. Over the next five years, it will be necessary to further develop the segments commercial orientation if the industry is to become more competitive and capitalise on the growing demand for wildflowers. This includes the growing and marketing of wildflowers that match the needs of the market, technological improvements that extend the production season and developing new ways of presenting and using wildflowers, such as drying and preservation.
12
Life Cycle Stage
The industry holds a number of clearly segmented product groups Supermarkets are putting downward pressure on producer prices for cut flowers Implications in remaining profitable have led the number of industry operators into decline The rate of growth in industry gross product is much slower than that of the overall Australian economy
% Growth of profit/GdP
30
25
Company consolidation; level of economic importance stable
Maturity
Quality Growth
High growth in economic importance; weaker companies close down; developed technology and markets
Key Features of a decline Industry Revenue grows slower than economy Falling company numbers; large firms dominate Little technology & process change Declining per capita consumption of good Stable & clearly segmented products & brands
20
15
Quantity Growth
10
Many new companies; minor growth in economic importance; substantial technology change
Chemical wholesaling Flower Retailing Supermarkets and Other Grocery Stores Livestock and Other Farm Supplies wholesaling
Shakeout
Cut Flower Growing

Plant Nurseries
Shakeout
decline
10 10 5
Crash or Grow?
Potential Hidden Gems

Future Industries 5 10 15 20
Time wasters
Hobby Industries 25 30
% Growth of establishments
13
Industry Life Cycle This industry is declining
The industry is in a decline phase of its life cycle, indicated by value added growth, which is slower than the rate of Australias total GDP growth. The rate of value added or industry gross product (IGP) has been affected by the mass merchandising of flowers, which has inhibited any progression in farm gate prices. While prices received have grown only marginally over the past five years, costs have risen due to higher input prices and more difficult growing conditions. IGP is showing a very marginal increase for the five years through 2010-11, averaging 0.6% a year. As a comparison of this industry to the overall Australian economy, GDP is growing at 2.9% for the same period. The number of enterprises will have declined at 3.6% each year for the five years ending 2010-11. The decline in the number of operators reflects the low level of profitability in the industry. In some cases, operators have not been able to successfully market their product to florists or households, and large retail operations usually deal with only a small number of suppliers. Downstream demand of industry produce has changed only marginally over the five years through 2010-11. The
increased importance of supermarkets as outlets for the products of this industry has encouraged growth in consumption. However, this has also resulted in downward pressure on producer prices. Export development has resulted in renewed growth in some parts of the industry. However, the industry faces strong competition in export markets from countries with a lower cost of production. The rate of technological change in the industry is moderate, as development of improved control mechanisms like temperature, light and humidity within greenhouses is constantly being experimented with. These changes have not led to substantial added value to the final products, though mechanisation, automation and other labour cost-saving technology is still largely in development. The current market size is not yet large enough to sustain the required investment in such technology. IBISWorld expects that the industry will remain in a decline phase of its life cycle over the next five years. While consolidation will lead to success of a small number of producers, industry wide value added will continue to grow at a rate slower than the overall economy.
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Products & Markets

Supply Chain
KEy buyING INduSTRIES
A0112 F4519
Supply Chain | Products & Services | demand determinants Major Markets | International Trade | business Locations
Cut Flower Growing in Australia There is substantial intra-industry trade, with seed growers supplying flower growers. Livestock and Other Farm Supplies wholesaling in Australia Cut flower growers either will sell to a wholesaler or at a market place organised by a central market authority. Supermarkets and Other Grocery Stores in Australia Cut flower growers derive a proportion of industry sales from supermarkets, which then retail to consumers. Flower Retailing in Australia Florists will often attend flower markets to purchase flowers directly from growers.
G5111
G5254
KEy SELLING INduSTRIES

A0112 F4523 Cut Flower Growing in Australia Within the industry, specialised seed growers supply flower growers. Chemical wholesaling in Australia Cut flower growers receive its important raw materials such as sprays and fertilisers from the Chemical Wholesaling industry.
Products & Services
Traditional flowers account for the bulk of industry production and are predominantly sold in the domestic market. The reason for this is that Australian producers do not possess any competitive advantage in the international markets given Australias geographic isolation and so hindrance to effective transportation. Primary end consumers of traditional flowers grown are Australian households. Native flowers are more often sold to export markets where they generally attain a higher price than could be achieved on the domestic market. Native Products and services segmentation (2011)
Native owers
flowers still have a poor reputation in the Australian market, despite domestic florists being encouraged to use more. Similarly, exotic flowers grown, such as Proteas, are also predominantly sold to export markets. The growing of varieties within the exotic plant segment generally requires specific growing locations and more attention to be successful; hence, relying on the higher prices achieved through international markets to better compensate the effort made. There is not expected to be any considerable change in domestic flower consumption over the coming five years, and growers will
10%
Seed growing
15%
Traditional owers
60%
Exotic owers
15%
Total $487.1m
15
Products & Markets
Products & Services continued
continue to look to increase their share of export markets as a result. Consequently, any change in the size of product segmentation will likely favour the native and exotic flower segments.
Participants of the seed growing segment are usually under contract, as the commercial seed growing sector is almost entirely dominated by the industry giant Yates, who are owned by Orica.
demand determinants
Demand for flowers is quite strong because the product is an everyday, highly desired and cross-culturally accepted commodity. As a result, prices play the most important role between varieties; though the nature of the industry also entails that product substitution will move with price. This means that as prices move, demand for ornaments and gifts will not necessarily change, but the demand for flowers as a particular ornament or gift will. Flowers are discretionary goods; demand is sensitive to changes in disposable income and consumer sentiment. As income and sentiment increases, consumers purchase flowers more frequently and look to higher quality. For example, the recent global economic downturn had a negative impact on the industry, as consumer sentiment fell and income levels stagnated, which prompted a 3.4% drop in industry revenue in 2008-09. Fortunately, these factors are set to improve considerably over the next five years, which bodes well for industry sales. It is also very important for this industry, more than any other within the agricultural sector, to appeal to consumer tastes and monitor trends in fashion. This market characteristic determines both the quantity and the nature of the demand for cut flowers. The type of flowers demanded by consumers can change unpredictably, and may be driven by a number of
Industry demand has been known to increase greatly during spring

influences. Home decorating and other lifestyle factors that could affect demand include whether or not dwellings include gardens. Good places to look for changes in trends are in the increasing number of home improvement and do-it-yourself programs on TV. Additionally, as housing density increases in urban centres, it is more likely that consumers will live in homes without gardens, facilitating an increase in cut flower consumption as a substitute. Demand has a strong seasonal component, with the periods around Mothers Day, Valentines Day and Christmas having higher-than-average demand. Demand for the industrys products has also been reported to increase in spring. Though difficult to monitor and market by the grower, there is also strong downstream demand from commemorative events like weddings and funerals. The demand for exports of Australian flowers depends on the uniqueness of the products, the price of the product on world markets (which is partly determined by relative exchange rate movements), competition from other suppliers that may be better positioned geographically, and the attention to marketing by Australian producers.
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Products & Markets
Major Markets
Many industry participants use fresh produce markets to sell their produce directly to retailers. Fresh produce market places include the Sydney Flower Market, the National Flower Centre in Footscray, VIC, and the auction market in Brisbane Stallholders. Fresh produce markets represent a prominent supply mechanism, with differing relevance for different producers. In Sydney, florists readily source flowers from the market, which represent an opportunity to cut wholesalers out of the supply chain. In Melbourne, the markets are less important, with a smaller proportion of florists sourcing their product at markets, usually on the basis that wholesalers have a better-presented product. Selling directly to retailers has become an increasingly important feature of the supply chain; however, this is generally undertaken by a small number of growers. This may lead to growers also purchasing flowers from other growers in order to fill orders for large retailers. For example, Lynch Flowers is a large supplier for Woolworths and other retail Major market segmentation (2011)
stores, but the company must supplement its own flower production with flowers purchased from other farms to fill all of its orders. Export markets account for a small proportion of industry revenue. The value of industry exports has declined over the past five years. The main exports from the industry are native flowers and exotic flower species. Historically, the main end users of cut flower have been households, where consumers will purchase flowers based on traditions, culture and lifestyle. While some people habitually purchase cut flowers, for the most part they are a luxury or gift purchase and often compete with products such as confectionery or alcohol for special occasion purchases. Commercial use of floriculture products (such as flower displays in office foyers) has been growing. This segment is price sensitive and requires a product with consistent quality. This market segment will purchase products through a commercial florist.
Other retailers
12%
Exports
3.5%
Wholesalers and larger growers
59%
Supermarkets
25.5%
Total $487.1m
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Products & Markets

International Trade
Level & Trend There are a number of factors that have limited Australias performance as an exporter of cut flowers and flower seeds. One of these is the high degree of fragmentation in the industry. The domestic industry is characterised by a large number of producers, without sufficient scale to market their product overseas. Another factor is the lack of understanding of costs and returns by industry producers, which has led Australia to be a relatively high-cost producer. In 2004, the Rural Industries Research and Development Corporation published a study into benchmarking in the industry with the aim of improving profitability. Increased understanding of costs and efficiency in the industry could improve export potential. Australia is estimated to account for only 12% of trade in Australian native flowers, with other producers located in California, Africa, Israel and South America accounting for the remainder of the international market for native flowers. In 2010-11, exports of cut flowers and seeds are valued at $16.7 million. The main destinations for these exports are Japan, the United States and the Netherlands. The perishable nature of cut flowers has limited the extent of international trade. The Netherlands is Exports to...
Germany
Industry trade balance

40 30 20
$ million
Exports in the industry are Low and decreasing Imports in the industry are Low and decreasing
10 0 10 20
Year 03 Exports
30
05
07
09
11
13
15
17
Imports
Balance
yearly per capita cut flower expenditure

Country Switzerland Norway Japan Holland Great Britain Denmark Ireland Belgium Sweden Austria Germany Expenditure* ($AU) 127.74 104.51 92.90 92.90 81.29 79.63 66.36 63.04 63.04 61.38 58.06
*Converted from euros (2007) to $Au by IbISworld SOURCE: FLOWER COUNCIL OF HOLLAND
7%
Canada
6%
Imports from...
11%
Other
38%
Japan
United States of America
6%
Malaysia
6%
Thailand
9%
36%
Singapore
Netherlands
12%
10%
Kenya
United States of America
25%
32%
Other
Year: 2008
SIZE OF CHARTS DOES NOT REPRESENT ACTUAL DATA
Total $16.7m
Total $14.6m
SOURCE: ABS
18
Products & Markets
International Trade continued
also a prominent destination due to the presence of the worlds largest cut flower markets, which accounts for about one-seventh of world trade in cut flowers. In 2010-11, imports of cut flowers and seeds are valued at $14.6 million. These imports were mainly sourced from Singapore, Kenya and the United States.
Imports from Kenya have been increasing in prominence over recent years due to their lower cost of production. At present in the Australian market, Kenya is the fifth most significant import origin, behind Singapore, the United States, the Netherlands and India.
19
Products & Markets

business Locations 2011
NT
0.7
QLd
21.4
wA
12.1
SA
7.9
NSw
26.1
ACT
0.2
VIC
27.6
Establishments (%) Cold Zone (<10) <25 <50 Hot Zone (<100) Not applicable
TAS
4.0
20
Products & Markets
business Locations
The industry is concentrated in Victoria, New South Wales and Queensland. Over the past five years, Victoria has accounted for an increasing proportion of industry establishments. Victoria is the only state to have recorded an increase in the number of flower growing establishments between 2003-04 and 2006-07 the period of most severe drought conditions. Operations occur on land with aboveaverage fertility (e.g. mountain soils), access to irrigation or with relatively high and reliable rainfall. The intensity of flower growing, which often occurs in glasshouses, means land-size requirements are modest. Some growers have benefited from locations that minimise costs. For example, Nationwide Flowers at Traralgon, VIC, raise traditional cut flowers under protective structures and these are inexpensively heated using water from a nearby power station. In addition, an Adelaide-based grower, Michael Cornby, has installed solar greenhouses in Alice Springs to increase flower yields for exports. According to the Flower Export Council, Australia has at least 10 geographic regions and varied climatic conditions that enable the production of a vast range of traditional, exotic and Production of cut flowers
Production (%) ACT NSW NT QLD SA TAS VIC WA 0.0 12.0 0.4 19.1 8.6 1.6 35.7 22.7
SOURCE: ABS
Distribution of establishments vs. population

40 30
Percentage
20 10 0 VIC ACT QLD NSW TAS WA NT SA
Establishments Population
native flowers. The majority of traditional flowers are grown in Victoria, New South Wales, Queensland and Tasmania. Exotic flower production is concentrated in Queensland and the Northern Territory, while native flower growing is located primarily in Western Australia. Intensifying efforts are being made to promote native flower growing in all other states of Australia. Within New South Wales, the traditional flower industry is based mainly in the Sydney region, extending through the central to south coast, and west to the Blue Mountains. This is because the climate allows for yearround production. Wildflower growers in New South Wales typically locate along the coastal strip from the north coast to the far south coast and Southern Tablelands region. They are also located further inland such as the central west region. Most growers in this region produce exclusively for the international market, although there are few that produce for the domestic market as well.
21
Competitive Landscape
Market Share Concentration
Level The majority of agricultural operators are family run farms, and so market shares are often highly fragmented across the entire sector. Cut flower growing is no different in this respect; though a handful of major players do run sizeable operations. Most of these same major players are also vertically integrated, running their own seed growing, wholesaling and export operations. Structurally, the industry is highly fragmented, with large players wielding all market power and determining the market price. Small farms face problems in remaining profitable unless they can develop enough scale to attain comparable efficiencies. One advantage smaller industry operators enjoy is the emphasis on quality and the premium prices that higher-quality produce can achieve. Low levels of industry concentration have been identified as a barrier to industry growth. Although, even with the number of participants declining over these past five years, new obstacles will take the place of a highly fragmented industry. The number of businesses
Market Share Concentration | Key Success Factors | Cost Structure benchmarks basis of Competition | barriers to Entry | Industry Globalisation
Concentration in this industry is Low
operating in the industry will declined by 3.3% over the five years through 2010-11. The number of plantations they operate will fall also substantially over this same period, suggesting companies consolidating assets and merger activity. The result will be a less competitive industry by numbers, though the ability to remain profitable will become the principle aspect to acquiring the largest market share. This will be achieved through economies of scale, and therefore, increasing the size of the operation for lower per unit costs. The future of the industry is expected to see the proportion of large operators increase further as rising input costs and lower returns erode the profitability of small operations. The market price is set in contracts between growers and wholesalers; and highly influenced by price competition between large players. As the industry becomes more vertically integrated, achieving a strong price from wholesalers will become increasingly difficult. The move towards large-scale production will see more corporate players enter the industry.
Key Success Factors IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
Superior financial management and debt management Debt levels and financing arrangements are important in establishing a new business. Given low levels of profitability experienced by some growers, it is important that producers be able to finance production activities if short-term losses are made. Automation reduces costs, particularly those associated with labour Wages are a significant expense, and can be minimised through automatic processes. Automation also gives better control of the production environment. Experienced work force Extensive hands-on experience within the industry is a key factor in the
successful growth of both family-based firms and large companies. Creating optimal growing conditions is not necessarily standardised, often requiring specialist attention. Appropriate climatic conditions Location is critical. Climatic conditions must be appropriate to the type of product and cheap water must be available. This industry is also affected by the incidence of drought. Prompt delivery to market Due to the perishable nature of cut flowers, timely delivery to market is important. While temperature- and humidity-controlled storage has extended flower life, there remains a limit to the shelf life of cut flowers.
22
Cost Structure benchmarks
Labour is a major cost component of producing flowers due to the delicate and highly perishable nature of the product. Pruning, land preparation, weed control and disease control are all labourintensive activities undertaken in this industry. Harvesting, however, accounts for the greatest proportion of labour costs. Despite attempts to improve efficiency, labour costs remain high due to the high labour component of growing and harvesting. Some growers have adopted partial mechanisation for picking, but overall the industry is still highly dependent on manual labour. Establishments may pay workers a set hourly rate, or pay on a per-stem basis to encourage higher productivity. Purchases are another significant cost segment and include fertiliser, new plant material, irrigation materials, insecticides and other chemicals. Capital Industry Costs and Average Sector Costs
Industry Costs (2011) Average Costs of all Industries in sector (2011) 0 Profit
costs include structures and buildings, machinery and vehicles such as graders, ploughs and delivery vans. Depreciation can vary according to the type of production used, with greenhouse production being more capital intensive than open-field production. Other costs include consultancy, administration and other overhead items. Repairs and maintenance is estimated to account for 4% of revenue. This includes repairs to capital equipment such as vehicles and greenhouses. Profit after tax is estimated to be 5.6% of revenue; however, this varies widely among producers. There are some varieties of flowers that yield losses on a per hectare basis but are still produced. Evidence from overseas producers indicates that profitability could be improved in this industry through a greater degree of cost control.
Profit Rent utilities depreciation Other wages Purchases
100%
8.0 6.7 1.6 9.1 2.4 6.2
17.7 17.9
12.0 10.0
29.6 52.9
26.0
Profit
basis of Competition
Level & Trend
Competition in this industry is Low and the trend is Steady
A number of characteristics must be assessed when looking to establish a successful commercial cut flower growing operation. To win business a grower must compete on price, quality, timeliness of delivery and reliability of production. Attaining a competitive edge among commercial cut flower and seed growers depends primarily on attaining the most and largest wholesale and retail contracts. Obtaining long-term contracts is particularly important as the rich supply of flowers on the domestic market means wholesalers and retail chains can easily switch suppliers. Competition will also stem from the
Since flowers are often a luxury or gift item, quality is an important feature for the end purchaser
quality of produce, number of varieties available, the degree of produce seasonality and the increasing role of branding. Florists prioritise a highquality product that can be sold at a sufficient margin. Quality is important for the end purchaser because flowers are often a luxury or gift item. In addition,
23
basis of Competition continued
both florists and flower wholesalers prioritise the range of flowers they can offer respective customers. Therefore, producers that are able to supply a range of flowers will have an advantage. Plantations may also compete on their ability to bring goods to market within a short time frame. Those farms with reliable transport services and a good record of delivering as promised will be at an advantage. Florists prioritise the delivery of a fresh product and bunches containing flowers that have been picked at the same time. Reliability of production is also a basis for competition, particularly with sales to supermarkets. Supermarkets often purchase readymade bouquets from growers or wholesalers and usually have a more limited but consistent range than florists. When advertising material
features flower arrangements, it is particularly important that their suppliers can provide supermarkets with consistent arrangements at consistent volumes. As genetic engineering improves, end users are increasingly demanding specific characteristics, such as long- or shortstemmed flowers and longer vase life. External competition Competition from other products has undermined consumption of cut flowers. This has been attributed to an increase in the variety of gifts that compete for traditional flower-giving occasions. Examples include giving wine or chocolate on occasions that were previously associated with flowers such as mothers day or Valentines Day, or donating to charity rather than bringing flowers to a funeral.
barriers to Entry
Level & Trend
Barriers to Entry in this industry are Low and Steady
There are some barriers to entry into this industry. However, even for small enterprises these are not insurmountable. Necessary inputs are readily available. Often entry is via some other agricultural activity or is complementary to some other activity. There is a barrier into the segment of the industry that involves the gathering of native wildflowers and seed collecting from native species. The collection of wildflowers is regulated by most state governments and requires a licence in most instances. Again, in the case of native flowers there is a significant lag between planting and flower production. This can be as much as five years, but can be overcome by planting in conjunction with faster flowering species. New operators will also need to establish contracts with produce
wholesalers. The wholesale market is not transparent, and the relationship established with the wholesaler can have a substantial effect on prices received for produce. In this regard, existing growers have a competitive advantage over new entrants. This characteristic leads into the ability to achieve economies of scale, which is now very important in the modern industry, which requires relatively high fixed costs on infrastructure. However, this is not a significant barrier to entry, although it may be a deterrent. Although purchasing land outright is a high cost, leased property is available at rates that are not prohibitive to flower growers. Industry participants have cited low barriers to entry as a factor that undermines profitability within the industry.
24
Industry Globalisation
Level & Trend
Globalisation in this industry is Low and the trend is Steady
The industry has a very low level of foreign ownership, and more generally, exhibits a very low level of globalisation. Profitability in the industry is too low to attract significant foreign investment. Furthermore, the scope for increasing returns is limited since the industrys pace of expansion is slow and the domestic market is small by international standards. Exports from this industry are low and have declined over the past five years, despite the efforts of the Australian Flower Export Council. Exports have been adversely affected by the appreciation of the Australian dollar. In addition, the perishable nature of flowers has meant that
Trade Globalisation
200 150 100 50
barriers to entry checklist

Competition Concentration Life cycle stage Capital intensity Technology change Regulation & policy Industry assistance
Level Low Low Decline High Medium Medium Low

Australian-produced flowers have dominated the domestic market. Flowers can be produced in Australia at prices that are low relative to the cost of importing flowers produced in other countries.
Going Global: Cut Flower Growing 1996-2011
International trade is a major determinant of an industrys level of globalisation. Exports offer growth opportunities for firms. However there are legal, economic and political risks associated with dealing in foreign countries. Import competition can bring a greater risk for companies as foreign producers satisfy domestic demand that local firms would otherwise supply.
Export
Global
Exports/Revenue
200 Export 150 100 50
Global
Exports/Revenue
0 Local 0
Cut Flower Growing

40 80 120
1996
Import
80 120 160
Import
160
0 Local 2011 0 40
Imports/domestic demand
Imports/domestic demand
25
Major Companies
Lynch Fresh Holdings Pty Limited | Other Major players
(Market share)
95.0%
Other Lynch Fresh Holdings Pty Limited 5.0%
Player Performance Lynch Fresh Holdings Pty Limited Market share: 5.0%
Lynch Fresh Holdings has grown from a small family business into an integrated grower-wholesaler. It operates in all states of Australia. Farms are located in New South Wales in Dural, Arcadia, Peats Ridge and the Sydney basin. The company supplies flowers to Woolworths, Franklins, Shell, Qantas, ShopFast, Wishlist.com.au and Freshflowers.com. au. It is this significant number of retail customers that makes Lynch the largest supplier of flowers with an interest in both growing and distribution. A significant part of the companys success is its relationship with
Woolworths, which it has been supplying since the 1970s. Lynch supplies Woolworths with its Clover Hill bouquets. Estimated market share is 5% of industry revenue at the grower level; however, the role it plays in the industry is greater than its direct market share indicates. As a wholesaler, it facilitates an information exchange between growers and retailers, which helps the company to plan growing cycles and select appropriate, marketable varieties. In 2004, JB Were private equity fund acquired a 47.5% stake in the company for $9 million.
Lynch Group of Companies financial performance

year 2005-06 2006-07 2007-08 2008-09 Revenue ($ million) 81.0 82.0 90.8 89.2 (% change) N/C 1.2 10.7 -1.8 NPAT ($ million) 2.9 -0.48 2.5 0.687
SOURCE: ANNUAL REPORT
Other Companies
Like many horticultural establishments, flower growers and flower seed growers tend to be relatively small. Most enterprises are individual agricultural holdings rather than multiple site operations. Consequently, there is a high degree of fragmentation within the industry. Alternatively, production is undertaken by private companies. For seed propagation, growing operations may be contracted out. The largest firms tend to be vertically integrated into wholesaling (including exporting).
Orica Ltd
Estimated market share: 2.2% Arthur Yates and Co Ltd (Yates) was an Australian publicly listed company with operations in Australia and New Zealand. The companys core business, its garden supplies arm (Yates Ltd), was acquired by Orica Ltd, and is the largest manufacturer and marketer of garden products in Australia and New Zealand. Orica operates primarily in chemicals manufacturing, mining services and gardening products.
26
Major Companies
Other Companies continued
Yates products include seed, bulb, plant health, plant food, growing media, garden merchandise, gardening service and propagated plants. The Yates brand has been in existence for over 110 years. In 1998, Yates established a franchise operation in the garden services market. For a franchise fee of 10% of revenue, it would provide training, a trailer and a brand name, in an expansion of the companys area of operation. In December 1998, the company purchased ForBio Plants for $1.2 million in an attempt to combat the trend of declining sales in seeds and bulbs, as ForBio produced cut flowers worth $3 million per annum, with specialist production of gerberas, roses and petunias. The company invested heavily into tissue-culture techniques to provide further product variation to meet market demand for new colours and shapes. In 1999, Yates acquired Burbank Biotechnology Ltd, previously owned by Corunum Corporation, a Japanese operator. The $1 million acquisition enabled Yates to broaden its range of seeds. As a result of the losses, Yates directors became concerned about the ability of the company to generate sufficient cashflow to repay seasonal credit facilities and a decision was made to raise equity. In 2001, the company merged with Norgard Clohessy Equity Ltd, an affiliate accounting firm of Sims Lockwood, which manages and is associated with various agricultural projects. Under the merger, $35 million worth of capital was raised and the company changed its name to Yates Ltd and listed publicly. In 2003, Yates Ltd shareholders approved the sale of their companys core business (consumer lawn and gardening operations) to Orica Ltd, a publicly owned Australian chemical company, for $45 million. Also in 2003, Yates Ltd agreed to the sale of its vegetable seeds division for $10 million to a consortium of South Pacific Seeds and Dutch group Ezna Zaden. Oricas total revenue for the financial year ending September 2009 was $7.46
billion. Of this, the share of revenue relating to flower seed growing is approximately $10 million.
Florigene Ltd
Estimated market share: 0.1% Florigene was established in Melbourne in 1986 and is involved in plant genetic research. Over $45 million has been spent on research during the companys life, and it has proprietary technology relating to the genetic improvements of plants and novel-coloured varieties of cut flowers. In 1991, it identified the gene responsible for colouring flowers blue. IBISWorld estimates annual revenue to be about $500,000. Florigenes first commercial production of blue carnations was placed on the US market in January 2000. Florigene has a Miami office and its flowers are sold through distributors nationwide. All Florigene flowers in North America are grown under contract by growers in Ecuador and Colombia. In 2001, the company launched a new generation of carnations to the world market. These new flowers have unique colours ranging from lavender to purple to a colour that approaches black. In Australia, Florigene carnations are sold through Tesselaar Flowers, based in Melbourne. In addition to the blue gene technology, Florigene has developed and patented biotechnology that extends the vase life of carnations, known as LVL Gene Technology. Initial LVL carnations are expected to be released into the marketplace soon, with 20 commercial varieties in development. In 2000, Nufarm Ltd purchased a 90.1% stake in Florigene for $2 million. In December 2003, Nufarm Ltd announced that it had reached agreement on terms for the sale of Florigene to Japanese firm Suntory Ltd. Suntory holds 98.5% of Florigenes shares. The company is now focused on developing a blue rose. Total Flower Exports While not a grower, Total Flower Exports Pty Ltd (TFE) is a major
27
Major Companies
Other Companies continued
exporter of flowers supplied by growers. TFE, based in Western Australia, supplies fresh and dried Australian natives and Protea flowers to overseas and Australian markets. Its packing facility is located close to Perth Airport, which allows prompt dispatch of fresh flowers by air to all destinations. All flowers are pre-cooled and treated for all
quarantine requirements. TFE exports Western Australian wildflowers and Protea to customers in Europe, USA, Canada, Japan and Asia. Orders are dispatched daily to Sydney, Melbourne, Brisbane and Adelaide. TFE also exports dried flowers to Europe (sent by sea container) and is now selling a new line of preserved flowers.
28
Operating Conditions
Capital Intensity
Level Growing flowers is relatively capital intensive, with just $2.3 spent on labour for every $1.0 absorbed by depreciation. Though still considered high, the past couple of years have seen the ratio expand. This is a result of further investment in greenhouses and cool storage facilities. Additionally, increased investment is required for more advanced equipment used to monitor harvest areas, test the soil and water crops (like almost all horticultural industries). Yet, flower growing is still more labour intensive than many other horticultural industries due to the extensive number of jobs that usually have to be done by hand. Labour has always been a key component of the production process. Almost all flowers harvested for the market are hand cut and picked by trained harvest crews. Some mechanical harvesters are used in
Capital Intensity | Technology & Systems | Industry Volatility Regulation & Policy | Industry Assistance
Capital units per labour unit 1.00 0.80 0.60 0.40 0.20 0.00 Agriculture, Cut Flower Forestry and Growing Fishing Dotted line shows a high level of capital intensity SOURCE: WWW.IBISWORLD.COM.AU Economy
Capital intensity
The level of capital intensity required is High
the industry; however, technology in this area is still largely in development. Current advances shaping labour requirements lie in sorting and grading technology.
Tools of the Trade: Growth Strategies for Success

New Age Economy Recreation, Personal Services, Health and Education. Firms benefit from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labour skills are key to product differentiation. Investment Economy Information, Communications, Mining, Finance and Real Estate. To increase revenue firms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Capital Intensive
Labour Intensive
Supermarkets and Other Grocery Stores
Flower Retailing
Chemical wholesaling
Traditional Service Economy wholesale and Retail. Reliant on labour rather than capital to sell goods. Functions cannot be outsourced therefore firms must use new technology or improve staff training to increase revenue growth.
Livestock and Other Farm Supplies wholesaling
Cut Flower Growing
Old Economy Agriculture and Manufacturing. Traded goods can be produced using cheap labour abroad. To expand firms must merge or acquire others to exploit economies of scale, or specialise in niche, high-value products.
Plant Nurseries
Change in Share of the Economy
29
Technology & Systems

Level
The level of Technology Change is Medium
A large number of flower growers are small producers that use a minimal level of technology, account for little capital in plant growing and are relatively inefficient. The situation however, is changing, especially among larger growers. Growers of cut flowers are becoming specialist producers, striving to meet the year-round demand for their products. There has been a shift from open-field production to greenhouse production. The latter provides shelter from the weather, facilitates better temperature light and humidity control (especially where this is computer controlled), and enables better timing and management of flower availability. The cost of enclosure has been reduced in many cases by the use of plastic and shade-cloth rather than glass. Changes have occurred in irrigation systems. The introduction of microirrigation systems has enabled water to be trickled in predetermined amounts to individual plants or pots. In addition, the drip line can be used to feed the plants with a balanced mix of fertiliser and may be used for insecticide to combat insect attacks. The producers ability to determine when it is necessary to spray for pests and diseases has also improved. One of the major advances has been the installation of computer-controlled management systems. New methods have been introduced to enhance the post-harvest life of cut flowers. For example, flowers such as carnations are adversely affected by ethylene gas, but when treated with silver thiosulfate, their life is enhanced. The Port Adelaide Flower Farm has developed an automatic-fumigating system for weevils and thrips. Cool storage facilities, as well as treatment areas and packing facilities are required. There has been some development of genetic engineering, although it has yet to have its full effect. Calgene Pacific (Victoria) is a subsidiary of a large American-based company and was Australias only company developing genetically altered plants for export. The
There has been a shift away from open production to production in greenhouses
company planned to produce highquality plants and new and different varieties of flowers for export to Europe, the United States and Japan during the 1990s. Calgene is now known as Florigene, which is exporting genetically altered plants in the form of blue carnations into the United States and Japan. Florigene has proprietary technology relating to the genetic improvements of plants and novelcoloured varieties of cut flowers. Advances in technology must be made accessible to a greater number of industry participants if potential production areas such as the Atherton Tablelands and Central Australia are to become capable of reliable supply. Plant industry scientists from the Commonwealth Scientific and Industrial Research Organisation have built on advances made on the systems involved in the flowering process. Scientists have discovered how to isolate the master flowering gene. By controlling the master flowering gene, it will enable the flowering process to be manipulated in response to environmental conditions, climate conditions and changes in downstream market demand. This discovery has implications for the industry as it has the potential to allow control over the flowering calendar. However, the high cost of genetic research has restricted development. Advanced irrigation and greenhouse technologies for gaining better control of the growing environment are more likely to be used on a wide scale to achieve year-round production. The Rural Industries Research and Development Corporation is also involved in undertaking research into issues affecting the wildflower segment of this industry, mainly based around disease prevention, genetics and industry development.
30
Revenue Volatility
Level
The level of Volatility is Low
Revenue is recovering well from the implications of the financial crisis and the limited spending by households. The result was a revenue decline of 3.4% in 2008-09 to $474.4 million. Fortunately, over the next five years industry revenue will benefit from improved consumer sentiment, which should translate into an annualised 2% increase in revenue. The industry is likely to benefit from the heavy rainfall across eastern parts of Australia in the latter half of 2010.
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment. When a firm makes poor investment decisions it may face underutilised capacity if demand suddenly falls, or capacity constraints if it rises quickly.
Improved water storage levels coupled changing weather patterns has seen the official end to the millennium drought and brighter growth prospects for Australian agriculture, especially with regard to greater water availability. Outside of the water constraints and the implication of the Australian economy on disposable incomes, demand has been on a gradual increase, which is expected to continue over the next five years.
Volatility vs Growth
1000
Hazardous
Rollercoaster
Revenue volatility* (%)
100 10 1 0.1
Cut Flower Growing
Stagnant
30 10 10 30 50
blue Chip
70
Five year annualised revenue growth (%)

* Axis is in logarithmic scale
Regulation & Policy

Level & Trend
The level of Regulation is Medium and the trend is Steady
The Plants Variety Rights Act 1987 Act was amended in 1990-91 to provide better protection for plant breeders and to extend the coverage of the act to all genera of plant species. Under this legislation, the property rights of the plant breeder are recognised and breeders acquire the right to charge others for the use of their varieties. The industry is also subject to regulations designed to restrict the spread of insects and diseases. Access to wildflowers is also regulated via a licensing system, which is designed to ensure the sustainability of wildflower picking. Exporters face regulation in the form of overseas legislation. For example, while Florigene had access to both American and Japanese markets, it was still awaiting regulatory approval from Europe before it
could export its blue carnation. In 2004, Standards Australia introduced a number of benchmarks to maintain the reputation of domestically and internationally traded Australian flowers. These standards relate to varieties such as Kangaroo paw, Koala fern, waxflowers, waratah and other native flowers. Accreditation with Standards Australia is not compulsory. In comparison with Israel, a major source of competition, the Australian floriculture industry has a low level of regulation. Israeli flower exports are handled by a government-owned marketing agency and are exported through a centralised export facility. Given the lack of cohesiveness of the Australian floriculture industry, adopting a similarly regulated industry structure could facilitate increased exports.
31
Industry Assistance
Level & Trend
The level of Industry Assistance is Low and the trend is Steady
Protection and assistance for the domestic floriculture industry is primarily a result of sheer distance between competitors and the consequent high transport costs, given the limited life of the product. Additionally, the industry is protected by Australias relatively stringent quarantine restrictions. There are no tariffs applied to products in this industry and tariffs have never been the primary means of protecting this industry. No special grants or subsidies are applicable to this industry. However, there are some government initiatives. One example is ExpHORT 2000, a project by the Victorian Government aimed to increase flower exports. Another was Flowers 2000, a Commonwealth Government scheme aimed at boosting exports. In addition, AUSTrade offers export market development grants for Australian business in the early stages of export development. The RIRDCs Best Bets program has sought to identify wildflower species with the best chance of commercial success. In Victoria, the Department of Natural Resources and the Environment is working with the industry to develop new plant varieties. The RIRDC provides $350,000 to $400,000 per year for wildflower research. This includes researching new wildflowers, improving consistency and quality of products,
providing genetic information, dealing with pests and diseases and marketing and trend analysis. However, there is very little industry funding for research and development into geneticengineering approaches to the creation of possible new products. Wildflowers Australia (formerly the Australian Flora & Protea Growers Association), formed in 1984, offers resources to growers of Protea and other South African members of the Proteaceous family (e.g. Leucadendron, Leucospermum and Serruria), as well as Australian native flowers (e.g. waxflower, Kangaroo paw, Banksia and waratah). The association was formed in the belief that Protea and Australian Native flowers are different in many important aspects compared with conventional flowers and it caters to those differences with development programs on marketing, research and propagation. The association works at building markets for the crop both in Australia and overseas by providing promotion, research and information support. It has identified research priorities on insect control, cultivation techniques, new cultivar selection and nutrition and it has brought these issues to the attention of growers, nurseries and scientists. Membership stands at 200, representing more than 50% of the plantation grown Proteaceous currently in production.
32
Key Statistics
Industry data
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Sector Rank Economy Rank Revenue ($m) 340.3 402.5 439.1 488.4 471.8 484.4 491.3 474.6 479.4 487.1 488.2 503 518.3 534.1 540 24/30 475/507 Industry Value Added ($m) Establishments 201.7 945 201.2 833 205.3 685 210.2 778 215.8 752 202.2 713 206.8 686 210.4 660 212.6 638 210.1 617 216.5 599 223.1 583 229.9 568 236.9 554 239.2 550 19/30 26/30 449/507 311/507 Enterprises 781 677 557 633 635 627 588 566 547 529 513 500 487 475 470 22/29 274/504 Employment 3,186 2,982 2,986 2,934 2,972 2,925 2,839 2,790 2,826 2,781 2,699 2,652 2,616 2,580 2,550 22/30 414/507 Exports ($m) 38.5 31.5 22.9 25 20.9 17.5 13.8 16.9 17.1 16.7 16.9 17.2 17.5 17.8 17.9 14/16 189/213 Imports ($m) 19.2 18.3 18.6 18.1 18.4 16.1 18.5 14.9 15.1 14.6 14.8 14.8 14.9 15.1 15.1 9/14 175/193 wages ($m) 90.2 88.8 93.6 96.6 103.9 108.2 111.6 110.5 111.6 112.7 113.8 115 116.1 117.3 117.5 18/30 445/507 domestic demand ($m) 321 389.3 434.8 481.5 469.3 483 496 472.6 477.4 485 486.1 500.6 515.7 531.4 537.2 11/14 181/190
Annual Change
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Sector Rank Economy Rank Revenue (%) 18.3 9.1 11.2 -3.4 2.7 1.4 -3.4 1.0 1.6 0.2 3.0 3.0 3.0 1.1 17/30 334/507
Industry Value Added Establishments (%) (%) -0.2 -11.9 2.0 -17.8 2.4 13.6 2.7 -3.3 -6.3 -5.2 2.3 -3.8 1.7 -3.8 1.0 -3.3 -1.2 -3.3 3.0 -2.9 3.0 -2.7 3.0 -2.6 3.0 -2.5 1.0 -0.7 19/30 30/30 398/507 493/507
Enterprises (%) -13.3 -17.7 13.6 0.3 -1.3 -6.2 -3.7 -3.4 -3.3 -3.0 -2.5 -2.6 -2.5 -1.1 27/29 485/504
Employment (%) -6.4 0.1 -1.7 1.3 -1.6 -2.9 -1.7 1.3 -1.6 -2.9 -1.7 -1.4 -1.4 -1.2 24/30 444/507
Exports (%) -18.2 -27.3 9.2 -16.4 -16.3 -21.1 22.5 1.2 -2.3 1.2 1.8 1.7 1.7 0.6 10/16 156/213
Imports (%) -4.7 1.6 -2.7 1.7 -12.5 14.9 -19.5 1.3 -3.3 1.4 0.0 0.7 1.3 0.0 10/14 171/193
wages (%) -1.6 5.4 3.2 7.6 4.1 3.1 -1.0 1.0 1.0 1.0 1.1 1.0 1.0 0.2 15/30 262/507
domestic demand (%) 21.3 11.7 10.7 -2.5 2.9 2.7 -4.7 1.0 1.6 0.2 3.0 3.0 3.0 1.1 8/14 112/189
Key Ratios
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Sector Rank Economy Rank IVA/Revenue (%) 59.27 49.99 46.75 43.04 45.74 41.74 42.09 44.33 44.35 43.13 44.35 44.35 44.36 44.35 44.30 5/30 144/507 Imports/demand Exports/Revenue (%) (%) 5.98 11.31 4.70 7.83 4.28 5.22 3.76 5.12 3.92 4.43 3.33 3.61 3.73 2.81 3.15 3.56 3.16 3.57 3.01 3.43 3.04 3.46 2.96 3.42 2.89 3.38 2.84 3.33 2.81 3.31 6/14 13/16 146/190 155/213
Revenue per Employee ($000) 106.81 134.98 147.05 166.46 158.75 165.61 173.05 170.11 169.64 175.15 180.88 189.67 198.13 207.02 211.76 17/30 370/507
wages/Revenue (%) 26.51 22.06 21.32 19.78 22.02 22.34 22.72 23.28 23.28 23.14 23.31 22.86 22.40 21.96 21.76 3/30 145/507
Employees per Est. 3.37 3.58 4.36 3.77 3.95 4.10 4.14 4.23 4.43 4.51 4.51 4.55 4.61 4.66 4.64 5/30 360/507
Average wage ($) 28,311.36 29,778.67 31,346.28 32,924.34 34,959.62 36,991.45 39,309.62 39,605.73 39,490.45 40,524.99 42,163.76 43,363.50 44,380.73 45,465.12 46,078.43 7/30 342/507
Share of the Economy (%) 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 19/30 449/507
Figures are inflation-adjusted 2011 dollars. Rank refers to 2011 data.
33
Jargon & Glossary
Industry Jargon
FLOwER SEEd HARVESTING The seeds form in the flowers ovary which is a bulge located at the base of the flower. GREENHOuSE A facility is designed to artificially create the ideal growing environment for the respective flower
variety. Greenhouses control the climatic aspects including temperature, humidity and light. wILdFLOwER A flowering plant that grows in a natural, uncultivated state.
IbISworld Glossary
bARRIERS TO ENTRy Barriers to entry can be High, Medium or Low. High means new companies struggle to enter an industry, while Low means it is easy for a firm to enter an industry. CAPITAL/LAbOuR INTENSITy An indicator of how much capital is used in production as opposed to labour. Level is stated as High, Medium or Low. High is a ratio of less than $3 of wage costs for every $1 of depreciation; Medium is $3-$8 of wage costs to $1 of depreciation; Low is greater than $8 of wage costs for every $1 of depreciation. dOMESTIC dEMANd The use of goods and services within Australia; the sum of imports and domestic production minus exports. EARNINGS bEFORE INTEREST ANd TAX (EbIT) IBISWorld uses EBIT as an indicator of a companys profitability. It is calculated as revenue minus expenses, excluding tax and interest. EMPLOyMENT The number of working proprietors, partners, permanent, part-time, temporary and casual employees, and managerial and executive employees. ENTERPRISE A division that is separately managed and keeps management accounts. The most relevant measure of the number of firms in an industry. ESTAbLISHMENT The smallest type of accounting unit within an Enterprise; usually consists of one or more locations in a state or territory of the country in which it operates. EXPORTS The total sales and transfers of goods produced by an industry that are exported. IMPORTS The value of goods and services imported with the amount payable to non-residents. INduSTRy CONCENTRATION IBISWorld bases concentration on the top four firms. Concentration is identified as High, Medium or Low. High means the top four players account for over 70% of revenue; Medium is 40 70% of revenue; Low is less than 40%.
INduSTRy REVENuE The total sales revenue of the industry, including sales (exclusive of excise and sales tax) of goods and services; plus transfers to other firms of the same business; plus subsidies on production; plus all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); plus capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded. INduSTRy VALuE AddEd The market value of goods and services produced by an industry minus the cost of goods and services used in the production process, which leaves the gross product of the industry (also called its Value Added). INTERNATIONAL TRAdE The level is determined by: Exports/Revenue: Low is 0-5%; Medium is 5-20%; High is over 20%. Imports/Domestic Demand: Low is 0-5%; Medium is 5-35%; and High is over 35%. LIFE CyCLE All industries go through periods of Growth, Maturity and Decline. An average life cycle lasts 70 years. Maturity is the longest stage at 40 years with Growth and Decline at 15 years each. NON-EMPLOyING ESTAbLISHMENT Businesses with no paid employment and payroll are known as non-employing establishments. These are mostly set-up by self employed individuals. VOLATILITy The level of volatility is determined by the percentage change in revenue over the past five years. Volatility levels: Very High is greater than 20%; High Volatility is between 10% and 20%; Moderate Volatility is between 3% and 10%; and Low Volatility is less than 3%. wAGES The gross total wages and salaries of all employees of the establishment.
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A0112 Cut Flower Growing in Australia Industry Report

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A0112 Cut Flower Growing in Australia Industry Report

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Seeds of hope: The rising prominence of supermarkets aids the industry

IBISWorld Industry Report A0112

Cut Flower Growing in Australia

About this Industry

17 International Trade 19 Business Locations

33 Jargon & Glossary

Industry at a Glance Industry Performance

22 Cost Structure Benchmarks 22 Basis of Competition 23 Barriers to Entry 24 Industry Globalisation

12 Industry Life Cycle

28 Operating Conditions 14 Products & Markets

www.ibisworld.com.au | (03) 9655 3881 | info@ibisworld.com

Cut Flower Growing in Australia January 2011

About this Industry

Cut Flower Growing in Australia January 2011

2.1% $39.0m $16.7m 617

Annual Growth 06-11

Annual Growth 11-16

Real household disposable income

Lynch Fresh Holdings Pty Limited 5.0%

Key External drivers

Decline Low High Low Low

Medium Medium Low Low Low

Cut Flower Growing in Australia January 2011

Key External drivers

Cut Flower Growing in Australia January 2011

Key External drivers continued

Cut Flower Growing in Australia January 2011

Cut Flower Growing in Australia January 2011

Operators and employment

Cut Flower Growing in Australia January 2011

Global markets continued

Cut Flower Growing in Australia January 2011

Profitability and labour saving

Cut Flower Growing in Australia January 2011

Key trends continued

The global market

Opportunities for growth

Cut Flower Growing in Australia January 2011

Opportunities for growth continued

Cut Flower Growing in Australia January 2011

Company consolidation; level of economic importance stable

Cut Flower Growing

Potential Hidden Gems

Cut Flower Growing in Australia January 2011

Industry Life Cycle This industry is declining

Cut Flower Growing in Australia January 2011

Products & Markets

KEy SELLING INduSTRIES

Products & Services

Cut Flower Growing in Australia January 2011

Products & Markets

Products & Services continued

Industry demand has been known to increase greatly during spring

Cut Flower Growing in Australia January 2011

Products & Markets

Wholesalers and larger growers

Cut Flower Growing in Australia January 2011

Products & Markets

Industry trade balance

yearly per capita cut flower expenditure

United States of America

United States of America