TED Case Studies

Colombia Flower Exports

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          CASE NUMBER:         108 
          CASE MNEMONIC:      FLOWER
          CASE NAME:          Flower Exports from Colombia

A.        IDENTIFICATION 

1.        The Issue

     Ask many Americans about exports of cut flowers from
Colombia and they are not aware that the flowers are full of
drugs.  During the 1980's, authorities repeatedly seized cocaine
hidden in flower crates arriving at Miami's airport, and American
growers complained that their Colombian competitors were
receiving unfair subsidies from narco-traffickers.  Now the
American drug agents say the supply of florally camouflaged drugs
has slowed dramatically.  Despite this, flowers have remained one
of Colombia's most profitable exports.  The controversy at hand
revolves around the decisions made by the United States, and
specifically the Commerce Department, regarding anti-dumping
levies placed on the rose industry of Colombia.

2.        Description

     Colombia has historically been one of South America's most
stable and diverse economies, and remains so today.  The country
has economically grown every year in the past decade, and they do
not have the debt problems of most other countries in the region. 
The Economist reports that Colombia's exports of cut flowers have
trebled over the past decade, to more than $315 million in 1992. 
The number of growers have grown in tandem, to more than 400, as
has the acreage under cultivation.  The country accounts for a
tenth of the world's flower exports, behind only Holland's 60
percent, and provides the United States with four-fifths of its
carnations and a third of its roses.  Colombia is the South
Korea of flower exporters, having doubled foreign sales to $200
million in the 1980s by producing efficiently pioneering
distribution through supermarkets.  Peter Passell stresses that
American flower growers have not directly suffered because the
demand has been up sharply.  But the Colombians have been
grabbing most of the new growth in the market.  American industry
is fighting back, charging the Colombians with illegal dumping.

     American trade law gives the Commerce Department broad
discretion in defining and measuring dumping.  "Stung by
accusations during the Reagan years that it blindly favored free
trade, the department has been bending over backwards to find
ways to support the home team".  Flower importers, who have been
paying counter-dumping fees of 4.4 percent since 1987 against an
adverse final ruling in the case, now fear that the department
will force them to pay tens of millions in duties on roses sold
over the past year.  This would cause the distribution network
to break up, and dozens of Colombian flower exporters would be
ruined.  Colombia does not need cocaine to prosper, but it does
need a rapid growth in export earnings.  Passell concludes that
blocking the country's attempts to expand legal exports may be
forcing Colombians to choose between drugs and poverty.

     Colombia does not grow much of the raw material used to make
cocaine; it imports most of it from Peru and Bolivia.  But the
Medellin cartel controls most of the world's cocaine
manufacturing capacity.  Peter Reuter of the Rand Corporation
reports that much of the estimated $1.5 billion earned from
cocaine is invested abroad and never finds its way back to
Colombia.  However, enough certainly does to provide work for
tens of thousands in the city of Medellin, and to provide
hundreds of millions of dollars to offset the country's bills for
imports and foreign debt.  Thus, if current attempts to disrupt
the cocaine trade are successful, Colombia, with a per capita
income just one-fifteenth that of the United States, will be
pressed even harder to meet basic human needs.

     Martha Groves notes that Colombians resent being branded "a
thorn" in the domestic industry's side and claim that they merely
seized a chance to build a huge business in cut flowers in
supermarkets and mass merchants that U.S. growers neglected.  The
abundance of flowers from overseas, they say, has helped the U.S.
market blossom to more than twice its size two decades ago, to an
estimated $11.5 billion at retail values.  Colombians also argue
at what they believe is hypocrisy by the U.S. officials, who
excoriate Colombian's drug trafficking yet erect barriers to
beneficial industries.  "It's like a sword of Damocles hanging
over all the importers and wholesalers who buy Colombian
flowers," said one Colombian official.  Anti-drug policy makers
remain worried that the Commerce decision could deal a serious
blow to Colombia's economy just when they need U.S. aid in its
drug war.

     The flower industry has taken hold in the high, sunny
plateaus outside of Colombia's two largest cities, Bogota and
Medellin.  In areas with high unemployment, the labor-intensive
industry employs many.  Mild temperatures, fertile soil, and long
equatorial days help Colombia grow the roses throughout the year
without expensive hot houses.  The country has an abundant supply
of cheap labor as well.  The Economist maintains that growers pay
their workers about $250 a month, and is geographically close to
the big American market.  The industry has Colombia as its second
largest employer, providing some 75,000 direct jobs and perhaps
50,000 more indirect ones.

     Profits, especially in America where tastes are shifting to
cheaper flowers, are falling.  For the first time in the
industry's history, its ranks have contracted due to the flood of
low-cost blossoms distributed from other countries.  At least a
half-dozen, mostly small growers, have already gone under this
year. There are several reasons for the dramatic decrease in the 
success of these rose industries.  Many growers have blamed
President Cesar Gaviria's tough economic liberalization program
known as the "apertura;" his devaluation of the peso has not kept
up to pace with inflation (now 22 percent a year), so their
revenues have also not kept up with costs.  The article also
details that the root of the growers' difficulties lies much
deeper.  Colombians are remaining at the low end of the market
and competing purely on price, by failing to shift away from
roses and carnations.  Their Dutch rivals have heavily invested
in research, marketing, and more efficient distribution systems. 
Even exports from such places as diverse as Ecuador, Costa Rica,
Kenya, and Turkey have been eroding Colombia's market share and
driving prices down.

     Problematic competition also leads to another awareness in
the deficiencies in Colombians infrastructure.  Bogota's airport,
the main outlet for the blooms, has only one runway with no
refrigeration facilities.  Nearly all the exported flowers are
flown to Miami, and then reshipped by distributors north or west. 
"As Miami serves as the main hub for Latin American fights,
bottlenecks are frequent; the price is paid in freshness."

     Stephen Ambrus details the main problem of the rose
industries in Colombia.  The nation's $100-million-a-year
industry has been imperiled by a recent American anti-dumping
ruling in favor of U.S. growers.  Colombian growers, who send
an estimated 90 percent of their production to the American
market, say a tentative decision in September by the U.S.
Commerce Department could force them to hold back 50 percent of
their rose exports over the next three months and could cost
Colombians about 50,000 jobs.  In its decision, the Commerce
Department sided with two U.S. industry groups, the U.S. Floral
Trade Council and Roses Inc., in finding that Colombian and
Ecuadorean producers exported roses at unfairly low prices.  The
ruling could cost jobs in south Florida among companies that
import and distribute the flowers.  Most of the Colombian rose
companies will have a difficult time placing their product in the
States with this measure because most the companies are quite
small and highly leveraged.

     As a result of its ruling, the Commerce Department imposed
anti-dumping levies averaging 33.87 percent on Colombian roses,
with a subsequent reducing of the Colombian duty to 22.73
percent.  The additional duties will likely make imported flowers
much more expensive than varieties grown in the United States. 
The article notes that experts say half of 180 companies that
produce roses in Colombia could go out of business if the measure
is upheld.  Thousands of poor women who make up 80 percent of
the labor force in the industry would find themselves without
work.  Unfortunately,the U.S. ruling does not only concern jobs. 
The decision will have large ramifications on trade, environment,
and societal issues.

     This case regarding the rose industry seems to involve a
very complex arena of politics.  The arguments in favor of the
U.S. Commerce Department decision imposing punitive anti-dumping
levies, strongly lean toward the political side of policy
regulation and implementation.  Jim Krone, executive
vice-president of Haslett, Michigan-based Roses Inc., says many
U.S. jobs have been lost and a handful of greenhouses closed
because of low-cost competition from foreign growers and
producers.  However, "the action doesn't bar anyone from bringing
their roses in here.  They'll just have to do it fairly now". 
According to a report by the Floral Trade Council, also based in
Haslett, the number of commercial rose growers in the United
States fell to 213 last year from 323 in 1971.  Foreign imports
have risen to 61.7% of the $13-billion U.S. market, from 0.2% in
1973.  Many argue that the U.S. industry declined because
growers could not compete with foreign prices. Other analysts
argue that the problem lies on the side of the Colombians, who
must invest in better infrastructure and adopt more modern
business practices.  "If Colombia does not change with the times,
the only flowers worth growing there may soon be opium
poppies." 

     Eduardo Urdaneta, manager of the Bogota-based Grupo Prisma, 
 argues that for the ninth time in the last 13 years, U.S. flower 
 producers have gone after their counterparts in Colombia.  He
concurs with Juana Maria Unda, the President of the Colombian
Association of Flower Exporters, that by relying on  
governmental protection to offset their comparative disadvantages
in production, the U.S has displayed a typical protectionist
attitude in favor of their own flower producers.  Even though
Colombia has sufficiently survived past assaults, millions of
dollars in legal fees and expenses have been spent pursuing and
defending the various actions brought by U.S. producers against
the Colombian producers.  Further, while most of the penalties
have generally been small, the levies and the administrative fees
have actually punished them for competing in the U.S. market.

     The anti-dumping decision shows that U.S. producers believe
that the best way of improving their competitive position would
be by pulling their competitors down to their own production
levels.  This would be done even at the expense or burden of the
Colombians involved.  For example, the Commerce Department has
issued at least 10 questionnaires to at least 15 of the
companies, requesting detailed information about sales and
incurred costs in 1993.  Information on sales has to be provided
for each rose variety-segregated by stem, channel of
distribution, term of sale, and packaging style.  This request
like others became an overwhelming task since there are close to
100 rose varieties alone.  Many companies were also requested to
check every selling invoice for every sale made in 1993.  New
consultants had to be hired to develop computer software to
gather and check all the possible permutations.

     Colombian flower producers have had to absorb the enormous
costs placed on them by the illegal drug market.  Since 1991, the
Colombian peso has artificially gained value against the dollar,
primarily because of the huge influx of drug dollars.  An over
valued currency kills exporters.  Urdaneta claims that 24-hour
surveillance has been provided to ensure that all shipments to
foreign markets contain flowers and only flowers.  The high costs
and burdens involved in these and other safety seals and
round-the-clock security inspections have contributed to the
conviction that Colombian flower growers have not taken their
success in the world flower business for granted.

     Most of the literature reviewed for this case studied seemed
to lean toward favoring the unfair decision placed on Colombians. 
Nevertheless, anti-dumping laws should be applied when and where
unfair trading practices are in place.  President Cesar Gaviria
Trujillo articulately notes that Colombians who fight the evil of
production and Americans who fight its treacherous companion of
consumption should use the terms of international cooperation and
the power of trade to save both problems.  Further examination
of this case concerning roses would lend to a concentration on
the linkage between environmentally-sound provisions with the
concept of sustained development through trade.

3.        Related Cases

     COCA case
     COLCOCA case
     BULB case

     Keyword Clusters         

     (1): Industry                 = AGRICulture
     (2): Bio-geography            = TROPical
     (3): Environmental Problem    = HABITat Loss

4.        Draft Author:  E. Amber Ammons

B.        LEGAL Cluster

5.        Discourse and Status:  DISagreement and INPROGress

6.        Forum and Scope:  USA and BILATeral

7.        Decision Breadth: 2 (Colombia and USA)

8.        Legal Standing:  LAW

C.        GEOGRAPHIC Cluster

9.        Geographic Locations

     a.   Geographic Domain:  South America [SAMER]
     b.   Geographic Site:    Northern South America [NSAMER]
     c.   Geographic Impact:  COLOMbia

10.       Sub-National Factors:  YES

     Certain individual states will be affected more directly 
than others.  Miami and the areas where rose industries are
located in Colombia, for example, will lose many jobs.

11.       Type of Habitat: TEMPerate

D.        TRADE Clusters

12.       Type of Measure:  Import Tax [IMTAX]

     The imposition of countervailing duties amounts to an import
tax.

13.       Direct vs. Indirect Impacts:  DIR and IND

     The decision made concerning this case affects both the
Colombian  and United States rose industries.  The case also
indirectly affects jobs for workers and distributors of these
flower companies.

14.       Relation of Measure to Environmental Impact

     a.  Directly Related:    YES  FLOWER
     b.  Indirectly Related:  YES  DRUG
     c.  Not Related:         YES  IMTAX
     d.  Process Related:     YES  HABITat Loss

15.       Trade Product Identification:  ROSE

16.       Economic Data

17.       Impact of Measure on Trade Competitiveness: MEDium

18.       Industry Sector:  PHARMaceutical

19.       Importers and Exporters: Colombia and United States

     Total flower Colombian export value to the United States was
$315 million in 1992 and total Columbian total exports accounted
for 61.7 percent of the $13-billion U.S. market in 1993.

E.         ENVIRONMENT Clusters

20.       Environmental Problem Type:  HABITat Loss


21.       Name, Type, and Diversity of Species

     Name:          ROSE      
     Type:          Plant
     Diversity:     51,220 higher plants
                    per 10,000 km/sq
                    (Colombia)

          There are nearly 100 different rose varieties with five
different stem lengths.

22.       Resource Impact and Effect: HIGH and REGULatory       

23.       Urgency and Lifetime: LOW and 3 years 

     Roses will continue to be produced and distributed because
there will likely be a continued demand for the flowers.  The
focus is on how many will be imported by the United States from
Colombia. Many Colombian growers may shift away from roses and
carnations into more exotic and profitable, low-margin varieties
of flowers.

24.       Substitutes:  LIKE

F.        OTHER Factors                                         

25.       Culture:  YES

     Society is clearly affected in terms of maintenance and
availability of employment.  The per capita income of Colombia as
a nation will also affect the standards of living of the
inhabitants of the country.                                     

26.       Trans-border:  YES

     Trans-border issues are involved in regard to trade by
imports and exports of the flowers.

27.       Rights:  NO

28.       Relevant Literature

Ambrus, Steven.  "U.S. Ruling a Thorn in Colombia Rose Growers'
     Side."  Los Angeles Times:  International Business.  20 
      October, 1994;  D4:1.
The Economist.  "Colombian Business: Fallow Ground."  329/7834;
     October 23, 1993: 86.
Groves, Martha.  "Is the Bloom off the Rose?"  The Los Angeles
     Times.  January 28, 1995, D1:2.
Passell, Peter.  "Fighting Cocaine, Coffee, Flowers."
     The New York Times.  September 20, 1989, D2:1.
Trujillo, Cesar Gaviria.  "To Save Colombia From Cocaine, Buy Its
     Roses."  The Wall Street Journal.  November 2, 1990, 
     A15:4.
Urdaneta, Eduardo.  "U.S. Protectionists Prick Colombian Rose
     Growers."  The Wall Street Journal.  October 21, 1994; 
     A15:3.
The Washington Post.  "Barco Sends Pre-Summit Letter to Bush."
     February 13, 1990; A12:2.

                          References