Shahzad Flower FarmsCase Analysis # 2

Shahzad Flower Farms• A firm engaged in floriculture

and cut flower production through contract growing with farmers

• Located in Mianwali, Punjab, Pakistan

• Contract farming is done and the firm supports farmers through supplying inputs, assisting with land preparation, providing production advice, and transporting produce to its premises

International Floriculture Industry

Export

•US$6.9Billion total value

•Top exporters1. Netherlands (US$ 3.9B)2. Colombia (US$1.1B)3. Ecuador4. Kenya5. Italy6. Belgium

Import

•US $7.0Billion total value

•Top importers1. UK (US$1.1B)2. Germany (US$1.1B)3. USA (US$1.0B)4. Netherlands5. France6. Russia7. Japan8. Italy

*Based on 2007 data

International Floriculture Industry

Opportunities for export•25% of the total imports by the European Union (2007)

was imported outside EU

•Netherlands is the leading importer of produce from developing countries (accounting 56%)

•Top suppliers outside EU1. Kenya2. Colombia3. Ecuador 4. Zimbabwe*Ethiopia

Floriculture Industry in Pakistan

•Pakistan has one of the most fertile lands and climatic conditions favorable to the production of flowers

•Most are sold locally and a small quantity is exported to the Middle East

•Flower cultivation is concentrated to only a few varieties

•Major flower uses locally are for marriage ceremony and decorations

•Fresh flowers are used as bouquets while the dried ones are sources of natural essence

Floriculture Industry in Pakistan

•Pakistan has been engaged in the production of cut flowers for a few decades; however it is an infant industry as far as its growth is concerned

Lack of resources and skilled persons limits the development of the industry

Similarly a large number of fresh cut flowers are wasted due lack of infrastructure, improper packing, mishandling and other related problems

Limited varieties of flower produced due to the lack of awareness and knowledge on production side

Rose

Mogra

Marigold

Chrysanthemum

Gladiolus Carnation

Lilies

Tuberose

Freesia

Flower Varieties in Pakistan

Floriculture Industry in PakistanOpportunities for Expansion

•Demand for cut flowers is growing tremendously

•Value chain analysis showed a bigger scope for essential oil production and for use in traditional medicine such as• Rose• Tuberose• Jasmine

•Gladiolus grandiflorus has shown profitable production potential in Pakistan

Gladiolus Farming

• An easy-to-grow bulbous cut flower plant• Valued for use in floral arrangements• Has high demand in both domestic and international

markets

Importer Supplier Price/stem

Europe $0.52

Japan JapanNetherlandsTaiwan

$0.45$0.27$0.27

Singapore ChinaMalaysia

$0.44$0.61

Gladiolus Farming in Pakistan-An advantage

•there is a shift in trend towards tropical and sub-tropical flowers

•suitable agro-climatic conditions of the country clearly indicate that wide range of ornamental crops can be grown

•As gladiolus is cultivated in rural areas, its potential for generating employment is an added advantage to improve the economic conditions of the weaker section of the society.

Estimation of Income and Costs• Input variables

• Total harvest / acre

• Prevailing market price of Gladiolus

• Costs – labor, seed, fertilizer, irrigation, pesticide, weedicide

• Human resource – age of farmer, educational attainment, flower growing experience, farmer classification (owner, tenant, owner-cum-tenant)

𝑇𝑜𝑡𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑇𝑅 = 𝑌𝑖𝑒𝑙𝑑 ∗ 𝑃𝑟𝑖𝑐𝑒

𝐺𝑟𝑜𝑠𝑠𝑃𝑟𝑜𝑓𝑖𝑡𝑀𝑎𝑟𝑔𝑖𝑛 𝐺𝑀 = 𝑇𝑜𝑡𝑎𝑙𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑇𝑅 −𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝐶𝑜𝑠𝑡(𝑉𝐶)

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡𝑀𝑎𝑟𝑔𝑖𝑛 𝑁𝑀 =𝑇𝑜𝑡𝑎𝑙𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑇𝑅 −𝑇𝑜𝑡𝑎𝑙𝐶𝑜𝑠𝑡 𝑇𝐶

𝑇𝑜𝑡𝑎𝑙𝐶𝑜𝑠𝑡 𝑇𝐶 = 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒𝐶𝑜𝑠𝑡 𝑉𝐶 +𝐹𝑖𝑥𝑒𝑑𝐶𝑜𝑠𝑡(𝐹𝐶)

𝐵𝑒𝑛𝑒𝑓𝑖𝑡𝐶𝑜𝑠𝑡𝑅𝑎𝑡𝑖𝑜 𝐵𝐶𝑅 =𝑇𝑜𝑡𝑎𝑙𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝑇𝑜𝑡𝑎𝑙𝐶𝑜𝑠𝑡

Demographic characteristics and farm profile of gladiolus growers in Punjab

AGE

21-40 72%

41-60 24%

Over 60 4%

EDUCATION

matric 36%

EXPERIENCE (YRS)

1-10 59%

11-15 22%

16-20 9%

21-25 5%

26-30 5%

LAND OWNERSHIP

owner 50%

tenant 32%

Owner-cum-tenant 18%

FARM SIZE

<2.5 acres Small

2.5-5.0 acres Medium

>5 acres Large

Season Farm Categories

Small Medium Large

Winter 16.09 17.33 16.71

Spring 12.97 13.57 15.71

Summer 15.35 15.63 18.43

Autumn 16.88 16.80 17.71Table 1. Average seasonal prices of gladiolus (Rs./piece)

Variable

Farm Categories

Small Medium Large

Yield per hectare 67,725.80 68,506.82 64,784.00

Average Price 14.43 14.13 13.71

Total Revenue 977,335.40 968,229.70 888,466.29

Variable Cost 385,795.96 358,637.06 386,939.38

Total Cost 410,965.96 383,807.06 412,019.38

Gross Margin 591,539.44 609,592.64 501,526.91

Net Income 566,369.44 584,422.64 476,356.91

BCR 2.38 2.52 2.16

Table 2. Economic analysis of gladiolus production

Econometrics specification

lnY = lna + b1lnX1 + b2lnX2 + b3lnX3 + b4lnX4 + b5lnX5 + b6lnX6 + b7lnX7 + b8lnX8 + b9lnX9 + b10lnX10 + lnUi

where: Y = revenue measured in Rs

X1 = age of farmer measured in years

X2 = education of farmer measured in years

X3 = flower growing experience of farmer (years)

X4 = land preparation cost (Rs.)

X5 = total labor man days

X6 = plantation No.

X7 = FYM cost (Rs.)

X8 = fertilization cost (Rs.)

X9 = chemical (pesticide) cost (Rs.)

X10 = irrigation frequency

Ui = error term which included unknown factors affecting the revenue

ln = natural logarithm

a = intercept/constant.

The Cobb-Douglas (C-D) production function is fitted to the data

ResultVariable β t-value Sig. Level

Constant 7.93 2.94 0.00

ln-age (years) 0.11 1.24 0.22

ln-education (years) 0.05 0.52 0.61

ln-flower growing experience (years) 0.10 2.77 0.01

ln-land preparation cost 0.15 1.40 0.16

ln-total labor man-days 0.19 1.68 0.10

ln-plant population (No). 0.12 0.51 0.61

ln-FYM cost (Rs.) 0.01 0.86 0.39

ln-total fertilization cost (Rs.) 0.17 2.88 0.0

ln-chemical cost (Rs.) 0.15 2.89 0.00

ln-irrigation No. -0.4 -2.46 0.02

R2 0.66

F-ratio 17.41

Significance F 0.047

Result• The estimated results of Cobb-Douglass production function

reveals that value of R2 was 0.66; the F-value is 17.41 and its associated error (αF) is 0.047 which indicated that the model is significant and has a good fit

• Significant effect on yield:

• Experience of farmers in flower growing – more years of engagement gives higher yield

R2 0.66

F-ratio 17.41

Significance F 0.047

Variable β t-value Sig. Level

ln-flower growing experience (years) 0.10 2.77 0.01

Result• Significant effect on yield:

• Adequate application of fertilizer and pesticide has positive effect on yield

• Gladiolus requires only minimal water requirement beyond which the effect on yield is no longer positive

• All other variables considered do not show significant impact on yield

Variable β t-value Sig. Level

ln-total fertilization cost (Rs.) 0.17 2.88 0.0

ln-chemical cost (Rs.) 0.15 2.89 0.00

Variable β t-value Sig. Level

ln-irrigation No. -0.4 -2.46 0.02

Conclusion

•The study concludes that gladiolus production is a profitable business as shown by economic analysis using margins and ratios

•Estimates of productivity of inputs reveal that fertilizer, pesticides and irrigation are critical and must be the focus of farm management decisions involving appropriate amount and quality given existing farm technology for gladiolus

•Current challenges (to attain international standards) must be overcome in order to explore export opportunities

Philippine Setting

• The country is endowed with good soil and climate that allow growing of ornamental plants all year round

•Domestic production of cut flowers has been increasing annually since the 90’s, with a 20% growth rate from 1990-2003

• Exports have increased steadily at 3% growth rate since 1991

•Varieties produced include roses, mums, orchids, anthurium, chrysanthemum, gladiolus, liliums, heliconia

•During peak season, domestic supply falls short of demand by 30%. The shortage is often filled by imported materials

• Export of cut flowers is on a limited scale, with gladiolus among the top varieties of cut flower exported• 46% of total export of gladiolus are exported to Korea

Source: Journal of Philippine Statistics. Vol.59 No. 2, Second Quarter 2008

Cut Flower Luzon Visayas Mindanao

ORCHIDSLaguna, Batangas Cebu, Negros Occidental

Davao City, South

Cotabato

ANTHURIUMLaguna, Benguet, Cavite,

Batangas Negros Occidental

Davao City, Cagayan de

Oro City, Bukidnon

ROSESBenguet, Cavite,

Batangas, Tagaytay

Cebu, Iloilo, Negros

Occidental Davao City

CHRYSANTHEMUM Laguna, Benguet Cebu Davao City

GLADIOLUS Benguet, Laguna Cebu

HELICONIAS Laguna Negros Occidental Zamboanga

GERBERA Laguna, Batangas Cebu Davao City

CARNATION Benguet

ASTER Laguna

SHASTA DAISIES Benguet

STATICEBenguet

Flower Varieties Grown in the Philippines

International Market for the Philippines

Top countries of origin for imported cut flowers to PH (by volume)

1. Thailand (US$32,912)

2. Ecuador (US$15,323)

3. Netherlands

4. China

5. Colombia

6. Australia

7. Hong Kong

8. Malaysia

9. USA

10. UK

Top countries of destination for exported cut flowers from PH (by volume)

1. Japan (US$910,103)2. Netherlands (US$1,105,989)

3. UK4. Korea5. USA6. France7. Italy8. Greece9. Germany10. Palau

2000-2007 data (National Statistics Office, 2008)

King Louis FarmContract Farming in Benguet

• A firm engaged in floriculture and cut flower production through contract growing with farmers

• Located in Asin, Baguio, Benguet

• Contract farming is done and the firm supports farmers through construction of greenhouses and provide them counter funds by networking them to cooperatives and federations which engage in cut flower production

• has over 50 active contract farmer-growers scattered in various locations and operates on more than 6 locations in Baguio, La Trinidad

Floriculture in the PhilippinesSTRENGTHS

• Ideal climate for year-round production plus less investment in greenhouses and heating systems for most crops

• Capability to grow both tropical and sub-tropical plants

• Availability of land

• Availability of suitable production technologies

• Richness and variety of Philippine flora

• Existence of active horticultural associations

• DTI, DOST, and DA encouragement/ support particularly BETP, PCARRD and BPI

• Growing world demand for flowers and other ornamental plants

• Accessibility to major international markets, particularly US and proximity to Asian markets

• Long-term export potential in Japan, Hong Kong, Korea, Middle East, US, and Europe

Floriculture in the PhilippinesOPPORTUNITIES

• Limited availability of planting materials

• Limited R&D for continuing institutionalized national breeding program and selection of suitable breeds for local and export markets

• Limited technologies on: genetic engineering, production of planting materials, postharvest handling practices packaging

• Inadequate postharvest processing, storage, transport facilities, and infrastructure for export

• Limited access to and high cost of financing

• Lack of quality control among producers

• High import duties on production inputs

• Inconsistent supply of floriculture products/ inadequate volume of production for exports

Floriculture in the PhilippinesWEAKNESSES

• The high cost of structures like greenhouse, irrigation and postharvest facilities

• production technology is still insufficient • limited R&D, particularly institutionalized national breeding

program and selection of suitable breeds for local and export markets

• As a consequence, there is a shortage of cut flowers volume wise and quality wise• small growers cannot compete with big growers

Floriculture in the PhilippinesChallenges in production development

Thank You!

GROUP 2:

Edgar Melchor Laigo

Aileen Legawen

Charisse Macalalag

Angelita Sabado

ReferencesNational Statistics Office. (2008). Cut Flower Industry: An Update. Journal of

Philippine Statistics, 59(2), 1-26. Retrieved from http://web0.psa.gov.ph/sites/default/files/2ndQ2008.pdf

Leonido R. Naranja, P. (2007, January-March). Floriculture: Sunshine industry in the Philippines. BAR Research and Development Digest, 9(1), 2. Retrieved from http://www.bar.gov.ph/digest-home/digest-archives/64-2007-1st-quarter/1499-janmar07-floriculture-2

Collector's Connection. (2009, October 4). King Louis Farm: King of Potted Plants & Cut Flower. Retrieved from Wordpress: http://renz15.wordpress.com/2009/10/04/king-louis-farm-king-of-potterd-plants-cut-flower/

Rosario, T. L. (1998). Cut Flower Production in the Philippines. Expert Consultation on Cut Flower Production Development in Asia. Bangkok: FAO . Retrieved from Food and Agriculture Organization of the United Nations: http://www.fao.org/docrep/005/ac452e/ac452e07.htm#TopOfPage

PCARRD-DOST. (n.d.). Cordyline Challenges/Issues Ornamental Horticulture. Retrieved from PCAARRD: http://www.pcaarrd.dost.gov.ph/home/joomla/index.php?option=com_content&task=view&id=1058&Itemid=748

Shahzad Flower FarmsCase Analysis # 2