Beyond Our Borders by Paul Ecke III
Owning genetics and offshore production will define success.
November 18, 2008
With the exception of mums and a few other classes of plants, most vegetative genera, like spring annuals, cut flowers, perennials and tropicals, are produced outside the United States today. The trend started in the early 1970s, when rising energy costs forced many domestic cut flower growers offshore, with cutting producers following.
For poinsettias, the offshore movement has allowed for more competitive prices, increasing availability and substantially more volume to satisfy increasing consumer demand. After adjusting for inflation, the price of an unrooted poinsettia cutting has declined by more than 70 percent over the past 25 years.
Contrary to the belief that labor is the biggest savings component, energy and infrastructure costs were the factors that were most positive when Ecke Ranch moved offshore. Additionally, the offshore movement allows Ecke to produce more than five times the volume of cuttings that were produced domestically in 1983. This has allowed us to remain competitive in the global market, as well as ensure the poinsettia is enjoyed by many more consumers than 25 years ago.
An interesting contrast is that of the garment industry. Most garment assembly is now done offshore. There was an initial push by that industry to Central America, then as labor costs and governments changed favorably, the garment industry set up shop in many other countries. Now, there is resurgence back to Central America - and not due to labor. Proximity to market and freight costs now weigh more heavily into decisions about where final assembly should be done. Additionally, advantages in exchange rate and labor costs have diminished as world economies have equalized.
We believe those same forces apply to horticulture. They will help shape how and where production occurs in the future. A contemporary example is the dramatic change that has occurred in finished production between Canadian and U.S. growers - a simple change to exchange rate has dramatically reshaped the product mix, customer profile and shipping ranges for Canadian produced plants.
There are a number of factors pulling us in different directions. Ecke Ranch doesn't see USDA requirements lessening, but there are more and more crops authorized to be shipped into the U.S. in forms other than an unrooted cutting. Longer-term trends in exchange rates, interest rates, energy and other inputs also will influence where production occurs. Additionally, sustainability factors can clash with zero-tolerance requirements for pests and diseases at port of entry. While substantial savings in heat and other inputs suggest even more production will occur offshore, it is not certain how much more growth of offshore production will occur in the future. Climate and proximity to market are critical.
For many years, Ecke has emphasized its own production. About 70 percent of all production is produced via company-owned farms, with the balance being produced at third-party contractors. Specialization and internal controls for quality and efficiency drive this focus. We believe we can better manage intricate and exact requirements of customers and product forms using our own farms. We have also invested heavily in internal information systems, so the customer experience, product inventory and quality can be managed cohesively.
Gone are the days when a company could specialize successfully in one aspect of product development or production. Successful companies will now own genetics, offshore production and systems and onshore value adding and distribution functions.
Paul Ecke III is CEO of Paul Ecke Ranch.