Signs of thaw for South Korea’s flower industry

Ornamental horticulture in South Korea has long been side-lined due to the country’s focus on rapid industrialisation and trade since the 1980s. Many mountainous areas, challenging climatic conditions, combined with the absence of a deeply ingrained flower culture, a somewhat archaic production and wholesale sector, and an over the presence of smallholdings makes growing ornamentals in the Land of Chaebols an even tougher business.

Historically, protectionist trade policies plunged the country’s ornamentals market into the proverbial ‘deep freeze’. But recent relaxation of trade barriers, the rise to prominence of imported flowers, international market studies, and the industry’s presence in global horticultural events are the first signs of a thaw.

Glasshouse production of Lathyrus

Imagine Dianthus instead of Daewoo, carnation instead of Kia, Sunflowers instead of Samsung, and Lisianthus instead of LG. It is not always easy to imagine this in South Korea, the world’s 12th largest economy, dominated by manufacturing industries such as electronics, automobiles, and telecommunications. Yet, after the country gained independence in 1948, South Korea was predominantly an agricultural state, with rice being the most important crop.

The Miracle of the Han

Fuelled by long term economic plans, institutional and policy incentives and a dedicated, productive and ambitious labour force, the Republic of Korea (ROK) witnessed an impressive economic boom, also translated as The Miracle of the Han River (labelled as such after the river that runs through Seoul).

But rapid urbanisation and industrialisation took their toll on agriculture. In its early years of existence, agriculture contributed to almost 50 per cent of the national GDP; the primary sector today contributes only 1.8 per cent to the GDP.

At the same time, only 14.6 per cent of South Korea’s land is fit for agriculture. Most of the country is forests and mountain ranges. With cold winters and hot and humid summers, the South Korean climate does not make a farmer’s life easier. The Korean peninsula is frequently battered by northeast monsoons, due to the proximity of the Asian landmass that affects precipitation patterns. Last year, for example, the country reported its longest monsoon in 33 years, prompting thousands of people to evacuate and leaving at least 40 dead. And even more distressing for Koreans’, are the typhoons, frequent phenomena that occurs once the monsoon has stopped.

Population

Harvesting Lisianthus when the first flower has fully opened

More than 51 million people consider South Korea their motherland. Ethnically speaking, they represent a very homogenous population with 98 per cent Koreans and two per cent Japanese. South Koreans are proud of their culture and language and economic achievements. Showing interest in Korea’s culture and language is always a good icebreaker. However, conversation topics such as tensions over trade, regional rivalry and shared history with other Asian countries can easily ignite fiery debates. The Koreans cherish their earlier history when its kingdoms ruled large parts of present-day China, Russia and Mongolia. It is wise for foreign investors to do their homework first on Korean history; this will always put you a step ahead.

Over the past few decades, the rise of incomes has catapulted millions of South Koreans, 65 per cent of the population into the middle classes.

South Korea, is also a densely populated country with half of the population living in Seoul’s buoyant capital. By comparison, the country is 2.5 times the size of the Netherlands, a country that has 17 million inhabitants.

The population break down by age shows that only 13.2 per cent are younger than 15, 19.3 per cent is between 15-29 year old, 22.7 per cent between 30-44, 24.5 per cent between 45-59 while 20.3 per cent fall in the age bracket of 60 years and older.

South Korea has seen a major ageing transition over the past 50 years; when 2017 marked the year that the country had more older people than young for the first time.

Chaebols

Economically speaking, South Korea, with a GDP of €1.65 trillion in 2019, is the 12th largest world economy that is technologically very advanced and has a high standard of living. The income per capita is €36,000 (PPP model). Quintessential Korean are the chaebols, sizeable family-owned business conglomerates that dominate the business landscape. Chaebol means ‘wealth clan’ in Korean, and for many years this corporate structure has forged closed ties with the government, receiving support in the form of subsidies, loans and tax incentives in turn.

Boom and bust cycle

The thought of fifty-one million wealthy South Koreans does conjure up images of jam-packed markets and shopping carts filled to the brim with flowers and plants. At least if we depart from the idea that flowers are a luxury good and their demand is highly dependent on income. However, in South Korea, the issue is thornier, even if it is a well-known fact that Koreans love their luxury and are not quick not feel uneasy about spending on high-end products.

Gelare Nadere, the agricultural counsellor at the Dutch Embassy in Seoul, describes the situation as a ‘boom and bust cycle’. The boom-times fuelled by higher corporate spending, for example with ‘grand opening flowers and display’ to impress customers. This past 20-year period has been a blooming period bringing good returns for both growers and traders.

In Seoul, there are experienced florists who personally prepare and design each luxury flower arrangement.

However, Nadere identifies 2005 as a tipping point in South Korea’s ornamental horticulture history when the demand for locally grown cut flowers started to wilt. Despite the average income that continued to rise.

Nadere cites the Anti Bribery and Graf Act as one of the ‘complicating factors’. In 2016, these ‘regulations against decadence’ aimed at banning luxury goods and lavish (floral gifts) for government officials.

“However, the paradox was that the production of locally grown flowers came to a standstill while imported flowers from the Netherlands, Colombia Kenya and China gained market share,” said Nadere. She added, “We were very curious to understand the reason behind this development. The purpose of a 2019 market study commissioned by the Royal Netherlands Embassy in Seoul in collaboration with the Dutch Enterprise Agency (RVO) was to better understand the dynamics of South Korea’s flower industry and to identify the steps needed to professionalise this industry.”

CoHort market study

The author of ‘The Floricultural Market in South Korea, 2019’, Oscar Niezen of CoHort, identified market trends, collated key data of production, consumption, import and export demand. Niezen painted the present and future market scenario and finally included a SWOT analysis that focused on the Dutch industry professionals’ outlook to enter or expand their position in what he calls ‘a stagnant market’.

Niezen talked to dozens of industry professionals from within his network in South Korea, the Netherlands, Japan, PR China, ASEAN countries, Africa, and Latin America. He also embarked on an ‘industry safari’ that began in South Korea’s cut flower heartland, known as the Gyeonggi province. Gyeonggi translates as the ‘area surrounding the capital’ and is the most densely populated of South Korea’s nine provinces. Gyeonggi’s land is relatively flat, with fewer extreme weather events and a short distance to Seoul’s multi-million consumer market.

Statistics

South Korea’s most recent statistics point to 4,936 hectares dedicated to ornamental horticulture. The report, provided in 2017 by the Ministry of Agriculture Food, and Rural Affairs, states cut flowers are grown on 1,334 hectares, and 3,622 hectares adds up to the area for potted plants, trees (fruit trees not included) and shrubs.

In 2017, the total (wholesale /FOB) value was €442 million with cut flowers valuing €143 million.

Interestingly, most (90 per cent) of the cut flower production is protected cropping (poly houses) while 71 per cent of potted plants, trees and shrubs are grown in the field.

The CoHort study found market trends following other developed countries, the number of flower farms almost halved between 2001-2017 to 7,400 in 2017 from 13,500 in 2001. Meanwhile, South Korean flower farms are an average size of 7,000m². The scarcity of land, coupled with fewer students in agriculture studies and the fact that many young people do not look at ornamental horticulture as a profession to get into, causes a loss in skills and an ageing workforce. The average age of a flower farmer is 64, and the age rises as the workers decline.

The total ornamental acreage decreased by about 20 per cent to 5,000 hectares in 2017; down from 6,400 hectares in 2001. Production numbers (stems/plants) have dropped steadily, from about 2.6 billion in 2001 to less than one billion in 2017. Finally, production value (in KRW) has remained almost constant, at around 600 billion KRW (€461 million).

Wholesale markets and auctions

Inside one of South Korea’s flower wholesale markets.

By narrowing the focus of the 2001-2017 situation down to cut flower production, CoHort’s study indicates that the total area of production halved to 1,300 hectares; down from 2,600 hectares in 2001. Its production value decreased from KRW 331 billion to183 billion (€142 million). Fresh cut flowers sell through government-owned wholesale markets and auctions (⅓) and private markets (⅔).

South Korea’s government established a nationwide network of eight –‘run by government’ – flower wholesale markets/auctions to modernise the sector’s market structure.

Two of these markets have suspended operations, while six of these Dutch-style auctions continue to operate.

The auction houses set the prices, and serve as trade platform between growers, wholesalers and retailers. It is safe to say that the future of publicly-owned auctions depends on removing unnecessary, burdensome regulation, which stifles future growth.

In its study, CoHort delivered anecdotal evidence by highlighting the case of a local grower who tried to convince the auction’s management about the benefits of post-harvest cut flower food solutions to give the flowers the immediate care they need.

The auction officials rejected this idea arguing that “the auction will not incur risking accusations of favouritism towards one commercial production company with these chemicals” – proof of how highly ‘politicised’ the ornamentals sector in South Korean can be.

In the absence of an independent quality inspector, growers have no protection against the whims of unscrupulous wholesalers governed by their profit margins and whose inclinations are to further monopolise parts of the market. The government’s attempts to get a better grip on floral wholesale, including a licensing system for wholesalers, has failed.

South Korea’s government established a nationwide network of eight –‘run by government’ – flower wholesale markets/auctions to modernise the sector’s market structure.

Yangje flower market in Seoul is arguably the country’s largest semi-governmental wholesale flower market. This marketplace lifted the ban on imported flowers two years ago, allowing imported flowers sales between the market’s tenants. According to reliable sources, prohibition still exists under its auction clock.

The Banpo-Dong Bus Terminal Market in Seoul is the major player in terms of privately run flower markets.

Thirty-seven per cent of all locally grown ornamentals go through the (semi-) governmental markets. In comparison, 63 per cent go to private markets, an imported hub for flowers sourced from abroad.

In the case of locally grown cut flowers, the majority (65 per cent) go to the (semi-) government markets while 35 per cent go to private markets.

The country’s wholesale system for marketing flowers is archaic, highly fragmented, frequently relying on closed and often exclusive relationships between small growers and small wholesalers. But there are a few exceptions to this rule.

Auctioning of potted Phalaenopsis

Korea Florist Association (KFA)

Endorsed by the government, the Korea Florist Association (KFA) is the most potent voice in South Korea’s ornamental horticulture. It is a growers’ alliance defending the interests of its members towards trading businesses. KFA’s mission is to help its members manage a successful, profitable business and lobby the government to remove growth barriers.

When discussing the current status of the industry as well as the need for a long-term strategy KFA representatives note that the country’s flower industry has shrunk significantly over the last decades due to decreasing flower consumption.

To turn the tide, KFA’s campaign repositioned flowers as more than just ceremonial decoration emphasising that flowers make the perfect gift and that people can also use them to celebrate their special occasions.

In 2019, South Korea enacted a law to develop, promote, and revitalise the sector and KFA played a pivotal role in its inception.

Under this law, KFA supports the government to develop a long-term strategy with investments in infrastructure, logistics, cold chain, export promotion and the need to increase the average Korean flower farm business income being the key objectives.

South Korea has a well-earned reputation as a global IT and AI leader, having trade agreements with many countries. The country’s farmers are proud of South Korea’s economic achievements and its status as an export powerhouse. However, they can not help feeling frustrated as they generally believe that in order to obtain more free trade agreements the country’s agriculture sector has been sacrificed.

Conversely, Korean experts argue that FTAs have helped agriculture to become more innovative. FTA’s in the pig and greenhouse fresh produce industry, for example, encouraged farmers to become more competitive than suppliers from abroad. Meanwhile, more protected sectors such as rice, beef and flowers lag behind in the development. Over the past three years, FTAs have caused floral imports to increase. Despite the fact that imported flowers are not always easy to accept for local flower growers, in the end, they will contribute to the innovation of the Korean flower sector. KFA intrinsically associates with the Korea Agro Fisheries & Food Trade Organisation – also known as ‘aT’, the body responsible for running the (semi) government-owned flower auctions and assisting Korean enterprises in expanding their global reach.

South Korea’s foremost nonprofit trade promoting organisation operates from local offices and several branches worldwide, with aT’s European headquarters in Paris. The CoHort study suggested that aT may well be one of the best-placed candidates from a government perspective to develop a long-term economic plan to build a more robust, more competitive ornamental horticulture industry.

Ceremonial flowers, trendy flowers and mass floral

In terms of sales outlets, South Korea hosts many old fashioned flower shops with a limited assortment of cut flower varieties including the staple ceremonial Buddhism flowers. No one expects a floral revolution to happen soon. Still, there are hopeful signs of trendy flower shops in downtown Seoul which provide customers with easy and immediate experience and exciting new varieties. Being a florist in South Korea can be challenging with customers frequently purchasing cheaper flowers at wholesale destinations.

There is also a new, young consumer shopping for houseplants at pop-up stores and supermarket chains such as E-mart, Lotte Mart and Home Plus. So far, mass-market cut flower sales are still in their infancy with currently, a few pilots underway.

One of the conclusions drawn in the CoHort survey is that there is a severe lack of growers/ importers who can provide constant volume, uniformity and quality and on-time delivery to service the mass floral market. If the industry can address this issue, supermarkets will be interested in adding cut flowers to their product portfolio, which may also contribute to the development of the Korean flower sector at large.

Import dynamics

More international sourcing may be needed to provide volume and to boost mass floral sales. South Korea flower and plant imports show it is recession-proof; even the 2008 global financial crisis did not heavily impact ornamentals’ import value. In terms of total floricultural products imports, the primary markets of origin are China, the Netherlands, Taiwan and Thailand.

Overall the import value of ornamentals increased to €60 million in 2017 up from €18 million in 2001, an unexpectedly healthy economic development.

Further analysis of import flows of cut flowers, shows a spike in imports, up to USD 35 million in 2018 from USD 1 million in 2001. Among the reasons cited are ‘sharply priced imported’ versus ‘rather expensive locally grown’.

Imported cut flowers mostly originate from China (with an import volume of €10.4 million), Colombia (€7.9 million) and the Netherlands (€4.2 million). Imported flowers include ‘classics’ such as Chrysanthemum, rose, orchid and tulip, which partially compensate for the shrinkage seen in locally grown cut flowers. The CoHort study revealed that China is the largest exporter of chrysanthemums to South Korea, accounting for 91 per cent of the import value of that species. Colombia is the largest exporter of carnations representing 77 per cent of the import value.

As for less mainstream cut flower species, Colombia and the Netherlands are increasingly exporting exciting new varieties to South Korea (although breeders are reluctant to launch novelties out of fear for illegal propagation of their PBR protected varieties). Industry professionals mostly agree that floral imports will continue to grow in the coming years, creating new international suppliers possibilities.

Yange’s auction room.

Exports

In providing some key facts and figures in term of export values, export volumes and destinations, the CoHort outlines that in 2017, the export value shows a staggering decline since 2010. Following the 2010 ‘boom in blooms’ representing a value of 103 million USD (€93.3 million) total export value plummeted to 23.6 million USD (€21.4 million) in 2017.

To date, cut lilies account for approximately 60 per cent of South Korea’s total flower exports. Japan is the top export destination and takes 100 per cent of the country’s lily exports.

Other export markets such as PR China, the US, and the Netherlands have gone down to nearly nothing. Interestingly, the South Korean government continues to provide subsidies to cut flower exports, but these only cover part of transportation costs.

Meanwhile, CoHort identified the major challenges the South Korean flower industry is facing. The problem is that locally grown flowers are not always meeting the end consumer’s needs and expectations. Shoppers complain about short vase life, thin stems, a not so uniform product, and they have a perception that locally grown flowers are too expensive. Also, imported flowers look more luxurious to the South Korean eye.

The negative factors that influence the local cut flower quality include the following: an ageing farmer population; lack of horticultural education and crop expertise; a poorly structured industry; the absence of a cold chain; the omnipresence of smallholdings; rising labour costs, and, rising input prices for fertilisers, and crop protection products.

Cultural traditions

Digging deeper, one will discover those cultural traditions are also at stake. Typically, South Koreans use flowers for short ceremonial events. So these practices do not encourage growers to focus on extended shelf life for ceremonial flowers. With the rise of the new trendy consumers who buy in pop-up stores and online, these growers find it difficult to meet today’s consumer’s quality expectations.

Contrary to Japan, where consumers appreciate flowers grown with every imaginable attention to detail and are ready to pay the right price for it, the South Koreans are infatuated with video games, electronics, luxurious items and cars. The feeling is that customers would rather spend their money on food and leisure than on flowers and plants. South Korea also has an ambitious and educated workforce and a strong working culture. Koreans work more hours per week than almost every other OECD country. People do not spend much time at home to enjoy flowers and plants, nor do they regularly visit family and friends at home, and rarely bring flowers.

Revitalisation

The CoHort study supplies enough reason to suggest that ornamental horticulture in South Korea is now ready for revitalisation. While the stable and wealthy condition of South Korea’s economy rises, there is a trend of sustainable cities that prioritise environmental conservation and invest in protecting, restoring and maintaining urban green spaces.

A vital part of the reinvigorating process is an investment in cold chain technology and cultivation techniques, quality starting material, education and marketing.

CoHort’s SWOT Analysis shows that a stable, growing economy, consumer wealth, the rise of e-commerce, investment opportunities (notably in newly reclaimed land areas along the coast) and young consumers’ demand for ‘new’ and better flowers and plants as strengths of the South Korean market. Weaknesses are limited institutional consumption (austerity), lack of knowledge at different levels, insufficient distribution systems and small farm holdings.

Interestingly CoHort references the rise of imported flowers’ to prominence as a development that can negatively impact the sustainability trend. Sourcing cut flower imports from far-away regions like the Netherlands, East Africa and South America using long haul transport by air causes high emissions of CO2. For the short term, this situation expects to persist. It will, however, be an incentive to put more efforts in revitalising local ornamental production.

Download CoHort’s full report https://bit.ly/3plzVew