FloraCulture International has been granted first access to AIPH’s International Vision Project (IVP), touted as ‘the first global research of established and emerging global hot spots for ornamentals’. We have been granted exclusive access to the first key conclusions of this ‘ongoing project’ that brings together industry players, researchers and governments to create a platform for research and insight exchange. One attribute of the report is its neutrality on the effects of import/exports while skillfully outlining opportunities in the global ornamental industry.
The International Association of Horticulture Producers (AIPH) has initiated an analysis of global demand and production of ornamentals. The main objective of the International Vision Project (IVP) is to ascertain relevant drivers and inhibitors for this forecast. The majority of previous quantitative research has focused on the production side based on reports from national statistics. The effect of global demand for ornamentals has been heretofore unexplored.
Production follows demand
It is AIPH’s conviction that production follows demand. That is, the demand side of the global ornamental market will determine development on the production side. This is relevant for AIPH given that members are growers’ associations who will need to pursue changes based on anticipated shifts in demand. One of the main questions of this study is whether and how the ornamental industry can keep up and satisfy this future demand.
A wide variety of sources point towards tremendous growth in global purchasing power. AIPH has been able to pinpoint growth not only in certain countries, but in specific urban corridors. According to the world-systems theory, core countries (industrialized, capitalist nations, typically) control and benefit most from the global market. This theory can also be applied to core regions and core global (or world) cities. For the basis of this research, the total was pared down to 40 relevant cities. Most of these cities are part of large metropolitan clusters in one of three world cores.
The criteria for these choices included projected consumer spending, disposable income, home ownership, infrastructure, health, education, sustainability, livability, et al. The choice of these cities was based on available data and finding comparable criteria between locales. The cultural and societal perception of flower and plants was quantified in consumer and government spending figures.
A 15 year projection period
Working with the premise that demand drives production, the criteria for a 15 year projection period is based on the theory that demand is predicated on socio-economic and demographic factors. For example, as disposable household incomes rise, consumption of non-necessity consumer goods, including ornamentals, will also rise. So the statistics for the horticulture industry as a whole are dependent on an economy’s purchasing power followed by ever-changing consumer demand and buying behaviour.
Because of the perishable nature of the ornamentals category, supply cannot be “pushed” at any price. Ornamentals cannot be kept in stock for extended periods of time to wait for an optimum market price. They need to be moved quickly with effective planning of production to meet demand peaks. This is the key driver that determines profit or loss.
Mention should also be made of the service segment of ornamentals. Often, it is not the product (flowers or plants) that can be attributed to the greatest monetary value, but rather the service that is provided with it. This is a growing segment worth noting.
Growth of consumption appears to be a more important driver of sector growth than population growth. The world population continues to grow but the pace of growth is slowing down. Areas where growth does occur are in and around urban areas. Urban consumers will generate the lion’s share of global consumption growth.
Research has identified three target groups which have the scale and spending power to reshape global demand and impact the world economy. These three groups together comprise nearly half of the projected €20 trillion global consumption growth through 2030. They are:
All three groups are concentrated in areas already home to significant domestic production and sizeable external trade flows of ornamentals. The question is if the anticipated changing demand can be satisfied by the current value chain or if change is needed.
Focus on cities rather than countries
The countries with the largest ornamentals production are also home to the largest consumer demand. These countries are self-sufficient but for a few specific products. Some countries are excellent growers but they export most of their harvest to one or more of the demand markets. Thus, the decision to research the demand side of target groups rather than geographic markets.
Nearly 97% of the world’s population growth will occur in cities by 2030. Their populations will account for almost 70% of the world’s population and 81% of global consumption. Cities will be responsible for 91% of global consumption growth by 2030. The UN forecasts that 70% of the world’s population will live in cities by 2050. Thus, the focus on cities rather than countries.
Urban middle class fuels future growth
Worldwide, the general expectation is that future demand will be met locally the majority of the time. The rise of the urban middle class is expected to be one of the most significant factors in this projected future growth. The disposable income of the Chinese middle class is expected to top the list of biggest spenders over current first place United States by 2020. By 2030, the expectation is that India will overtake both countries in spending by their urban middle class.
North America’s working-age population is defined as people aged 15 to 59 in the United States and Canada. Its size and purchasing power have made it the single largest consumer group in the world in recent decades and its members’ behaviour has shaped global consumption. Its numbers and per capita consumption continue to increase. By 2030, consumers in this age group will include Generation X (born between 1970 and 1985), Millennials (born between 1985 and 2000), and Digital Natives (born after 2000). Their numbers are expected to grow by 7%, from 180 million in 2015 to 191 million in 2030. By contrast, the number of elderly and retirees will increase by 30%.
Inhibitors for further growth
The United States is seeing increased consumer spending year-over-year and a higher demand for ornamentals, yet the two major inhibitors for further growth are not to be found on the demand side. They are, in fact, government policy and industry constraints: labour shortages and logistical challenges are North America’s greatest potential inhibitors.
The developing retiring and elderly will be very important to global consumption growth in the period until 2030. The number of people in this age group will grow by more than 30% from 164 million to 222 million. As a result, they will be responsible for 51% of urban consumption growth in developed countries, or €3.7 trillion in the period up to 2030. That is 19% of global consumption growth.
by Joep Hendrickx and Richard Melnick