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Importance of Floriculture in Indian Economy

Info: 3770 words (15 pages) Essay
Published: 21st Jul 2017 in Economics

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In India, floriculture is emerging as an important commercial crop. A lot of importance has been given to this sector due to its multiple uses, satisfying the aesthetic needs of the people, creating more employment, ensuring higher rate of returns to rural people and facilitating earning more foreign exchange. More specifically, they are being used as raw materials in the manufacture of essence, perfumes, medicines and confectioneries for direct consumption by the society.

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The production of flowers is an age-old occupation. Until last decade, the growing and selling of flowers was confined to a few families. They grew a variety of flowers on the same land which were sold close to the house, as they could not survive a long journey. The situation in the last decade has however, changed. Now, different farmers are growing different flowers both for domestic market and export purposes. The flowers were, until 1960s, confined to domestic markets. These flowers are now moving long distances due to the availability of airfreight and hi-tech cooling systems.

The economic reforms and liberalisation policies introduced from 1991 and modified EXIM policies of 1995-96 and 1999-2002 have given fillip to floriculture sector. After liberalization, the Government of India identified floriculture industry as a sunrise industry and accorded it 100 per cent export-oriented status. Later, many writer shave termed this industry as “Rosy Business sector”, “a Global Concern”, “Blossoming Industry”, “Thrust Area”, “Money Spinning”, “Lucrative export-oriented sector” etc.

Definition of Floriculture Industry

The floriculture industry involves the cultivation and distribution of bulbs, cut flowers, foliage and plants to both local and international markets. According to the Harmonized Code System, floricultural products are classified under the code 06 (live trees and other plants). In this context, it appropriate to understand the international and national scenario of the floriculture industry.

The International Floriculture Industry

The Netherlands is the centre around which the international floriculture trade revolves. It is the largest exporter of floricultural products. Due to the high concentrations of supply and demand in the Netherlands, the prices of floricultural products are set here (CBI, 2003a).

The two market surveys of the Centre for the Promotion of Imports from Developing Countries’ – one on cut flowers and foliage (2003a) and the other on plants and young plant material (2003b) – provide the most comprehensive information of the international floriculture.

The global floriculture industry has many active participants in all of the continents. The number of participants, in both developed and developing countries is increasing continuously. World exports and imports of floricultural products both exceed US$9 billion, where Europe is both the largest importer and exporter of floricultural products (Pathfast Publishing, 2004; Van Liemt 1999: 7; ITC Calculations based on COMTRADE statistics).

International trade in this industry is complex, as there are many factors that influence exports (CBI, 2003a). These factors include the demands of different types of markets (The Kaiser Study, 2000: 20)138, requirements (e.g. quality standards) set by governments and international buyers (CBI, 2003a & 2003b), shorter life cycles of the leading varieties of floricultural products (Thoen, Jaffee, Dolan & Ba, 2000), changes in consumer demands (Flower Council of Holland, 2004) and trends in fashion and consumption (CBI, 2003a; Flower Council of Holland, 2004).

In essence, the international floriculture industry can be described as an industry that is continuously changing. Therefore it is necessary that the exporters be successfully integrated into the global floriculture market, as it determines the degree of their competitiveness.

In a nut shell, the Indian floriculture industry has the ability to increase its export participation, which will enhance foreign exchange earnings.

Current status of Indian floriculture industry

The cultivation and export of floricultural products have received considerable interest in recent years from the policy makers, researchers, agricultural and horticultural planners due to the sector’s potential in employment, income and export generation. On this ground, floriculture has been provided additional thrust in recent years. The plan outlays have been stepped up in successive plans for development of floriculture.

Government of India has identified floriculture as a sunrise industry and accorded it 100% export oriented status. Owing to steady increase in demand of flower floriculture has become one of the important Commercial trades in Agriculture. Hence commercial floriculture has emerged as hi-tech activity as production is taking place under controlled climatic conditions inside greenhouse. Floriculture in India is being viewed as a high growth Industry. Commercial floriculture is becoming important from the export angle. The liberalization of industrial and trade policies paved the way for development of export-oriented production of cut flowers. The new seed policy had already made it feasible to import planting material of international varieties. It has been found that commercial floriculture has higher potential per unit area than most of the field crops and is therefore a lucrative business. Indian floriculture industry has been shifting from traditional flowers to cut flowers for export purposes. The liberalized economy has given an impetus to the Indian entrepreneurs for establishing export oriented floriculture units under controlled climatic conditions.

The Five-Year Plans which had not given due attention to this crop in the past have started giving more attention to it on account of its multiple use. In the Ninth Five Year Plan, about 40 crores were allocated to this sector (GOI 1996: 55) as against 17 crores in the Eighth Five Year Plan (GOI 1996:49). This speaks of the importance given to the sector. This positive attitude enabled the country to achieve a breakthrough both in area expansion and production in the last 8 to 10 years.

Further, after attaining self-sufficiency in food grain production, the policy focus is being directed more towards remunerative crops and export potential crops. In this juncture, this sub-sector has been encouraged, because of its demand both in domestic as well as international markets. The increases in per capita income and urbanisation have led to a greater preference and increased demand for flowers. At present, flowers are being extensively used in various places. The testimony of this is mushroom growth of florist centers in urban areas, its prosperity and demand.

However, some states are still lagging behind in this process. This may be due to lack of infrastructural facilities, lack of guidance to farmers by the department of floriculture as well as unsuitable agro-climatic conditions. Still, this sector has a few bottlenecks. These have to be tackled and consequently the activity should become more remunerative to the farmers with appropriate market oriented extension approaches. In this juncture, it is important to understand the share of floriculture in the Indian agriculture exports and national exports.

India’s Exports of Agricultural and Floriculture Products vs. National Exports in values

The table no.1 gives the India’s Exports of Agricultural and Floriculture Products vs. National Exports in values (Rs. Crore). Subsequently the graph no. 1 and 2 will give the trend lines of agriculture and floriculture export values trend. The values of the table no.1 indicates clearly that the neither the agriculture nor the floriculture exports are not growing at the phase of India’s total export growth.

The value of Indian floriculture export in the local currency and the percentage share of it to the total Indian agriculture export in value terms indicates that the value of Indian floriculture export was increased from INR.127.43 crore in 2001-02 to INR. 368.81 crore in 2008-09 period that is, there was a threefold increase in export earnings. Even, in the year 2006-07, the export value was in peak. There was a fivefold increase in export value in 2006-07 compared to 2001-02. The percentage share of Indian floriculture export to total Indian agriculture export also was gradually increasing from 2001 to 2007 and started declining from 2007 onwards.

In fact, after the year 2006-07 period the percentage share of floriculture as well as agriculture export value is declining sharply. This indicates that these sectors have to be studied in detail in order to re-instate the growth the sector. The export revenue of the floriculture and agriculture may be low comparing to the total earnings. But these sectors are the livelihood for most of the Indians.

The growth driver’s of floriculture sector

Growing demand and much higher return per unit of land than any other agricultural activity has prodded farmers to take this sector. The growing demand for this product has also increased on account of rapid urbanization, increase in individual purchasing power among middle-income groups, increase in the number of IT Units, Hotels, Tourists, Temples, increase in GDP, Per capita Incomes, change in life-styles and social values of the people, greater awareness among the people to improve the deteriorating environment and economic up-liftment of the people’s conditions.


Scope of the article

This article attempts to elucidate the contemporary changes in the floriculture sector in the last two decades, especially, after the liberalisation, globalization and implementation of trade reforms which has brought structural changes in the floriculture sector. That is most of the floriculture products are produced for export purpose. So, first aim of the article is to estimate the effects of the trade reform measures in terms of trade elasticity of regulations and competitiveness of Indian floriculture exports. In spite of the generalized acknowledgement of growing liberalisation of trade between countries, there are still numerous obstacles to trade, more of the nontariff type. It aims to contribute the literature on quantifying the economic impact of Indian trade reforms related to floriculture industry. The constant market share (CMS) model has been used to obtain insight into the overall dynamics of the export markets, trade flows and competitiveness of Indian floriculture exports. Based on the results, the suitable international market oriented extension approached can be suggested for the floriculture sector.

Objectives of the study

  • To measure the overall export performance of Indian floriculture industry with major importing countries
  • To assess the effect of competitiveness and market access on Indian floriculture export in major importing countries.
  • To offer market oriented extension strategies for floriculture sector

Sources of data

Data on international trade are sourced from the commodity trade data base (COMTRADE) of the United Nations Statistics Division. The data used are for the period 1991 to 2009 (10 years). As CMS analysis covers a long period, especially, base and current years, the composition of the countries varies. The selection of the countries in the analysis is also based on the value of the trade (with regard to relevant years in the analysis) with India. The commodities covered are the floriculture products under the HS Code 06.

India’s export performance of floriculture products

The table no.2 reveals the India’s total export value of floriculture products from 1991 to 2009. India has performed reasonably well in the export of floriculture products since 1990 compared to pre trade reform period. There was a steady growth in the floriculture exports from India till 2007. Subsequently, it dropped by 44 percent in value terms. After the subprime crisis in the year 2008, the Indian floriculture trade had witnessed a negative growth. The year to year growth rate of the floriculture was also highly instable and fluctuating in the last two decades. It necessitates analyzing India’s export performance of floriculture products and understanding the key factor for the growth in floriculture exports. In turn, that key factor has to be strengthened by the way of extension services for the floriculture sector. For identifying the key factor Constant Market Share analysis is used.


CMS Model specification

The following analysis throws light on India’s export performance in the major floriculture importing countries, Netherlands, USA, France, Germany and Japan. The method of CMS analysis, modified for as single commodity case, is an ideal complement to the gravity analysis. It should be emphasized that the CMS analysis is merely a measurement techniques for decomposing the growth of variable and should not be viewed as a behavioral relationship. This model decomposes the source of export performance and distinguishes between changes in market penetration (market share) and changes in the size of these markets (market size). (x1-x0) in equation refers to the growth in exports i ( individual destination countries), which is decomposed into three components of export performance on the right hand side of the equation. The method is applied to individual markets, so that the country composition effect term is dropped, producing the following decomposition of export growth:

x1-x0= S0(X1-X0) +∑i (Si0-S0)*Xi1+(X1-∑iSi0Xi1)


x= value of India’s exports of floriculture to major export markets.

S= India’s market share of the total export of floriculture to major export markets

Si= India’s market share of total exports of floriculture to member countries i in major export markets

X= total exports of floriculture to major export markets

Xi= value of total exports to the member countries i in major export markets; the subscripts 0 and 1 refer to the base period and current period respectively.

Size of the market effect refers to the change in quantity of total exports to i over the period, (X1-X0). If this increases/ declines, then even with a constant market share ( S0 ), then exports will increase / decline by S0(X1-X0). The size of market effect results from a shift in the demand in major export markets. Market composition effect refers to the changes in the export shares in individual member countries i compared to its overall share in the group, in the base period (Si0-S0). Competitiveness effect measures the difference between actual exports in the subsequent period, x1 and the level of exports that would have occurred has the same base period market share in each country (X1-∑iSi0Xi1) been maintained. It indicates the extent to which a country is able to gain international market shares in spite of adverse world demand movements. It is often interpreted as an indication of the dynamic ability of a country to respond to changing environment and adapt its supply situations accordingly. Thus, it decomposes the export growth into the size of the market and market composition effects thereby isolating competitiveness effect (X1-∑iSi0Xi1) which is a residual term in the equation.

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The underlying assumption of the CMS approach is that base period export shares are maintained other market periods. The three structural components of the market share are calculated under this assumption. The total growth effect (X1-X0) is equal to what the countries growth in export would have been if it had just maintained its share of total world exports. The market composition effect accounts for any additional growth ( positive or negative) which takes place because the focus country’s exports have grown in pace with the total growth in exports of the commodity to the importing region as a whole. These three effects all hypothesize constant export shares. The residual effect (X1-∑iSi0Xi1), which proves the identity, accounts for all the growth which raises from changes in export shares.

Result and Interpretation:

The constant market share analysis is performed for the exports (value in USD) of floriculture products to the major twenty export markets in the world for the period 1991-2009. The analysis covered the whole period as annual arithmetic averages for the three consecutive years. For example, 1991-2009, implies that it has covered the period 1991, 1992 and 1993 for the base period and 2007, 2008 and 2009, for the current period. The results are summarized in the table no. 5.


The decomposition of the overall export growth of floriculture products in terms of market size, market composition and competitiveness effect using CMS indicates that the competitiveness of the Indian floriculture industry is the key component for the export growth, ie. 80%. It reveals the strong supply side of Indian floriculture industry. However, the competitiveness factor cannot be attributed to a single factor.

It also indicates that the international demand for the floriculture products, in other words, the growth of the market size has minimum impact in the Indian export growth in the study period 1991 to 2009, ie. 8%. It indicates that the international market growth pace is faster than the Indian export growth pace. It may be due to the structural infirmities or international trade barriers to Indian export or locational disadvantage to the international floriculture market.

The market composition effect, which is 12%, indicates that India is losing the international market growth of floriculture products to exporters of competing countries. At best, these figures are the modest indicators of the different forces that are in action at the international markets for Indian floriculture industry.

The CMS analysis result for the top twenty countries also reveals similar scenario except few markets like United Kingdom, Ireland and United Arab emirates where the market effects are strong for the export growth of floriculture products.

Learning’s for the extension services

The CMS analysis result indicates that India has strong supply side competitiveness. Hence, Indian extension strategies as to focus more on strengthening the Quality parameters, Environmental issues, Product diversification, product differentiation and supply chain infrastructure. These are briefly discussed below.

Quality parameters and Environmental issues

In the recent years, the increasing demands for quality and sustainability by global buyers, and the increasing buying power of retailers in the developed country markets have been posing several challenges on producers/exporters in the developing countries, particularly with respect to increasing safety, environmental concerns, and labor standards. Some of the regulations and standards applied in the floriculture trade include: MPS, GLOBAL-GAP, ICC, and FLP, which have become compulsory for suppliers in the direct sales channel and prominent in the auctions.

Product Diversification and Differentiation

One of the major reasons for the global buyers in the floriculture industry to diversify their sourcing strategies is the increasing use of product differentiation strategies in the international market. The retailers derive competitive advantages from selling unique non­standard products that are not generally available in the market, competing not only on price, but also on factors such as reliability, product variety, product quality and speed of innovation. This has become a major challenge for Indian flower exporters, in diversifying and reducing dependence on producing single varieties, which in many cases is limited to only Roses. Even African exporters are constantly in search of new floriculture crops and exploring the production of new varieties.

Supply chain infrastructure

Clean handling and better storage environment is very important in floriculture supply chain. Cut flowers must be cooled to temperature ranging between 33o F to 41o F without much delay. A higher temperature is not only reducing the vase-life but also increases the respiration rate, heat production, and subsequently increase the damages caused by ethylene formation. Additionally, high temperature also generates high humidity/ moisture, which causes development of fungal and bacterial infections in the stems and flowers causing deterioration of the product quality. Thus, temperature and humidity controlled transportation is needed at all stages of the transportation process to ensure that the flowers do not deteriorate in their quality. Owing to this, the post harvest losses are high. Though no systematic study has been conducted to assess these losses, the estimated losses range even up to 40 percent, depending upon various stages of post-harvest handling.

According to the industry sources, in India, the availability of dedicated cold storage facilities at farmyards as also at airports is minimal. In addition, the adequacy levels of cooling facilities in domestic transportation need to be examined in the context of the growing international flower business.

Currently, only six international airports have cold storage facilities for perishable cargo and are faced with the challenge of under utilization of the facilities.. Under such circumstances several hours (sometimes even days) would lapse before the cargo could be loaded to the connecting flight. Moreover, Because of small volume of flowers, they mostly have to be transported on regular flights having limited cargo space.

The customs clearance procedures continue to be time consuming and are still posing a challenge to the exporters.


Though India has strong supply side competitiveness, But, India is unable to capitalize the international market growth. It may be due to the structural infirmities in international floricultural trade which has to be further investigated in detail.


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