Tuesday, February 20, 2018

econlife - Why Valentine’s Roses Bloom in Colombia by Elaine Schwartz

What do you get when you combine a sunny mountain with thousands of workers who earn $300 a month?

200 million roses.

A Rose Supply Chain

Our story begins with the U.S. government. Hoping to disrupt Colombia’s cocaine cartel, in 1991, they said no more import taxes on flowers from Colombia, Peru, Ecuador and Bolivia. Legitimate Colombian flower farms responded. At 24 cents, their wholesale price was 11 cents lower than the 35 cents charged by U.S. growers.

You can see why U.S. rose production fell right after the ATPA (Andean Trade Preference Act):

And it kept falling:

Meanwhile, we have a supply side with thousands of pickers in the mountains near Bogotá. Their job is to do a two second snip 25 inches from the stem. Then, bunches of the roses are wrapped in clear plastic and rushed to a nearby airport. As Valentine’s Day approaches, each of 30 cargo planes carries a million roses to Miami daily. There, refrigerated trucks pick them up and take them to warehouses for repackaging.

And that’s it. They are ready to go anywhere in the U.S.

One likely destination? Walmart buys 24 million Colombian roses.

Our Bottom Line: Comparative Advantage

Our rose story connects Adam Smith, David Ricardo, the U.S. and Colombia. In his Wealth of Nations, Adam Smith explains the virtues of mass production and the need for “distant sale” that requires a transport infrastructure and many buyers. Colombia had the transport infrastructure connecting it to the U.S. where many buyers awaited its roses. But, the last crucial piece is comparative advantage. Through globalization, Colombia was able to benefit from the comparative advantage that 19th century economist David Ricardo described.

As Ricardo might have explained, Colombia was able to grow roses at a lower opportunity cost than the United States. Combined with a supply chain that facilitated “distant sale,” Colombia could optimize its comparative advantage as a rose grower.

My sources and more: Thanks to the Washington Post for its wonderfully detailed article on the rose supply chain. Then, if you want more, do look here at the environmental benefits of not using local growers. And finally, for a fast statistical read, the National Retail Federation has all you could want to know about what we buy on Valentine’s Day.

Please note that a similar version of Our Bottom Line was previously published at econlife.

Ideal for the classroom, econlife.com reflects Elaine Schwartz’s work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.