NZFGA on Auction System Rationalisation: Opinion
The recent announcement that Turners and Growers have closed the Wellington Floramax auction should come as no surprise to growers. For many years The New Zealand Flower Growers Association has argued that the domestic flower market is far too small to support two auction houses and it has been well known that the financial viability of the two auction houses has been marginal at best. The two auctions compete for supply and buyers, splitting the market, while also maintaining the expensive overheads these businesses incur. What other commercial business pays for a large commercial building of the size required to accommodate all the product and buyers and then only utilises it for 2 or 3 mornings a week? Add in the senior management, the admin staff, the IT systems and a work-force required to work extremely unattractive hours and it’s little wonder these are difficult businesses to own and operate profitably.
Now consider the New Zealand situation where we have unnecessary duplication of these expensive facilities and it’s no wonder grower commissions are so high. We have two of these beasts in the same road in Auckland, and until this week, two of them on the same campus in Wellington. The shear craziness of the situation should be apparent to all. While no one can take pleasure in seeing a long established business closing its doors, and the resulting impact on staff, buyers and suppliers alike, the days of the industry enjoying the luxury of two auction houses is coming to an end and further rationalisation must be expected and indeed demanded by growers. Marketing costs are a significant expense for growers and any improvements in the productivity of our auction system will be welcomed by growers in the face of ever increasing costs and competition.
The possibility of a single auction house monopoly will cause concern for many growers who will fear even higher commission rates and charges. There will be little tolerance by growers for further increases in what are already some of the highest charges anywhere in the world. Advances in technology now means the traditional auction is no longer the dominant marketing tool it once was and there are many alternatives available to growers should they wish to use them. Today, many growers, who are auction supporters, no longer see it as the only means of selling their flowers, but rather just one of a number of tools in their marketing tool belt. To retain supply, the surviving auctions will need to demonstrate to growers that they put New Zealand grower interests first, provide value for money for the service provided and can generate realistic market prices - otherwise growers will vote with their feet and explore the many alternative marketing options that are available to them.
Another area requiring urgent rationalisation is in the area of the promotion levy both auctions charge. Currently the promotion dollar is being split and used to fund two separate and incompatible marketing campaigns. The potential impact of the marketing spend is diluted and mixed marketing messages weaken to core message. Greater transparency is required so Growers can be certain every dollar collected is being spent on marketing their product. A single unified marketing voice from the industry is long overdue, and in the face of increasing levels of imports and competition from other luxury and discretionary consumer products, increasingly vital.
The flower industry must retain its auction system at all costs. Regardless of grower’s personal preferences for one auction house or the other, the most important issue now facing growers is ensuring that once the current round of rationalisation is finally over the Industry emerges with a strong auction system still in place. The reason for this can be summarised in one word – Supermarkets.
Supermarkets are becoming increasingly important in the retail of fresh cut flowers. The recent controversy regarding the predatory trade practices of one of the major supermarket chains and the impact on the vegetable industry since the demise of their own auction should sound warning bells in the minds of every flower grower. As long as a strong and viable flower auction remains, a true market price signal will continue to be given to buyers and suppliers alike. The demise of the auction system in New Zealand will see growers ultimately beholden to the enormous power of the supermarkets and the unequal business relationship that will ultimately entail.
For further follow up on the issues raised contact the NZFGA on [email protected]