H ORTSCIENCE 27(12):1319-1322. 1992. Bolivia’s Emerging Cut-flower Industry: A Performance Assessment John J. Haydu University of Florida, Institute of Food and Agricultural Sciences, Central Florida Research and Education Center, 2807 Binion Road, Apopka, FL 32703 Alan W. Hodges University of Florida, Institute of Food and Agricultural Sciences, Food and Resource Economics Department, Gainesville, FL 32611 Diego Montenegro Ronco Development Corporation, La Paz, Bolivia Additional index words. business analysis, labor, capital, fixed and variable costs Abstract. Cut-flower production in Bolivia is a growing economic activity with sales increasing > 10-fold in the past 6 years. In spite of this growth, Bolivian producers face considerable financial difficulties. Two distinct patterns emerged from this study. Small and medium growers experienced lower costs than larger producers, but the prices they received were also lower. Large operators received twice the small producer price for their flowers, but this gain was offset by the higher costs they had incurred. In the long term, neither selling too low nor operating at costs too high is a sustainable practice. Cut-flower production, consisting primar- ily of roses (Rosa hybrida L.), represents a relatively new agricultural activity in Bo- livia. Although some production was re- ported as early as 1984, the emergence of commercial operations is even more recent. For example, export sales of roses amounted to only $72,000 in 1986. At that time, the industry consisted of ≈ 20 producers with a total growing area of 15 ha (Montenegro, 1989). In the past few years, small farmers, or campasinos, have emerged as another class of grower interested in cut-flower produc- tion. So far, however, they remain a minor contributor to total industry sales. Climatic conditions appear favorable most of the year for flower production, particu- larly in Bolivia’s Cochabamba Valley (ele- vation 2600 m; mean annual precipitation 600 mm; temperatures range from -5 to 34 C), but start-up costs can be considerable. Three types of initial investments are essen- tial for year-round production. First, green- houses must be built to protect the plants from periodic harmful weather, particularly freezing temperatures and high winds devel- oping in the early spring. Second, an irri- gation system is necessary. Third, and perhaps the most significant start-up cost, is the pro- ducer’s purchase of stock plants. Imported from the United States, stock plants report- edly accounted for 48% of the initial invest- ment of flower nurseries in 1987 (Montenegro, 1989). In total, these three costs represent Received for publication 12 Mar. 1992. Accepted for publication 23 July 1992. Florida Agricultural Stations Journal Series no. R-02205. The cost of publishing this paper was defrayed in part by the payment of page charges. Under postal regula- tions, this paper therefore must be hereby marked advertisement solely to indicate this fact. an appreciable capital investment and carry with them potentially high levels of financial risk to prospective producers. Although it is still in its early stages, there is some concern whether Bolivia’s commer- cial flower industry can sustain itself, par- ticularly given interest rates of 18% and the presence of low-cost, high-volume Colom- bian producers who currently dominate cut- flower sales to the United States. The pur- pose of this study was to construct an eco- nomic profile of the cut-flower production industry and develop criteria to assess the current financial performance of producers. A related objective was to determine if econ- omies of size were substantial enough to en- hance industry competitiveness. At the time this study was conducted (Sept.- Oct. 1991), 23 cut-flower producers were identified through a grower list pro- vided by the cooperative association ASO- BOFLOR. All producers were located in the Cochabamba Valley of Bolivia. Thirteen of these growers were interviewed, which rep- resented 57% of the study population. How- ever, since nearly all large producers were interviewed, this figure likely accounted for between 80% and 90% of industry supply in 1990 (E. Ponce, personal communication). Respondents from this population were se- lected randomly, but with a desired target of four respondents for each size category. Given the relatively small number of producers, the objective was to develop a representative portrait of firms within three separate size categories: 1) small, <3000 m 2 ; 2) medium, 3000 to 6000 m 2 ; and 3) large, >6000 m 2 . The sampling distribution constituted a breakdown of five small, three medium, and five large firms interviewed. The survey instrument used for the study was adapted from the Institute of Food and Agricultural Science’s Business Analysis Program ( Univ. of Florida, 1992). This pro- gram was started in 1967 for Florida’s or- namental horticulture industry and has been used since then to evaluate the financial per- formance of nurseries and greenhouses. The survey instrument was tested by us and re- vised three times to accurately represent lo- cal nursery conditions. Growers used in the testing procedure were not part of the sample population. The questionnaire was also translated into Spanish to facilitate inter- views. Because detailed financial data were crucial to the study, personal interviews were conducted. Most interviews were ≈ 3 h long; however, some of the larger growers re- quired additional time. Finally, to accurately assess production costs and the firm’s finan- cial performance, it was necessary that the study period cover a full 12 months. As a result, 1990 became the most recently avail- able period to collect this information. Most of the information was collected from grower records and the financial statements of the cooperative. The cooperative not only pro- vided input supplies to the grower, it also assembled, packaged, distributed, and sold the flowers in local or international markets. In the case of a few small growers who had incomplete expenditure records, estimates were constructed from remaining inventories and the growers’ recollection of expendi- tures. To provide a more consistent basis for in- ter-firm comparisons, a systematic approach to examining certain variables was em- ployed. An illustration of this process con- cerns operator salaries. Although most owners were paid a salary directly from business earnings, some were paid indirectly through Table 1. Differences in business size for cut flowers according to sales, production area, number blooms produced, labor use, and total managed capital, Bolivia, 1990. HORTSCIENCE, VOL. 27(12), DECEMBER 1992 1319