The Jerusalem Post | Abraham M. Bertisch | January 29, 2002, Tuesday
Entering the Aviv Packinghouse is an aromatic as well as aesthetic experience. The blaze of vivid floral colors and their fragrant scent is breathtaking. The warehouse is a virtual floral kaleidoscope, consisting of nearly one hundred varieties such as Aster, Achilea, Gerbera, Phlox, Xanadu, Calla and Heliantus. But all this delight is not intended for the visitor. These fragrant works of art are destined to be enjoyed by European aficionados. In a matter of hours the flowers will be packed, shipped and delivered to the Amsterdam Flower Bourse, where they are sold daily at a commodity auction and delivered to the end user, all within about 48 hours. Flower growing and exporting has traditionally been a major industry in Israel. Actually it is the largest export branch of the agricultural sector and Israel, for many years, held the distinction as the leading flower exporter in the world. Due to recent shortages of water and agricultural labor, this top spot has been overtaken by Kenya. Nevertheless, Israel remains the second largest flower grower on a global scale, exporting more roses than any other country. One of the largest players in this field is the Aviv Group, which is located on a 21-dunam complex in the Emek Heffer Industrial Park near Hadera. The company was established in 1978 and was jointly owned by the growers and the government until the state sold its stake in 1983 to various growers, who became full owners of Aviv Corporation. Until 1999 Aviv, which is one of the country's largest flower exporters, served mainly as a packinghouse affiliated with Agrexco, their sole marketing and exporting agent. In 1999 then Minister of Agriculture Rafael Eitan granted Aviv its own export license, enabling flower growers to break away from the exporter monopolist Agresco. The growers argued that they would be able to decrease their costs and fees as well as to introduce advanced technologies. Aviv currently provides export services to some 300 independent growers who left Agrexco and handles annual exports of $ 50 million, accounting for 25 percent of the Israeli flower export market. The company's packinghouse is equipped with advanced fast-cooling chambers, allowing for the maintenance of the flower's quality throughout the marketing route. A unique conveyance system enables the construction of loading pallets at the packinghouse for air cargo shipment, while maintaining optimal temperature for the flowers. These pallets are carried in trucks equipped with cooling chambers to Ben-Gurion Airport and loaded directly onto the cooled plane from which they are transported in special refrigerated trucks to the packinghouse.
Flowers are shipped daily to the Amsterdam Flower Bourse, which handles 83% of Israeli flower exports, where they await to be sold and shipped to their ultimate destination. Aviv's CEO, Doron Fine, says that an advantage of the independent marketing system is that growers don't lose their identity. "In the past if I delivered roses that were superior or of higher quality to Agrexco and you delivered roses of lesser quality, they would be sold by Agrexco on the bourse," he said. "If my flowers fetched a guilder per dozen and yours only fifty cents, we would both be paid the average price 75 cents minus Agrexco's handling fees and market commissions. There would be little incentive for us to improve and innovate." According to Fine, under Aviv's system each farmer's shipment is sold individually and each receives the price the flowers fetch on the bourse. Aviv has recently also succeeded in arranging flower sales via the bourse prior to shipment. "If someone in London purchases our flowers in advance we ship to London directly, thereby bypassing shipping to Amsterdam first, and the flowers, in turn, arrive at a lower shipping cost and with a longer shelf life while all the paperwork is still be done via the bourse." In October 2000 the group signed an exclusive direct marketing agreement with Flowers Direct Ltd., which specializes in distributing Israeli flowers worldwide. This arrangement enables some growers to avoid the vicissitudes of bourse prices and to engage in long-term planning and price stability. "We've also developed a sort of 'futures' market of flowers," Fine said. "Although we execute the orders via the bourse, we strive to obtain long-term standing orders for our flowers at a pre-agreed upon price." This provides both the buyer and seller with more certainty, thereby eliminating risk and guesswork in the industry. Thus far, there are futures contracts up to 12 months away. Menahem Zohar, chief economist for Aviv, estimates that the added processing costs per ton of flowers is 16% for transportation costs, 16% for handling and packing in Israel and 15% for bourse broker commissions and handling fees in Amsterdam, for a total of 47%. The grower thus produces 53% of value, and is left with 15% to 25% profit on total investment. Fine says that Aviv, in its three years of existence, decreased costs by approximately 13%, thus increasing member flower grower profit margins substantially. "In 1997 Agrexco charged us $ 870 per ton for all handling and freight charges. By 1999 we succeeded in charging our growers only $ 715 per ton," Fine says. He admitted, however, that despite Aviv's intrinsic cost cutting efficiencies, extrinsic factors such as recent international economic and political developments have adversely affected the flower industry. The airlines are requesting an additional $ 100 surcharge per ton to cover higher fuel costs and insurance companies have imposed, since September 11, an additional $ 100 per ton insurance surcharge to cover the increased risk of international transportation. This is having a substantial negative impact on flower growers' profits. The industry is heavily dependent upon foreign labor, formerly Palestinian and currently Thai workers, whose supply is dependent upon political issues and pressures. The growers are additionally faced with a problem of larger magnitude - water availability. Flower growing is rather water intensive. Some government agricultural analysts have wryly remarked that the flower industry is actually a disguised form of water export. The flower growers' profits are additionally vulnerable to international competition and price changes as well as foreign currency fluctuations. Fine, however, is working on plans to expand the firm's direct marketing to European flower dealers, which should improve profitability and hopes to sign more long- term contracts, which bypass the bourse and provide stable prices. Expansion plans are also aimed at the Russian market, which, although currently problematic, is potentially promising. Fine eagerly eyes the American flower market, but has yet to overcome the high transportation costs of shipping flowers from Israel to North America. Israeli exports constitute some 8% of the European flower market. During the winter holiday high season, Israeli flowers account for around 35%. Fine explains a treaty with the European Union allows Israeli growers to export 19,500 tons of flowers to EU countries annually. Israel usually meets this quota each year by about October. In order to accommodate for the December holiday demand, the EU has granted Israel an additional allotment of 5,000 tons from October to December. This end-of-year allotment does not include roses and carnations, for which there is a 12% tariff. The Aviv Corporation is viewed by its CEO as a firm that services flower growers: It charges the growers for packing, shipping and marketing services rendered. However, Fine does not judge the Aviv's success by how much profit it earns annually. Instead, he measures his success by how much the member flower growers earn. His goal is to minimize the growers' packing, shipping and marketing costs, thereby maximizing their profits. "That is the true test of our success. Although we do not keep books on our member growers' earnings, the fact that more growers want to join us is an indication of our achievement." Aviv is owned by 6 agricultural associations, consisting of Mifalei Moshavim, 43%, Megadlei Perahim Shomron, 18.3%, Beit Itzhak, 9.5%, Pirhei Carmel, 22%, Burgata, 3.6% and Olesh, 3.6%. The company is not structured as a cooperative but rather as a closed corporation. Growers can buy shares from other growers. There are only 600 shares outstanding owned by the various members of the six organizations. Two hundred growers are shareholders, while 100 new growers are non-shareholders. Several hundred shareholders are non-growers. Shares are not yet publicly traded although Fine says that perhaps one day the firm may go public. In recent years many flower growers from the Golan as well as the Arava region have affiliated with Aviv. The packinghouse has also developed a web site ( www.avivflowers.co.il ), that provides ongoing information data and know-how for member flower growers. Under the management of Berto Levy, the web site is also linked to the Amsterdam flower bourse web site. According to Levy, "the Internet provides data and information enabling flower growers to make proper decisions and attain maximum profits. Often last minute information obtained on the web site right before the sale date may enable the grower to make crucial decisions that can impact his profitability." Fine dreams of creating a flower bourse in Israel, where Israeli flowers could be auctioned to the domestic market as well as to neighboring countries once the geopolitical climate improves.The Jerusalem Post:
