Case 5 The Ecuadorean Rose Industry
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Case 5 The Ecuadorean Rose Industry

Course Number: IB 1, Fall 2010

College/University: De Haagse Hogeschool

Word Count: 910

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The Ecuadorean Rose Industry: In a Rose farm located in the Ecuadorean town of Cayambe, a female employee named Maria Pacheco labor has intensified and working hours lengthened due to the Valentine season. Rose stems are cut at rose farms, and then they are refrigerated, shipped via aircraft, and finally sold at premium prices from New York to London. They are approximately 460 rose farms located in the Cayambe...

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Ecuadorean The Rose Industry: In a Rose farm located in the Ecuadorean town of Cayambe, a female employee named Maria Pacheco labor has intensified and working hours lengthened due to the Valentine season. Rose stems are cut at rose farms, and then they are refrigerated, shipped via aircraft, and finally sold at premium prices from New York to London. They are approximately 460 rose farms located in the Cayambe and Cotopaxi regions of Ecuador. The pristine location and conditions of these regions allow roses to flower almost year round, giving Ecuador a comparative advantage in the production of roses. Ecuadors rose industry started some 20 years ago, giving it First-Movers Advantages resulting in a rapid expansion of the industry. Ecuador is now the worlds fourth largest producer of roses, making roses the fifth largest export. In a ten year period the population has increased, and the infrastructure of this region has improved primarily as a result of the rose industry. Rose farms in Ecuador pay salaries above the average wage in Ecuador and provide benefits such as health care and a pension. This has fostered a social revolution in which women have more control over their family spending, especially in their children education. The rose industry is being criticized by environmentalist. They are claiming that large growers have poor ethical business practices when it comes to safety procedures that are causing serious health issues on its employees and poor agricultural practices that are harming the environment. Critics do recognize that they lack access to the rose farms and therefore do not really know what the true situation is. The International Labor Organization also claims that child labor is being used in these farms, something the Ecuadorian government agencies and growers have actively denied. Consumer groups are pressing the European Union to improve environmental safeguards. In response Ecuadorean growers have joined a program that aims to identify responsible growers. Other environmental groups are pressing for stronger sanctions, however most consumers are oblivious to these issues. 1. What is the basis of Ecuadors comparative advantage in the production of roses? The basis for Ecuadors comparative advantage in the production of roses is its Factor Endowments or factors of production, being its basic factors the location, climate, natural resources. And advance factors such as the skilled labor force they now posses which is also a result of another base of its comparative advantage which is the fact that they were among the First-Movers of this industry starting some twenty years ago. 2. Most Ecuadorean roses are sold in the United States or Europe. Who in these countries benefits from the importation of Ecuadorian roses, and how do they benefit? Who loses? Do you think benefits the outweigh the costs? They are many factors that might determine who benefits and who loses in the trade of good between countries, so there is no set answer without proper research of the countries and societies in question. Having said that we can apply theories in which case I would go with the theory of comparative advantage which suggests that trade is a positive sum-game in which all countries that participate realize economic gains, which then results in higher growth rates for their economies. The losers in trade between markets are the people that depend of immobile resources, and cannot move easily from one economic activity to another, which in this case it would be the farmers of the country with comparatively less efficiency in growing roses. Yes the benefits outweigh the costs since trade brings economic growth, and higher growth will raise income levels and living standards. 3. How does the rose export industry benefit Ecuador? Do these benefits have any implications for the United States and Europe? The rose industry benefits Ecuador with a high economic growth rate generating $240 million in sales, support of tens of thousands of jobs, higher income levels by providing a substantially higher wage than the minimum wage in Ecuador, and higher living standards such as the examples given in the book that the labor force has health care a pension and more resources to invest in the education for the younger generations. When two parties engage in trade they are always implications, both negative and positive. Positive implications are according to the theory of comparative advantage that countries that participate in trade realize economic gains, yet even though the theory predicts that the benefits of free trade outweigh the costs by a significant margin they are always some sectors that are affected which in these case will be European and United States rose farmers which lack the Factor Endowments that Ecuadorean rose farmers posses. 4. How should developed nations respond to reports of poor working conditions in this industry? Should importers in some way certify Ecuadorean producers, only importing from those who adhere to strict labor and environmental standards? Developing nations should respond very carefully to deconstructive reports, more so if the if there is a lack of access to information and there are no definite evidence. Since this is a business environment and they will always be ambitious parties involved which lack ethical codes of conduct. I agree that importers should certify Ecuadorean producers once they assume the added costs that this will involve, or if the cost will be passed to the Ecuadorean rose farmers then all rose farmers need to go through the same certification process in order to allow the Ecuadorean farmers to be competitive.

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