← The Economics of Everyday Things
The Economics of Everyday Things
117. Cut Flowers
00:21:27
Grab a simple bouquet from your local grocery store and you're activating a global network of farms, shipping companies, wholesalers, distributors, and retailers. Zachary Crockett stops to smell the roses.
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Valentine's Day, Mother's Day, a wedding, or just because Americans buy flowers throughout the year in big quantities. If you walk into a grocery store, you're likely to find the best sellers wrapped in plastic and sold in bundles and bouquets. Roses, tulips, lilies. But there's another flower that's been in high demand, a particularly showy one with large frilly petals.
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Everyone loves peonies.
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That's Bob Milano. He's a flower wholesaler.
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He used to only be able to get peonies in the springtime for, you know, two, three, four weeks. And that was about it.
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And someone's calling in August and saying, I want peonies for my wedding or I want peonies for my client.
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That's Jasmine Gomez Gonzalez, another flower wholesaler.
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And Some things just aren't grown normally in August. If it was Amazon, I'm sure I can order it and have it ready. But we're working with the weather here, right?
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But when there's demand, supply finds a way. Advances in refrigeration and logistics have turned the cut flower industry from a direct farm to consumer business into an international web of farms, shipping companies, wholesalers, distributors and retailers.
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D
You can get your peonies year round now for the most part, and it's by bouncing around the entire world. Right now we're getting them in Chile. When the Chile season ends, we're going to get them in Israel. When Israel season ends, we'll get them domestically in Arkansas and in North Carolina. When it ends there, we come into Oregon, Washington. After Oregon Washington, we go up to Alaska. At the same time we'll also hit the Midwest. So we go all over the place. But then the prices will fluctuate based upon where they're being produced.
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In 2024, Americans bought over $7 billion worth of cut flowers. Most of those were imported from international farms. We buy more cut flowers than any other country and that means we dictate what kind of flowers farms grow and when they grow them. Like peonies in August.
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The farms, especially the last five years, they've done a really good job of trying to fill the gaps of flowers that aren't normally available year round. This was our first year to ever have peonies year round. And that is an incredible feat because peonies are one of the most sought after flowers in the industry.
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And Gomez Gonzalez understands why peonies are her favorite flower.
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I will be a die hard peony fan till my end days. I love them.
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Milano has a different approach to the flower business.
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My favorite flower is a sold flour that's paid for.
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For the Freakonomics radio network. This is the economics of everyday things. Hi, I'm Zachary Crockett. Today Cut Flowers. Bob Milano is the vice president of wholesale operations for his family's business, Milano and Company. It's a grower and wholesaler of cut flowers in California.
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D
My grandfather immigrated here from Italy in 1921. He ended up working for an Italian family in Santa Cruz. And they would go and pick indigenous greens up in the hillsides and then they would bring it down on a horse and buggy and they would put it on a train. And he'd been doing it for two or three years and said, you know, I didn't come to America to do this. I came for the American dream. So one day he hopped on the cargo container with the greens and that's how he ended up getting in the business in Los Angeles.
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Milano's grandfather eventually bought a small farm to grow flowers and sell them at the LA Flower Market, a large wholesale marketplace.
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In the 20s and the 30s, without refrigeration, to be able to transport flowers throughout the country, throughout the world for that matter, you really were dependent on locally produced flowers.
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The Milano family still grows flowers on their 400 acre farm in San Diego County. It's one of the largest flower growing operations in California.
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We distribute our flowers that we produce to retail flower shops, wholesalers, grocery stores, event companies, while at the same time, in order to provide the pallet of flowers that we need for our customer base, we're a direct importer of flowers from all over the world.
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The US first started importing flowers from Colombia in the 1960s. For a while, American growers maintained their market share by selling higher quality flowers. But Colombia and other South American countries have the ideal climate for flowers and labor costs are lower than in the US Today. South America has cornered the US market for high volume flowers like roses, carnations, hydrangeas and chrysanthemums.
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D
Trying to compete with the lower cost of production countries was very difficult. Over the course of time. We had to get out of the carnation production, we had to get out of the chrysanthemum production. Most of them are being produced in either Ecuador, Colombia, maybe a little bit of Mexico.
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In Africa, 80% of the cut flowers bought by US consumers are imported from other countries.
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Largest area that's impacting the US is South America. Colombia, the biggest producing country, Ecuador, Chile, Peru. There's a large increase in production in Mexico as well.
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African countries like Kenya and Ethiopia are also large flower producers. But African flowers are typically exported to the Netherlands rather than the U.S. the cut flower industry started in the Netherlands in the 1600s with the development of greenhouses. Today it's the central flower distributor for all of Europe. And some flowers from the big auction in Alsmeer near Amsterdam make it over here too.
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The Netherlands is still a very large supplier of flowers to the US Typically much more high end. We have three shipments per week from the Netherlands.
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Tulips are definitely coming from Holland, at least for us. At Orange county we do know there are some California grown tulips, but there is a quality difference and a price difference as well as jasmine.
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Gomez Gonzalez is the chief operations officer of OC Wholesale Flowers. Her father Jesus started working there when he was 18 years old.
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The previous owner Virginia, she said, I'll give you a job if you go to school at night. And then she kind of trained him. He started cleaning buckets, sweeping floors, then was able to move up to delivery driver and then manager. And then he officially bought it in 2003.
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The wholesaler services Orange county in California, selling to florists, event designers, mom and pop flower shops and direct to consumers through their own warehouse.
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We get about 3500 stems of hydrangea on a weekly basis. We get about 450 bunches of roses. Roses will have two dozen in a bunch every single week, 200 bunches of spray roses, and in total I think we get about 13 pallets worth of product from South America on a weekly basis. We have a full line of Japanese, Dutch, Italian product, a full line of Pacific Northwest growers, and then of course, our fabulous California growers and flowers. So we work with a couple hundred different types of flowers on a weekly basis.
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The cut flower supply chain starts with flower farms. These are large swaths of land with acres and acres of greenhouses. Conditions at South American farms can include long hours, low wages and exposure to toxic pest control chemicals. But OC Wholesalers works with farms that are Rainforest alliance certified, which have baseline standards for labor and environmental impact.
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On a rose standpoint or carnation standpoint or even hydrangea standpoint, they are timing themselves out perfectly to make sure they consist of consistently have the availability to cut florals every single day of the year.
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The international flower market hinges entirely on quick and dependable shipping. Flowers are highly perishable. They're essentially dying from the moment they're harvested. The supply chain is set up to make sure that the product can get from a farm to a wholesaler in just a week's time. Again, here's Bob Milano.
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Let's just take roses. I'm buying flowers from a flower grower in South America. They're going to harvest their flowers today. Let's say they're going to send them into their packing shed for grading and bunching and then hydrate those for post harvest. Typically speaking, at least for a day. Day three, in a perfect world, packed into a box, brought to the airport. Day four, if you're lucky, it's going to fly out. Day five, it gets into Miami. If you're lucky, it shows up on time and agriculture clears it that same day. And then maybe day six, it's ready to be shipped by a trucking company to go anywhere in the U.S. flowers.
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Enter the U.S. by the plane full. They come on freight flights and in the cargo hold of commercial flights. Since the 1960s, Miami International Airport has been the main point of entry for South American flowers. That's where some of the shipments go through customs, where officers check boxes for drugs and bugs.
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They'll check all those pallets that are coming in, and if they find one box of something that has a bug in it, they will hold that whole product. They have to either fumigate them or destroy the boxes.
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Bob Milano says that this system is expensive. Flowers must pass federal United States Department of Agriculture inspections and also state level inspections.
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There's redundancies in there. For example, we'll fly flowers into Miami, they'll clear USDA and Florida inspections. Right. And yet they still need to be reinspected when they enter California, because California's got the requirement to inspect them. So you start talking about increased costs every single time you touch the flowers. It's increasing the cost and it's potentially hurting the quality of the flowers.
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Milano's and OC Wholesale's flowers travel from Miami to California on refrigerated trucks. It typically takes them three days to make the journey.
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So now you're talking about a rose that was harvested nine to 10 days ago. In a perfect world, by the time a wholesaler is going to get it on the west coast, you know, it could be two weeks old by the time a customer can get it.
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To shave off a few days from the timeline, Milano will fly some flowers from South America directly to Los Angeles International Airport.
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The air freight into Los Angeles is more expensive than the air freight into Miami. But then when you add the truck freight from Miami to Los Angeles, it kind of equals itself out. So we've carved out five, six days in that distribution channel.
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Jasmine Gomez Gonzalez says that her company, OC Wholesale, will also fly flowers directly into la, particularly specialty orders they're purchasing at the flower auction in the Netherlands.
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It's consistently moving. The availability is a day to day basis, but the rotation is very quick. Meaning that I can buy product from Holland on a Thursday and I have it here in my warehouse by Sunday morning. They purchase it, they package it, they ship it, they clear it through customs, and I get it in my warehouse in a two and a half day turnover.
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That kind of speed doesn't come cheap. But OC Wholesale's customers are willing to foot the bill.
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Customers that I tend to usually cater to. They're big event customers. These are customers that are doing 40, 50, 60, $120,000. Weddings and events of floral. Big, big people that just. They want Their flowers and they want them quick.
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Regardless of where flowers are coming from, they have to be kept cold through the entire shipping process.
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From the moment that these flowers are cut, they are maintained at a consistent 42 degree coldness from when they're cuts to when they are packaged, to when they go onto the trucks, to when they fly. At every point, everybody along that logistics chain has to be doing their job, making sure they are maintaining that 42 degree weather. If they are not and that cold chain fails, we will know the flowers will mold, the flowers will start to shed, they'll start to be blown open. We keep that consistency by making sure that we have thermometers coming from the farm so we can track the cold chain.
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If the cold chain stays intact during shipping, flowers will arrive at OC wholesale closed, but still very much alive. When their stems are reclipped, they burst into bloom.
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Once that flower is cut and leaves that 42 degree weather, that's when the opening process starts. And they should be able to last a week or two weeks, depending on the product and how it's maintained.
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How long a flower lasts also depends on the flower's freshness, and that varies drastically throughout the industry.
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A lot of people, when they buy bouquet flowers, you know, at the grocery store, they want something fast, easy and cheap that they can go ahead and gift someone and then, you know, call it a day. But we're catering to people that need longevity of florals. They need to make sure the roses are specific head sizes in comparison to what we call the Hershey Kiss roses. At the grocery store. They want something that opens beautiful, they have a high petal count.
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People buy flowers year round. But Valentine's day and Mother's day are the super bowls of the flower industry.
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You're talking about 5xing the overall daily consumption of flowers, and that's a big.
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Strain on the infrastructure that's coming up.
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Every year around Thanksgiving, flower growers begin to prepare their rose plants for the February bloom. Here's Bob Milano.
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D
We're coming into the window of time that the growers will start cutting back their roses, which is referred to as pinching. They cut them back in order to try and bring the production in at Valentine's, which is their heyday, right? 45% of the overall revenue for flower growers is generated in the first quarter through Mother's Day.
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C
A dozen roses at a large grocery chain like Kroger costs around $14. The average cost of a dozen roses from a florist on Valentine's day is over $90. Part of that is flower quality, but a lot of it is due to the increase in demand.
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D
You can end up with a huge spike on the freight cost at the holidays. And when the holidays come, we usually get hit with a 75 cent increase on our kilo rate.
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C
Some companies save money by using sea freight instead of air. This can add 10 to 14 days to the supply chain, making flour shelf life that much shorter.
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D
Sea container freight doesn't really change too much. It's the air freight that changes because you have to charter more planes to move the flours. But typically speaking, you're in the $1.75 to $2 range per kilo into Miami and you're into the 250ish to 275 range into Los Angeles per kilo on a bunch of roses. It adds about $5 a bunch. Roughly.
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C
How do you know as a importer and distributor how much of a certain flower to order? How are you constantly assessing demand and making sure that you're not over buying this product that has a limited lifespan that you could risk maybe not selling through?
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D
If I could answer that question, then we wouldn't have all the problems that we have. It's tough. It's extremely tough. You know, when it comes to a holiday, there's historical data, major holidays in the flower businesses. Valentine's Mother's Day used to be Thanksgiving, Christmas. So we can get statistical information that seems to be pretty reliable on what the supply and demand is, whether it's the retail flower shop channel, the grocery store channel, whatever. It's the day to day part that's very difficult. This past summer was probably one of the slowest summers nationwide for consumption of flowers. We are looking at economic trends and we knew that the summer was going to be slow. How slow? The slowest that we can recollect in many, many years.
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A
We have finally perfected what we call our standing orders. And these are orders that we have with our farms that we get every single week, no matter what, whether it's busy or slow, but we gotta move it. Thankfully now we're at a point where we're going to have about 5% waste on a weekly basis, which is very minimal for working with perishables.
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C
Like any industry middleman, wholesalers make their money by marking up the product they're distributing.
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D
The industry standard for the most part, depending on the area of the country, a wholesaler's margin that they're going to operate on is typically around 35% on up to low 40s, depending on the competitiveness of that market.
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C
But Milano says their costs are going up.
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D
It's not just transportation, it's labor, it's government regulations. You're dealing with labor increases throughout the world. Okay, California labor is just skyrocketed. Right. But at the same token, labor costs in Mexico, labor costs costs in South America, they've also experienced increases.
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Flower prices fluctuate a lot in response to all these inputs. Here's Jasmine Gomez Gonzalez.
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A
We're dealing with so many factors, like Mother Nature. There can be things like tariffs, maybe there is a disease in a greenhouse, and then that means that their supply gets a little bit lessened and the demand is higher. They're going to have to raise their prices a little bit to cover those expenses to make sure that they recuperate the greenhouses.
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C
Tariffs hit the flower industry particularly hard this summer.
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A
Over the summer, we had a big change in the tariffs that affected directly the flowers. We are paying 16.8% tariff costs from Ecuador on roses alone. So by the time that you purchase a bunch of roses at, let's say, seven or eight dollars a bunch, including freight, the cost of product actually is getting here at around maybe 12, $14 a bunch, you know, and that's just all the costs that go into it.
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C
When the flower market went international in the late 20th century, American growers didn't completely leave the market. 20% of flowers in the US market are still domestically grown California grows.
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D
Most of these growers had to give up on certain markets and go after other new or novel items.
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To survive, American growers had to pivot from growing high volume flowers like roses, carnations, hydrangeas and chrysanthemums to specialty blooms.
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A
We have a lot of customers that want the unique textured blooms, and we have a lot of California farms that do that, and they do that very, very well. So we will definitely continue getting those different and unique florals, paying a top dollar for them to make sure that our customers have the variety of floral that they're looking for to get them to stand out.
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D
And.
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C
But in recent years, rising labor costs and water scarcity have put pressure on the California farms.
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D
In California, what's happening is growers are making those decisions to get out because it's not as profitable as it used to be or even profitable at all. And we saw this coming 15, 20 years ago. So it's not a surprise. The largest growers in South America are buying up the smaller growers.
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C
Many see California land as better suited for another industry.
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A
In the past 10 years, one big industry that kind of blew up in California was the marijuana industry. So a lot of farms said, we're not going to be growing flowers anymore, we're going to be growing marijuana.
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C
But there is some good news for those in the industry.
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D
We are seeing increased demand for flowers, and the younger generation is valuing flowers, unlike the older generation is. So that's a really good thing to see. The new generation is wanting to buy local flowers, which is good to some extent for us domestic producers. So, you know, it's just going to continue to change.
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C
And Jasmine Gomez Gonzalez hopes to pass on her family business to the next generation.
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A
I have two young babies. They are very young, but I bring my Ezekiel to work. He washes buckets. He's helping where he thinks he can. So maybe one day. You never know.
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C
For the economics of everyday things, I'm Zachary Crockett.
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This episode was produced by Morgan Levy and Sarah Lilly and mixed by Jeremy Johnston. We had help from Daniel Moritz Rabson and Dalvin Abuadaji, and thanks to listeners Wes Khadijah, Misty Locke and Brent Dahl for suggesting this topic. All right, until next week.
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You would think I would have flowers consistently in my house, and I don't.
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C
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