Wait, roses cost how much?
Economics by any other name would smell as sweet
If you went out in search of flowers this past weekend and were surprised at the price tag, you likely weren’t alone. If someone had asked me whether I thought flower prices would be cheaper this year due to the pandemic, I’m not sure I would have been able to give a solid prediction. My initial prediction would have been cheaper flowers in 2021 because fewer people are actively dating, which would decrease the demand for flowers. My prediction would have been wrong.
Flower prices this year are actually a tad bit higher than last year, driven by a pandemic supply shock and an unexpected demand increase. NPR’s The Indicator put out a brief podcast over the weekend detailing the supply and demand shocks impacting the flower industry leading up to Valentine’s Day. The podcast covered the flower industry earlier in the pandemic, but they were curious about how Valentine’s Day would impact the industry.
In my principles of microeconomics course, Valentine’s Day is a good example of an increase in demand based on preferences. For this particular weekend, demand increases, which increases the price of the product. Some people may opt for a pack of beer instead, but most know that flowers are an important component of the holiday.
So if the normal prediction is that flower prices increase on Valentine’s Day weekend, how would the pandemic be different? When the pandemic started, borders were closed and countries went into lockdown. Demand for fresh flowers plummeted. Flowers are an important part of Valentine’s day, but the big buyers of flowers are hotels, weddings, and corporations looking to decorate their offices. With people unable to travel and a lot of companies opting to work from home, that demand drop was quick.
The flower trade itself is an interesting lesson in how the invisible hand coordinates economic activity. In April 2020, Bloomberg looked at the potential impact on the Dutch flower auctions. The Royal FloraHolland cooperative in Aalsmeer, Netherlands operates one of the largest warehouses in Europe. This particular facility is about the same size as 75 soccer fields. Krisztina Konczos captured this colorful photo and many others.
The flowers are sold through a Dutch auction system, which starts at a high price and then falls as time ticks down from a clock on the wall. The first buyer to indicate their interest wins the auction. An average day (before the pandemic) could see more than 100,000 transactions, many of which would result in the flowers being spread across Europe before the end of the next day. Bloomberg estimated that 40% of the world’s flowers pass through this particular auction house. Here is another of Krisztina Konczos’s photos that shows the auction room:
The pandemic abruptly crashed the flower market. Spring and summer weddings were canceled while entire countries enacted lockdowns or ordered the closure of non-essential businesses. All of a sudden, the demand for flowers came to a halt. Rose prices fell to 8 cents per stem, down 70% from the previous year. Estimated losses come to about $2 billion as crates upon crates of flowers were destroyed.
This seems like the setup for a Valentine’s Day holiday with the lowest prices on record, but there has been an interesting turn of events regarding the demand side of the market. Many growers adjusted their plantings to account for changes in the market, but they didn’t anticipate a new surge in demand. It only takes between 40 and 60 days to produce a rose in a greenhouse depending on the time of year and the rose variety. That means growers had about a 2-month window to estimate the demand for Valentine’s Day, their busiest day of the year.
So what happened? There has been a marked uptick in two plant-related markets beyond single-stem roses. With people spending more time at home than usual, there has been an increase in the demand for house plants. Some of this may be to impress people on Zoom/Skype calls, but people are realizing that working from home may be here for a while longer. The second increase that surprised growers was an increase in the demand for bouquets. Because people are unable to travel to meet friends and family, they’re sending more bouquets than before.
So what’s the end result for flowers? Covid caused a decrease in supply early in the pandemic that the supply chain is still trying to work through. A simultaneous increase in the demand for flowers and house plants caused rose prices to increase as well. The combination means that a dozen roses likely cost you more this past weekend than they did 53 weeks ago unless you opted for chocolates instead.
Facts and Figures You Didn’t Know You Wanted
California is responsible for 74% of the total production value of cut flowers within the US ($242 million in 2019) [USDA]
Between January 31 and February 6 of this year, the US imported 72,392,000 roses and 22,822,00 million rose bouquets [USDA]
Based on data from 2016, Americans spend an average of $149 on wine and $148 on sugar/sweets throughout the year [BLS]
The median salary for a floral designer in 2019 was $28,040 [BLS]
If you enjoyed this post, invite your friends to join!