Voluntary Report - public distribution

**Date:** 2006/4/27

**GAIN Report Number:** TW6011

TW6011

**Taiwan**

**Market Development Reports**

**Market Update on Taiwan Orchid Exports to U.S.**

**2006**

**Approved by:**

![](media/image1.wmf)Alan Hallman

AgTaipei

**Prepared by:**

P. Thao Hong

**Report Highlights:**

Orchid production has recently become a strategic focal point in
Taiwan's agricultural economy, partly in an effort to diversify Taiwan
exports. About 30% of total orchid exports from Taiwan are shipped for
U.S. markets. Trade opportunities with the U.S. were enhanced in 2004
when APHIS approved entry of orchids in potted media shipments. While
the export market potential for Taiwan orchids is strong, it remains
vulnerable to a number of challenges, including trademark and property
rights protection, streamlining the supply-chain, and increasing
competition from China. In spite of these challenges, Taiwan is the
leader in the orchid industry.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Taipei \[TW1\]

\[TW\]

**Current Taiwan Orchid Exports to U.S.**

The value of Taiwan orchid exports to the US has surged since its
accession to the WTO in 2001. Exports of orchids to the U.S. increased
11% from 2001 to 2002, peaking to a high of over \$8 million in 2002.
Since this initial rise, the Taiwan orchid market has not seen nor
sustained this dynamic growth. Export revenue to the U.S. actually fell
12% the following year in 2003. Orchid revenues increased 22% in 2005,
reaching a record high of over \$9 million.

![](media/image2.wmf){width="4.761805555555555in"
height="3.1145833333333335in"}

Orchid export volumes have seen similar fluctuations. The Taiwan orchid
market saw a 41.6% surge in exports to the U.S. in 2002, from 308
thousand metric tons to over 437 thousand metric tons. The following
year in 2003 this figure dipped 5.7%. Exports did not recover until
2005, when they reached a record high of over half a million metric
tons, surpassing 2002 levels by over 100 thousand metric tons.

![](media/image3.wmf){width="4.895833333333333in"
height="3.2493055555555554in"}

With the exception of 2002, changes in price and volume have been
relatively consistent. In 2002, high export growth rates paired with
lower revenue indicate that a high volume of orchids were sold in the
U.S. markets at relatively lower prices. Unit prices fell in 2002 to
2003, stabilizing at a new lower level.

![](media/image4.wmf){width="4.874305555555556in"
height="3.3541666666666665in"}

USDA approval of orchids in growing media contributed to increased
volumes in 2005. Currently 29 greenhouses have been APHIS approved to
ship Phalaenopsis, or moth orchids with growing media to the U.S. From
the first shipments in early 2005 to February 2006, the top 6, out of a
total of 12, growers have generated more than \$1.5 million USD in
revenue. More than 400 thousand plants in potted media were shipped to
the U.S. A source from the Taiwan Orchid Growers\' Association indicated
that since the USDA approval, business to the U.S. began with a lag in
waiting for greenhouse approval, but is forecast to increase.

![](media/image5.wmf){width="4.871527777777778in"
height="3.313888888888889in"}

**Export Outlook for Taiwan Orchids to U.S.**

It is estimated that orchid exports to the U.S., which currently account
for 30% of orchid export production in Taiwan, will continue to grow in
the short term, and may increase dramatically if distribution channels
improve and logistics cost fall. The measured growth is affected by
supply-chain distribution challenges, the natural lag in response to new
USDA regulations (greenhouse certification export requirements), or
competition from Chinese and local U.S. growers.

Improvement to orchid distribution channels can affect export volume to
the U.S. Most orchids exported from Taiwan to the U.S. are first shipped
wholesale to a partner nursery located in the U.S., grown to maturity,
and then distributed to the retailer. Taiwan growers are trying to
establish a more economically efficient supply chain where the grower
has more control. Plans are underway for growers to be their own
wholesalers and distributors in the U.S. With approval for U.S. business
license and land use, growers will begin building their own nurseries.
This year, Taiwan orchid producers are applying for permission to
purchase land in New Jersey to build a network of nurseries for east
coast distribution.

Changes in export regulations can further affect export volume to the
U.S. USDA approval in 2004 of potted orchids in growing media
contributed to the surge in volume and revenue witnessed in 2005.
However, it is still difficult to forecast Taiwan orchid exports to the
U.S. In addition to changes in export regulations, growth in orchid
exports depend on many factors including supply chain development,
direct-marketing expansion, and increased competition from China.
However, if all other things are equal, orchid exports from Taiwan to
the U.S. are expected to increase.

**The Taiwan Orchid Industry**

As a leader in the USD \$2 billion orchid industry, Taiwan produces one
quarter of the world's orchids. In order to diversify exports, Taiwan
authorities have devoted money, land, and other government resources to
fuel development of its orchid industry. By combining sales and tourism,
orchid production has become one of Taiwan's cash crop industries.
Moreover, Taiwan aspires to make itself synonymous with orchid
production as the Dutch have with tulip production.

Since the late 1980s, the Taiwan orchid market has been mainly led by
Taisugar, a state-owned-enterprise that owns a majority of Taiwan
sugarcane plantations. As a way to diversify its revenue away from
sugar, Taisugar used its massive land holdings to plant orchids that
could feed domestic, Japanese, and international demand. Committing its
resources to research and development, Taisugar has been instrumental in
initiating exports of Taiwan orchids around the world, producing
varieties of sturdy and attractive orchids for export. Currently, as the
largest exporter of orchids in Taiwan, Taisugar is responsible for over
6% of orchid exports to the U.S. in an industry where there are 10 large
producers and more than 300 Taiwan horticulture companies specializing
in orchids.

Total land area devoted to orchid production in Taiwan is about 460
hectares with an annual export value estimated at \$61.9 million. The
main crop for production is the Phalaenopsis, representing 90% of both
the volume and the revenue of orchid exports to the U.S.

Shipment of orchids for export can come in three forms: seedlings, live
plants, or fresh cut. Even with the development of orchid technology,
shipping mature orchids is problematic and can cause stress on the
plant. With recent approval for shipment of potted orchids in mixed
media, orchids can be shipped directly for distribution with less damage
and attrition. As Taiwan is waiting for more countries to approve the
shipment of potted orchids, most export of orchids is in the form of
seedlings stored in flasks. These flasks are shipped to wholesale
nurseries abroad for nurturing until maturity for retail sale. There is
a growing trend for major orchid producers to ship the seedlings to
their own wholesale nurseries for distribution.

Orchids for Japanese consumers represent 35% of production; while the EU
represents 15% of the overall export market. Taiwan orchids have long
had access to the Japanese market. The orchid exports destined for
Europe are first sent in seedling form to the Netherlands' wholesale
market and are then distributed across Europe. Taiwan is researching
import compliance procedures that would allow direct access to the EU
countries instead of going through the Dutch flower auctions,
capitalizing on a more cost-advantageous supply distribution chain.

![](media/image6.wmf){width="4.938194444444444in"
height="3.3784722222222223in"}

**Why Taiwan**

Many measures factor into why Taiwan has a comparative advantage in
orchid production. Production costs, especially labor, are low compared
to other orchid producers in the world. Estimated monthly salary for
greenhouse workers is \$600 a month, about 1/3 of the cost of similar
labor in the U.S. Taiwan authorities are supporting research through
funding in grants, production infrastructure, and research labs. As a
result, orchid researchers in Taiwan have been at the forefront of
orchid technology. Considering that orchids are difficult flowers to
grow and, in other places, can take up to 30 months to bloom, Taiwan's
climate and expertise in producing orchids have resulted in a low
seedling to bloom production time of 4 to 18 months, depending on the
variety. Taiwan has access to modern gene transplantation technology
that accelerates the process of nurturing new varieties, and could allow
for mass production of once rare and expensive orchids that consumers
rarely had access to.

With government assistance, like grants from the National Science
Foundation and low-interest loans, the private sector is replacing
Taisugar to become the main researcher and developer of new orchid
technology. A representative from Council of Agriculture (COA) claimed
that the COA will fully assist orchid farmers to overcome any financial
difficulties in their funding needs for greenhouse infrastructure and
research. Orchid farmers have access to government-backed 10-year loans
at 2% interest to build greenhouses. While at the same time, an
estimated total of \$150 million will be spent on an orchid
biotechnology zone.

In 2005 after 6 years of construction from 1991 to 1997, followed by 8
years of coordination between local farmers, Taisugar (the land-owners),
county authorities (organizers), and the COA, Taiwan completed initial
development of its first orchid biotechnology zone called the Taiwan
Orchid Plantation (TOP) in southern Taiwan's Tainan County. Planned in 5
phases, the zone will ultimately cover 200 hectares of land devoted to
creating a seamless supply chain for orchid export that includes land
for farming, research facilities, exhibition hall composed of an export,
marketing, and distribution center. This project's main goal is to
provide access to orchid production for local farmers, breeders, and
research institutions, thereby building a step ladder for local
production to supply the world market. Interested production parties can
inexpensively lease a plot of land, rent a ready-built greenhouse or
take out a government loan to build their own greenhouses while
international buyers can easily access the Taiwan orchid market using
TOP's "one-stop shopping" facilities.

This year during TOP's second stage of development, about 35 hectares
have been leased and developed for orchid production that includes
participation from 25 private sector farms. The exhibition hall of TOP
holds an annual orchid show featuring orchid varieties produced in
Taiwan every spring. According to exhibition organizers, there was
moderate participation from international buyers in the annual orchid
show this year, but local turn out for the first few days was more than
four thousand people, making the exhibition a promising tourism
destination.

**Challenges Ahead**

Although statistics show Taiwan is a key global producer of orchids, the
Taiwan orchid industry is under-patronized by world-wide professional
and hobby growers' societies, revealing the challenges in positioning
the product globally. Some may believe that because Taiwan has been able
to produce orchids for the masses, Taiwan is causing the flower to lose
its cache. With easy access to the export market through TOP,
established growers in Taiwan are concerned about the flood of new
farmers entering the market, further compromising the quality and
reputation for Taiwan orchid production.

Further complicating the future direction of the Taiwan orchid market
are patent issues and increased competition from China. Farmers have not
been quick to patent their technology and may lose their comparative
advantage in orchid production. New species piracy is rampant due to the
lag between floral species development and legal protection in Taiwan.
The amended Plant Variety and Plant Seed Act, implemented in 2005, has
reinforced control over the development, ushering in, use and
specification of species. This act connects Taiwan growers with
international specifications and helps local flower growers apply for
intellectual property (IP) rights for new plant species. More troubling
for Taiwan is competition from China. Despite the mentioned constraints,
the biggest threat most Taiwan orchid farmers see is cheaper production
and massive orchid output potential from China. According to the COA,
China is currently offering perks such as rent discounts and an
electricity allowance to attract local Taiwan flower growers to move
orchid production and technology to the mainland.

The Taiwan orchid industry still has room for expansion in the EU and
U.S. Due to its comparative advantage in cost, research, and government
support, Taiwan has all the desirable tools to remain the largest
producer of orchids in the world.