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Home Field Trips Rural Life and Agriculture Tour Vulnerability to Market Conditions

Non-Traditional Farm - Lusaka

Vulnerability to Market Conditions

Next issue - The Global Cut Flower Market >>

Small firms such as Mtumbe's have little control over the market into which he sells. As would be the case in a perfectly competitive market he is very much a price taker. His roses are sent to the Dutch flower auctions where they are sold to European flower distributors. The European market is a very competitive one with considerable competition from European and African growers, both within and outside Zambia.

If Mtumbe is to sell his roses in Europe he must produce at a competitive price. He is a high cost producer. He produces on a small scale and is not able to benefit from many of the internal economies of scale that larger floriculturalists could. He has to export his roses by air to Europe. The cost of auction and air freight are considerable as are the cost of capital and the chemical fertilisers and pesticides need to ensure good yields. Many of these costs depend upon the exchange rate of the Kwatcha as many of the inputs rely on visible and invisible imports. If the exchange rate of the Kwatcha falls the costs of these imported inputs increase.

Non Traditional Agriculture

Having little control over many of the costs of the inputs means that he is vulnerable to a number of external shocks such as changes in the cost of aeroplane fuel, the introduction of protectionist measures from overseas governments and foreign exchange rate fluctuations. All of these can increase his costs.

At present the farm is just breaking even if Mtumbe is to remain in business he needs to reduce his costs. This he plans to do by expanding his operations by increasing the size of the farm to four hectares.

In addition he has no influence over the market demand for roses. If the demand for roses in Germany (the largest importer of cut flowers) falls, as might happen if the German economy experienced a recession, the market price will fall. The success of his business is very much dependent on the economic performance of the consuming nations.

Next issue - The Global Cut Flower Market >>

Related Glossary Items:
Protectionism
Exchange rate
Devaluation
Recession

Related issues:
The global cut flower market

Related Theories:
The economic effects of a devaluation
Economies of scale and commercial farming
Internal economies of scale
Perfect competition