How Sian Flowers Aims to Create a Low-Carbon Rose Flashcards
Hosted by Brian Kenny, this episode focuses on a case my colleague Willy Shih and I wrote about Sian Flowers, a company based in Kenya that grows and exports roses globally. You’ll hear how Sian Flowers is tackling supply chain challenges to reduce its costs and cut its carbon emissions to try to make a “low-carbon rose.”
80% of the cut flowers sold in the United States are imported from other countries. In Europe, that number’s closer to 90%. With global sales at around $35 billion a year, that’s a whole lot of flowers being shuttled from place to place to place, leaving a very large carbon footprint in its wake.
The central theme of this case is really, as you said, the carbon footprint in a supply chain. Professor Toffel and I were organizing to teach a class on de-carbonization and sustainable production.
25/10/23
20/02/24
And we identify this opportunity to look at one of these supply chains where our intuition tells us, “Gee, that has to have a pretty heavy carbon footprint because they grow flowers in Kenya and ship them by air.” So that was the original motivation, and we knew that this company was looking at how do we perhaps lower our carbon footprint by going to ocean shipping. So we open the class by asking students in our first-year Operations class to do a comparison of the carbon footprint of these two different modalities of transport.
What I find exciting about this case is we often talk about the carbon footprint of supply chains, but it’s rare when you can actually get the data and look at all the steps and do a calculation of what the carbon footprint should be. So that was what I think was unique about this case, the ability to actually do the math, run the numbers.
Pippa Armerding who runs our Africa Research Center came to see me, and I was looking for a case like this. I knew that there were a lot of imported flowers from Africa, Kenya in particular, flowing into the European market. So I told Pippa, “Find me a flower grower in Kenya that we could do a case.”
Describe, if you could, the horticulture industry in Kenya. Kenya is actually uniquely suited for horticulture, flowers in particular, because number one it’s an equatorial location which means they get a lot of daylight for most of the year. Second, it’s warmer, so you don’t have to use greenhouses necessarily, especially as you would find in colder climates during the winter. Now, the other thing that’s unique about Kenya is the flower growing regions, they discovered the equatorial high altitude regions are particularly well suited because you get more UV light which leads to deeper colors in the flowers. That’s why places like Kenya, Ethiopia, Colombia, have really become major growers of flowers for the rest of the world.
I’m trying to imagine, how long does a flower live once you’ve cut it at its stem? A lot of that depends on how you handle them afterwards. If you grow flowers locally, say in a greenhouse and cut them, typically the vase life as it’s talked about in the industry might be as good as 14 days. That includes doing things like quickly putting the stem in water, chilling it in the florist until you actually want to put it in display. Vase life is one of those parameters that consumers and florists find very important. Now, when you are shipping things from farther away, that means you need to take special handling precautions. How do you prepare the flowers for shipment? What are the conditions under which you ship them? And how fast can you do it? Because every day that you’re spending in transit, that’s taking at least a day away from the vase life. Then if you have poorer handling conditions like higher temperatures, then it will accelerate the degradation.
We’ll talk a little bit about the buying process. Where are all these flowers going once they leave Kenya?
The big flower markets are Europe, which if you talk to retailers there, they talk about the flower culture, the display of fresh flowers that is very common in businesses and in homes. So the European market for Kenya is a major market for flowers. The US market is the second-largest market, but then also you have markets like Japan and China who also have a very strong flower culture, a lot of floral displays. But for Kenya, Europe is the largest market. For places like Colombia, the US is really the largest market.
You were together in the Netherlands recently actually as part of an HBS program where groups of students go abroad and they get to visit with companies and see industry close up. What did you glean there? Obviously this is the epicenter of where the buying and selling happens.
So we organized a new course for second-year students where we were going to expose them to a variety of decarbonization and sustainable production opportunities going on both in Denmark and the Netherlands. That was the one of the original impetus for writing this case, was for that course, for that elective, because we’re going to the Netherlands, we’re going to Denmark. Let’s showcase some of the products and industries that they’ll see. So in preparation for that trip, we knew we were going to be exploring the flower industry in the Netherlands. We thought, let’s not only think about how the production goes in places like in the Netherlands, but also the shipping and the importation from places like Kenya.
About 40% of the world’s cut flowers are exchanged at this auction in the Netherlands.
So we learned a lot about flowers in the process of writing this case. Spray roses have 5-12 buds per stem versus the single long-stem roses that we think about maybe as the classic single bud. They run four farms in Kenya. They have 170 hectares altogether across these farms. They’re about 2,500 people. And the operation really looks like other farming operations in the sense that there’s open fields. Sometimes they have canopies on top to shield from some of the sun, but this is all pretty low- capital intensive agricultural practices with individuals going out there and caring for the flowers, hand-picking the flowers, and then getting them ready on trucks to ship them to the airport to onto the seaport for outbound shipping.
The first step after you cut them is you have to chill them to remove a lot of the field heat. So as soon as they’re cut, they rush them into a walk-in refrigerator, a chiller, to try to get them to a lower temperature before they will do things like cut them for packaging and do the actual packaging. So the key is removing heat as quickly as possible.
Once you package them, then the whole end-to-end transportation segment, what you’d like to do is you’d like to maintain as low a temperature as possible. In the case of cut roses, you’d like to maintain it as close as possible to 1 degree C. So there’s a lot of focus on maintaining what we refer to as a cold chain. In other words, as I hand it off from link to link in that supply chain, I want to preserve that temperature as best as I can.
The carbon footprint is pretty high as you would expect, because air transportation is significantly higher in terms of how much you can move per ton of cargo, how much carbon you generate compared to any kind of ground transport. The key is to think about the ratio of 665 grams of CO2 per ton kilometer by air transport, versus 8 grams of CO2 per ton kilometer by ocean, so it’s about 80x.
The big difference is you’re gliding on the ocean. You’ve got huge economies of scale with ocean freight. You’re not lifting it up off the ground. And the proportion of mass that is, back to economies of scale, that is product versus fuel is a very different story in an aircraft from an ocean liner. So there’s lots of reasons why shipping by ocean is far more environmentally friendly from a carbon perspective than shipping by air. Of course, rail and road fit in between this continuum, rail also very efficient about 4-5 times less efficient than oceans, but still hundreds plus times more efficient than air, about 200 times more efficient than air.
But air has certainly one big advantage. Speed. We know that freshness matters. We know that keeping the cold chain going matters a lot. Seems like it would be a lot easier to do that on a plane. Air is a lot faster, but you have a lot of handoffs. So for example, when you think about shipping a truckload of flowers from one of the Sian farms to Nairobi Airport, then you have the handoff to the air freight forwarder.
For example, when you think about shipping a truckload of flowers from one of the Sian farms to Nairobi Airport, then you have the handoff to the air freight forwarder. So they will try to preserve the cold chain there. But they’ll pre-chill the flowers. But then when they pallet-ize them to load them onto the plane and they have to take them onto the tarmac, what they try to do is they try to do it late at night or early morning hours, so the temperature hasn’t gotten too high. But still, you’re getting exposure to the higher temperatures.
As I said, the flowers like to be carried at 1 degree C. But the cargo planes are also carrying other things like fruits and vegetables, and a lot of those might like to be carried at 10 degrees C, or they might like to be carried at a higher temperature. So the aircraft are typically balanced at some interim temperature. The flight time is about 10 hours, I think. So it’s not particularly long, but still 10 hours is a good part of a day where you’re going to be carrying it at an elevated temperature. So you are going to get some of that degradation. Then similarly, on the receiving end when you have to go through the customs inspection and things like that, a lot of that isn’t held at the super low temperature as well. So you will get some of that degradation.
What might be a surprise is when you go to containerized shipping by ocean, one of the things that Sian and other flower merchants have been trying to develop has been, can we control the atmosphere in the container? So if what I can do is box all the flowers, say at the farm in the ideal case, seal it up, scrub all the gases out of the container that accelerate aging, then maybe I can have a much longer holding time. That’s what the case talks about in terms of experiments to improve that holding during the long transit. The transit might take as long as 30 days. So it’s really quite a nifty trick if you can make the flowers seem fresh when they get to the Netherlands after 30 days. That, of course, is also one of those perceptual issues that Sian has to overcome. Because a lot of people say, “How can these be fresh if they’ve been in transit 30 days?”
The trick is to keep the temperature down and to keep variability around that temperature down as well with all of these exchanges. It turns out, and you also have to continue to evacuate the ethylene that’s off-gassing from the flowers so that you retard the ripening in a sense, the ripening process. If you can get both of those down, the risk or the challenge is, can we still have seven days of vase life left after we sell it at market?
What’s motivating Sian to do this? Why did they even decide that they wanted to try this? The big motivation was during the pandemic, air cargo costs went up dramatically. So they already were having trouble with being cost competitive because the cost of air cargo is relatively high as a percentage of the wholesale price. So there was cost. The other challenge was even getting air cargo space when they needed it during peak seasons like Valentine’s Day or Mother’s Day. So between cost and availability, they said, “We have to find some other, better way of doing this.”
So it’s not an environmental motivation. Now, the question is if they’re successful with these experiments of shipping by ocean, which by the way have some cost advantages as well, can we parlay that into a willingness to pay? So can we not only overcome folks fear that these won’t last seven days? Can we overcome that with data and evidence? But then further, is there a market for a reduced carbon impact rose? And it’s not clear. That is actually a live question right now, especially when you think, well, is it consistent to offer a flower that’s claiming to be low carbon if it comes from halfway around the world?
The fact is that businesses probably won’t be motivated by altruism to do the right thing. They’ll be motivated because there’s a good business rationale for it, and they still can make the revenue that they need to make.
Absolutely. I think there’s a cost question. Just to go back, there’s an availability. Can we get more quantity on the market during these peak periods through ocean perhaps instead of or supplementing their air transport? Can we then do it at a lower cost, which then might make us either more … We could lower our prices a bit, or maybe we could get that in margins. Then also, can we think about the willingness to pay? So none of this is really about altruism at all.
So people listening might be wondering what I am, which is, why not just grow the flowers locally? When we used to grow things locally, there was seasonality at the grocery store. You’d get berries in the summer, not year round. You’d get potatoes and apples when there aren’t berries. We’ve moved to an expectation of year-round availability.
This means is you either import from locations where they produce these products outdoors, or you have to construct an environment that simulates the outdoors when the climate isn’t conducive. That means greenhouse farming which turns out to require energy for heating and for lighting. So you could do it. In fact, there are farms that produce cut flowers in the Netherlands. We visited one on this trip with our students, and they have just a different set of challenges.
I think it represents challenges, but it also represents opportunities. Because if what they can do is preserve the vase life of these flowers for longer and they can hold them in controlled-atmosphere shipping containers for longer, in a funny way, it actually gives them more flexibility, potentially, for example, the opportunity to even out their growing. As they were handling things in the past when they shipped by air, that meant there was a very narrow window during which they had to harvest their flowers and get them into air transport. I think developing these new technologies for shipping flowers long distances and holding them, if they can overcome the consumer perception that being a month old means they’re necessarily not as fresh actually represents an opportunity for them.
It also makes me wonder, does this represent a marketing opportunity? We know that people care a lot about buying products from companies that they feel are doing the right thing. Could they parlay this into a marketing opportunity to say, “Hey, we’re doing our best to cut down on our carbon footprint?”
This is the question of whether they can get preferential access to markets and maybe even price premiums. Typically when you buy flowers, you’re buying them without really brand identity. You’re either buying it from a florist or you’re buying it from a grocery. You may or may not ever notice where those flowers are from. They may not be labeled in a way that’s very easy to discern.
This reminds me a little bit of the Starbucks question about whether they should offer fair trade coffee, because there’s a risk. It makes the other coffee seem unfairly traded. So here too, if you start distinguishing yourself as low carbon, maybe it casts a pall on the rest of your products that those are high carbon. So there are some interesting broader questions about willingness to pay, and also what does it do to your brand?
I’m wondering if there’s one thing you want listeners to remember about the Sian Flowers case, what would it be?
I think the thing I would want people to remember is that when you look at products and recognize that there’s a supply chain behind them, that means inevitably there’s a carbon footprint associated with that as well. Now, it takes a more careful analysis as to which is better, because sometimes your local circumstances and your distance circumstances might be quite different. So you really need to do the math and careful consideration of the steps and their impacts before rushing to judgment.
I’ll add that we added this to our core operations course at HBS called Technology and Operations Management in the supply chain module, because a growing number of companies do need to really think about carbon footprint in their products and supply chains. The nice thing about this case is it breaks it down so that it makes it much more approachable. You hear about this idea of carbon footprints. It sounds daunting, but with the right data, you can get pretty close approximations to your carbon footprint. To geek out a bit for a minute on how to think about carbon footprinting, often you’ll think about these three scopes, scope 1 and 2 which have to do with onsite operations and the electricity you draw. Then, scope 3 is the supply chain and everything else.
What’s interesting here is that really we’re thinking about this from a supply chain context, from a Kenya flower company that then ships to Amsterdam markets onto customer sites. A lot of the impact there is the transportation piece, which is where we focus on. But if you’re a company that produces flowers, as you mentioned, locally, sometimes the carbon footprint is less so in the transportation and more so in the production, like keeping the greenhouse warm. The idea of scope 1, 2, 3, it varies by company even within the same industry.
