CASE 4: The Ecuadorean Rose Industry

1. What is the basis of Ecuador’s comparative advantage in the production of roses?

Ecuador’s comparative advantage in the production of roses is based firstly on its environmental conditions which provide ideal growing conditions for roses nearly all through the year (intense sunlight, fertile volcanic soil, equatorial location with high altitude). Secondly Ecuador profits from a relatively low wage level which allows companies to yield a higher return on the export of roses. Ecuador’s development over the last 20 years can be well explained with Ricardo’s theory of comparative advantages. Following Ricardo’s theory countries should specialize on the production of the goods they can produce most efficiently. Since the start of the rose industry 20 years ago it has been expanding quickly to be Ecuador fifth largest export and even the fourth largest producer of the world. This success is hence also dependent on low trade barriers as much as low to no import tariffs.

2. Most Ecuadorean roses are sold in the United States or Europe. Who in these countries benefits from the importation of Ecuadorean roses, and how do they benefit? Who loses? Do you think the benefits outweigh the costs?

There are multiple agents who are effected of the importation of Ecuadorean roses. Firstly rich consumers of roses in Europe and the US profit from Ecuador importing roses. Ecuador’s roses appear to be especially nice offering a wide range of unusually vibrant colors. As the case implies the Ecuadorean roses are sold for premium prices referring to them as the new “Rolls-Royce of roses”. Consequently importing companies will gain a lot. They are producing these roses relatively cheap and efficient almost all year long in Ecuador and then can transport them also very cheaply to their target markets. On the other hand former suppliers of