Lifestyle Horticulture Significance of the Economic Value

Swedish Garden of EXPO 2014 is going to hold in Qingdao, China. The full name of this EXPO is 2014 Qingdao International Horticulture Exhibiton.

After addressing the economic importance of Lifestyle Horticulture in the United States in last month’s issue, the purpose of this article is to extrapolate findings from the US study and generate plausible estimates of what economic values might be worldwide.

by John J. Haydu and Jim Phillips

The significance of the US study (summarised in the FCI December 2008 issue) is that it documented for the first time the economic contribution of Lifestyle Horticulture (LH) – a “non-traditional” agricultural industry – at the national level. In the USA “traditional” food and fibre commodities have been covered extensively since the early 1900s by the US Department of Agriculture (USDA). Conversely, LH “specialty crops” have been overlooked or ignored – largely because it was not until the early 1970s that this industry became prominent. Today LH represents the fastest growing sector in US agriculture, increasing at roughly US$500 million annually. 
Most countries of the world, including industrialized or “developed” economies have been in a similar situation to the US regarding information on LH. Some western European countries do have statistics on the more well-known sectors of LH – such as cut flowers – but lack the comprehensive coverage needed to encompass the entire industry. In this sense, the US study was indeed groundbreaking because it encompassed twelve major LH sectors over the entire country. But this study is important for a second reason – it provides the basis to develop a rough measure of what the economic value of LH might be at the global level. An initial reaction to this might be – so what? Who really cares about the global significance of a particular industry? The answer lies in four very important and inter-related variables – population growth, economic growth, finite resources and environmental impacts.
Our current global population is approximately 6.6 billion people. The United Nation estimates it will continue to grow until it reaches 10-11 billion people, sometime around the turn of the next century. Population growth is important because it places increased pressures on scarce resources, particularly land, water and energy. Most of these resources are finite yet industries and countries rely on them for economic growth. Moreover, as economies expand they place additional pressures on an already fragile eco-system. As resources diminish and negative environmental impacts grow, industries and countries are being held accountable for their actions. The current heated debate on global warming is a case in point (no pun intended!). Increasingly local, regional and national governments are scrutinizing the use of these resources through the analytical lens of benefits and cost. One obvious “benefit-cost” measure is economic – for each unit of scarce resource used, how much is returned to society in terms of economic gain? As noted above, the economic contribution of LH is not documented in most countries and, if it is, the analyses are usually incomplete. The point is, industries that have rigorously established their economic contribution will be in a stronger position to preserve their use of these scare resources in the future.

Methodology
Several approaches were used to develop global estimates of LH based on results of the US study. First, population figures and Gross Domestic Product (GDP1) were obtained from World Bank sources and from additional analyses conducted by the USDA. The USDA grouped countries by region, sub-regions, and individually. Second, using GDP and population figures, per capita GDP estimates were calculated for regions and sub-regions and for the leading, developed economies. Third, sub-regions and countries were ranked from highest-to-lowest based on size of their per capita GDP. Seven income range categories were then created in even increments, starting with a low of $5,000 per capita to more than $30,000 per capita (left column, Table 1). Once these ranges were established, LH indices were developed based on results of the US study. 

1. GDP is an estimate of a country’s gross economic output from all goods and services produced in a given year.

In the US, the economic value of LH represented approximately 1% of GDP. A logical assumption was made that higher income countries would spend more on LH amenities than lower income countries. In other words, people residing in low income countries must spend a larger share of their total income on basic necessities like food, clothing and shelter. The LH indices are shown in the far right column of Table 1. This index represents the percent of GDP that is spent on LH goods and services. The richest countries would spend the most (1% of GDP) while the poorest countries would spend the least (1/10th of 1%).

Economic value
Three levels of analysis were used to estimate the value of LH based on the data available – a global analysis, a regional analysis, and a country level analysis. The first level provides a “broad brushstroke” of total LH impacts worldwide. The second offers more detail by presenting results for the seven major regions in the world. The third level probes deeper and provides analyses of selected countries. 
The first level of analysis is a global estimate of economic impact and is simply the sum of all seven regions (bottom right hand column, Table 2). Note that the table includes columns for both region-level GDP and per capita GDP, stated in US dollars for the year 2000. The table also includes the LH Index (LHI) – the category that each region falls into based on per capita GDP, and finally the total economic impact presented in adjusted 2008 US dollars. Based on the methodology used in this analysis, total global economic impacts for LH are $287.6 billion (Bn). To put this value in perspective, in a list of the world’s 170+ countries’ GDPs, LH would be ranked between 27th and 28th, putting it in the top 15%. This underscores its economic importance and places it competitively with many other industries.
Moving to a regional perspective, North America ($154.8 Bn) and Europe ($96.9 Bn) stand out at the top of the seven regions accounting for 87.8% of total global LH economic impacts. Asia and Oceania represent a second-tier contribution at $28.6 Bn, followed by Latin America ($4.1 Bn), the Middle East ($1.4 Bn), Africa ($1.0 Bn) and the former Soviet Union ($0.7 Bn) (Table 2). The third level of analysis provides data at the country level (see Figure 1).

Concluding comment
Several points should be emphasized regarding this research. First, even though the level of this research is cursory, it is an important first step at quantifying the potential economic impact of LH at the global level. Second, it is also evident that LH represents a large, vibrant and complex industry around the globe, but it is also one that is highly correlated with a country’s economic well-being. Simply stated, higher income countries can afford to pay for the many benefits associated with LH, whereas poorer countries cannot. Third, although the approach used in this study was practical, simple and defensible, it is clear that it does not substitute for the rigorous economic approach that was used in the US study. Finally, the US study and this one have focused entirely on the economic benefits of LH, but have not addressed other equally important contributions, such as the numerous recreational and passive amenities associated with this industry. This also needs to be done, but the first step is to address the more practical and measurable economic characteristic as this will be of greatest interest to governments when they weigh benefits against the costs imposed by the many industries using increasingly scarce resources.

John Haydu is former Professor of Agricultural Economics at the University of Florida and current Senior Partner with Jim Phillips of Planet First Resources, Inc. Email: This email address is being protected from spambots. You need JavaScript enabled to view it.  or This email address is being protected from spambots. You need JavaScript enabled to view it. ;This email address is being protected from spambots. You need JavaScript enabled to view it. . http://planetfirstresources.com/.

Table 1. Information used to develop the Lifestyle Horticulture Index (LHI).

Per capita GDP class Regions/ Countries LHI
 <$5 k  24  0.001
 $5 k - $10 k  8  0.002
 $10 k - $15 k  1  0.004
 $15 k - $20 k  4  0.006
 $20 k - $25 k  2  0.008
 $25 k - $30 k  1  0.009
 >$30 k  4  0.01

Table 2. GDP, GDP per capita and economic impact of Lifestyle Horticulture, by region.

Region GDP by region
(Bn $) (2000)
GDP per capita
(2000)
LHI LH Impact
(Mn $) (2008)
 North America  12,410  37,099  0.01  154,824
 Latin America  2,605  4,758  0.001  4,108
 Europe  10,109  19,208  0.006  96,945
 Russian Federation  561  2,019  0.001  700
 Asia & Oceania  11,232  3,038  0.001  28,645
 Middle East  1,139  4,317  0.001  1,421
 Africa  807  864  0.001  1,007
 World  38,866  5,884  0.002  287,652

The primary purpose of this exercise is to put Lifestyle Horticulture “on the map” by enhancing public awareness of the abundant economic, environmental and amenity-based benefits the industry provides to societies around the world. Calculations are based on some rather large assumptions, underscoring the fact that this approach is no substitute for rigorous, bona fide studies. 

Figure 1. Value of Lifestyle Horticulture, by country. 
A country level analysis is confined to the “top 14” in terms of LH economic impact. Countries chosen were not arbitrary but represent a higher economic tier for their region and represent a cross-section of the seven global regions. This selective approach relates to the earlier assumption that a country’s LH investments are strongly correlated with national income.
Due primarily to its large economy, the US is first with LH economic impacts of $129 Bn, followed by Japan ($64.8 Bn), Germany ($23.2 Bn), United Kingdom ($19.3 Bn), Canada ($10.7 Bn), Australia ($4.8 Bn) and Switzerland ($3.3 Bn). Combined, these seven countries comprise 89% of total global economic impacts for LH. As in the case of the top-tier countries, the remaining seven also represent a cross section of regions from around the globe. The first is led by Hong Kong with $2.85 Bn in economic impacts, followed by the United Arab Emirates ($1.44 Bn), Israel ($1.39 Bn), Singapore ($1.36 Bn), Brazil ($0.92 Bn), Argentina ($0.91 Bn), and New Zealand ($0.49 Bn). Combined, these seven countries account for an additional 3% of economic impacts. Therefore, the 14 top countries account for 92% of world economic impacts for Lifestyle Horticulture.

 

US ($129 Bn)
Japan ($64.8 Bn)
Germany ($23.2 Bn)
United Kingdom ($19.3 Bn)
Canada ($10.7 Bn)
Australia ($4.8 Bn)
Switzerland ($3.3 Bn)
Hong Kong ($2.85 Bn)
United Arab Emirates ($1.44 Bn)
Israel ($1.39 Bn)
Singapore ($1.36 Bn)
Brazil ($0.92 Bn)
Argentina ($0.91 Bn)
New Zealand ($0.49 Bn)

Resource: http://www.floracultureinternational.com/index.php?option=com_content&task=view&id=839&Itemid=205&ed=46

Additional information