VZCZCXRO0294
RR RUEHCN RUEHGH
DE RUEHIN #1722/01 1390717
ZNR UUUUU ZZH
R 190717Z MAY 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 0255
RUEHRC/USDA FAS WASHDC 2541
INFO RUEHBJ/AMEMBASSY BEIJING 5218
RUEHHK/AMCONSUL HONG KONG 6427
RUEHGH/AMCONSUL SHANGHAI 0146
RUEHGZ/AMCONSUL GUANGZHOU 9331
RUEHSH/AMCONSUL SHENYANG 5228
RUEHCN/AMCONSUL CHENGDU 1264

UNCLAS SECTION 01 OF 03 TAIPEI 001722 
 
SIPDIS 
 
SIPDIS 
 
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DEPT PASS TO AIT/W 
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E.O. 12958: N/A 
TAGS: EAGR ETRD ECON TW CH
SUBJECT: ORCHIDS AS TAIWAN'S STRATEGIC INDUSTRY 
 
 
¶1.  Summary.  Orchid production has recently become a 
strategic focal point in Taiwan's agricultural economy and 
addresses Taiwan's focus to incorporate high-tech research 
into agricultural production.  Orchid exports to the U.S. 
currently accounts for 30% of total export production. 
Trade opportunities with the U.S. were enhanced in 2004 
when Taiwan and U.S. agricultural officials agreed to a new 
shipping protocol for orchid exports entering the U.S. 
Market potential for Taiwan orchids is strong but remains 
vulnerable to a number of challenges, including trademark 
and property rights protection, streamlining the supply- 
chain, and increasing competition from China.  End summary. 
 
========================== 
TAIWAN FOCUSES ON ORCHIDS 
========================== 
¶2.  Taiwan is a global leader in the USD 2 billion orchid 
industry, producing one quarter of the world's orchids.  In 
order to diversify its agricultural exports and increase 
farm revenue, Taiwan authorities have devoted money, land, 
and other government resources to fuel development of its 
orchid industry.  Although the benefit of floral sales is 
less than the high-tech industry, Taiwan authorities are 
treating the orchid industry as one of the Taiwan's 
strategic industries.  Moreover, Taiwan aspires to make 
itself synonymous with orchid production in the same way 
the Dutch have with tulip production. 
 
===================== 
ORCHID'S SWEET START 
===================== 
¶3.  Taisugar, a state-owned enterprise and one of Taiwan's 
largest landowners, has driven development of Taiwan's 
orchid market since the 1980s.  Committing its resources to 
research and development, Taisugar has been instrumental in 
initiating exports of Taiwan orchids around the world, 
producing sturdy and attractive varieties for export. 
Currently, as the largest exporter of orchids in Taiwan, 
Taisugar is responsible for over 6% of total orchid exports 
to the U.S. Altogether, the industry has 10 large producers 
and more than 300 Taiwan horticulture companies 
specializing in orchids.  Taisugar has stepped back from 
being the innovator and turned into a mass producer, 
allowing private orchid producers to take the lead in 
research and development. 
 
============================ 
SENDING ORCHIDS TO THE WORLD 
============================ 
¶4.  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 export variety is the 
Phalaenopsis representing 90% of both the volume and the 
revenue of orchid exports to the U.S.  Most orchids are 
exported in seedling form stored in flasks.  These flasks 
are shipped to wholesale nurseries abroad for nurturing 
until maturity for retail sale.  The 2004 agreement between 
U.S. and Taiwan that allows the shipment of potted orchids 
in mixed media means orchids can be shipped directly for 
distribution with less damage and attrition.  It is 
expected that this agreement will greatly facilitate 
Taiwan's orchid exports to the United States. Since the 
first shipment in early 2005, Taiwan has exported 
approximately USD 1.8 million worth of potted orchids. 
 
¶5.  However, the majority of Taiwan orchids are still 
exported to Japan.  Orchids for Japanese consumers 
represent 35% of production, U.S. represent 30%; while the 
EU represents 15% of the overall export market.  Orchid 
producers have been looking for more efficient distribution 
channels.  In the U.S., plans are underway for Taiwan 
growers to set up their own wholesale and distribution 
networks.  When U.S. business license and land use permits 
are approved, Taiwan growers will begin building their own 
nurseries using land purchased in New Jersey for east coast 
distribution.  Taiwan is researching import compliance 
procedures that would allow direct access to EU countries 
instead of going through the Dutch flower auctions, 
capitalizing on a more cost-advantageous supply 
distribution chain. 
 
=========== 
 
TAIPEI 00001722  002 OF 003 
 
 
Why Taiwan? 
=========== 
¶6.  A number of factors underlay Taiwan's 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, including biotechnology.  Taiwan's climate and 
expertise in producing orchids have resulted in a low 
seedling to bloom production time of 4 to 18 months, while 
competitor producers take up to 30 months.  Taiwan has 
access to modern gene transplantation technology which 
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 A HELPING HAND FROM COUNCIL OF AGRICULTURE 
============================================= == 
¶7.  With government assistance through grants from the 
National Science Foundation and low-interest loans through 
the Council of Agriculture (COA), the private sector is 
replacing Taisugar as the main researcher and developer of 
new orchid technology.  A representative from 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. 
 
¶8.  In 2005, after 14 years of construction and 
coordination with 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.  The zone will 
eventually cover 200 hectares of land devoted to creating a 
seamless supply chain for orchid export that includes land 
for farming, and research facilities. A nearby exhibition 
hall provides an export, marketing, and distribution 
center.  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 Taiwan orchids using 
TOP's production-to-market facilities. 
 
¶9.  This year, during TOP's second stage of development, 
about 35 hectares have been leased and developed for orchid 
production with participation from 25 private sector farms. 
The exhibition hall of TOP holds an annual orchid show 
every spring featuring orchid varieties produced in Taiwan. 
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. 
 
========================================== 
NEXT CHALLENGES: SUSTAINING AND PROTECTING 
========================================== 
¶10.  Although production 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 cachet.  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. 
 
¶11.  Further complicating the future direction Taiwan's 
orchid industry are patent issues.  Support mechanisms are 
slowly coming to fruition for orchid farmers to patent new 
cultivating methods.  But farmers have not been quick to 
 
TAIPEI 00001722  003 OF 003 
 
 
patent their technology and are vulnerable to losing 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, introduction, 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. 
 
¶12. More troubling for Taiwan is competition from China. 
The biggest threat most Taiwan orchid farmers see from 
China is cheaper production, massive orchid output 
potential, and theft of agriculture technology.  According 
to the COA, China is currently offering perks such as rent 
discounts and electricity allowances to attract local 
Taiwan flower growers to move orchid production and Taiwan- 
developed technology to the mainland. 
 
¶13. Considering the challenges, the Taiwan orchid industry 
still has room for expansion in EU and U.S. markets.  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.  END 
COMMENT. 
 
YOUNG