cut flowers and EU export markets

Cut-flower sector             by Mwangi Mumero

Kenya’s floriculture sub-sector continues to grow earning the country over US$ 1 billion annually and employing over 500,000 directly and another 1 million indirectly.

A number of challenges however are impeding the full blooming of this sub-sector and its contribution to the national economy.

According to the Kenya Flower Council (KFC), the horticulture sub-sector contributed 3 per of the national GDP with 1.6 per cent coming from the cut flowers.

Data from the Kenyan Economic Survey 2013 indicates that the cut flower sector earned the country Ksh 65 billion ($ 813 million) in 2012 up from Ksh 58.8 billion ($ 735 million) in 2011.

The country is the lead exporter of cut flowers to the EU controlling 38 per cent of the market share.

Of the exports, 65 per cent are sold through Dutch auction for re-export, 25 percent to the United Kingdom with Japan, US, Russia, France and Germany taking up the  rest.

 According to horticulture validated report 2012 the main cut flowers grown in Kenya are roses  at 53.6 per cent, Easter lilies at 26.5 per cent, Arabicum at 4.1 per cent,  carnations at 3.1 per cent and Hypericum at1.98 per cent.

 “Kenya supplied 55 per cent of the flowers sold at the Netherland’s auctions and 40 per cent of the produce in the EU, placing it in a unique market position”, observed Dick Raamsdonk, the president of HPP of Netherlands, a flower event organizer.

To streamline this lucrative sub-sector, Kenya is implementing the National Compliance Mechanism by the end of 2015. This will help flower growers and exporters meet stringent rules of the importing nations.

This code of conduct will also improve labour practices and environmental conservation efforts in the sub-sector.

The Netherland Government has contributed US $ 400,000 towards this programme that will require all flower growers to institute internal quality control audits. 
Kenya has also been working to access the US markets directly providing an alternative outlet for horticultural exports.
Currently, there are no direct flights from the Jomo Kenyatta International Airport (JKIA) to the US making it impossible to export flowers to that huge market.
 “We are still negotiating for direct flights to the US to reduce cost of exportation. Currently, we have to access the US market through the EU - creating logistical problems and increasing costs”, said Dr Alfred Serem, the Horticultural Crop Development Authority (HCDA), the industry regulator.
Access to the lucrative US market is expected to cushion Kenyan growers from shocks brought about by the Euro crisis as well as fluctuations in the EU’s low season.
The main cut-flower production areas are around Lake Naivasha, Mt. Kenya, Nairobi, Thika, Kiambu, Athi River, Kajiado, Kitale, Nakuru, Kericho, Nyandarua, Trans Nzoia, Uasin Gishu and Eastern Kenya.
This wide geographical distribution of the flower growing regions has increased its economic impact to local communities, alleviating poverty in many parts of the country.
Even with the phenomenal growth of the cut-flower industry, teething challenges hamper its full exploitation.
Among these bottlenecks are stringent export conditions, taxation, high cost of inputs and increasing competition from regional nations of Ethiopia, Rwanda and Tanzania.
Consequently, logistical costs and packaging demanded by flower buyers in the export markets have slowly eaten into the farmers’ margins, according to industry players.
To cushion themselves, growers have been advised to change their marketing strategies to be able to compete and increase earnings from flower products.

“Growers should form marketing firms and team up with exporters. This will give better returns compared with what they are getting through the Dutch auction exports”, observed Mrs. Jane Ngige, the chief executive council Kenya Flower Council.

But it is the imposing of a 16 per cent VAT on agricultural inputs, services and equipment that is worrying flower farmers.
“Increased cost of agricultural inputs will make our products uncompetitive as buyers seek cheaper alternatives. It will also lead to Kenya-based farmers to move to other markets due to the high cost of doing business”, lamented Mr. Stephen Mbiti, the CEO of the Fresh Produce Exporter Association of Kenya (FPEAK), the industry lobby.
Mrs Ngige, the Kenya Flower Council CEO adds that the issue is compounded by the delayed VAT refunds by the tax collector.

“The Kenya Revenue Authority (KRA) is fast in charging VAT but slow to process refunds on zero-rated items. Our cash flow is affected”, she said.

High cost of credit is also another challenge hampering farmers as local bank interest rates head to 20 per cent.

While the Kenya’s Central Bank Rate has come down to a low of 11 per cent, commercial banks continue to charge 15- 20 percent interest on loans - slowing the uptake of credit for investment in agriculture and other sectors.

Speaking in a recent occasion, Kenya’s Agriculture Cabinet Secretary Felix Kosgey said the government has laid plans that would boost the horticultural sector.

“We will partner with financial institutions both government and commercial banks to ensure easy and affordable loans for farmers in the country”, he observed.

Emergence of Ethiopia and Rwanda as flower producers is also creating industry jitters in Kenya. While the cut-flower sector in the two East African countries is at its infancy, it is expected to eat into the Kenyan pie in the near future.

“Kenya will soon face stiff competition from Ethiopia in the export of flowers to the Middle East. We now have many links to the European countries and the Middle East”, observed Mr. Mikyas Bekele Woldeyes, a field officer with Ethiopian Horticultural Producers and Exporters Association which represent 80 flowers farmers in the country.

He was attending a flower event in Nairobi aiming at widening his contacts and markets for the flower farmers in Ethiopia.

But there is a sign of relief with the anticipated signing of the Economic Partnership Agreement (EPA) between the European Union and the East African Community (EAC) before the 2014 deadline.

An EAC ministerial session in Arusha agreed to remove sticky issues such as exports taxes and clauses in agriculture.

The EU has also softened its hardline stance on a controversial demand for reciprocal treatment by African States, provided they do not give preferential treatment to China and the US.

“The negotiations for a comprehensive trade pact are 97 per cent complete. We hope they will be concluded before the 2014 deadline so that Kenya produce does not attract any import duty unlike those of its key competitors in Latin America”, said Mrs Ngige of the KFC.

During a visit to Kenya in August 2013, EU Trade Commissioner Karel De Gucht said both groups had settled most the issues, paving way for the comprehensive EPA after years of intensive negotiations for a World Trade Organisation (WTO) compatible trade regime. (ends)