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Trade jitters, high costs result in flat earnings from EA flower sector

Saturday February 15 2014
flowa

A worker harvests roses at a flower farm in Kenya. Earnings from the sector have been flat. Photo/FILE

East Africa’s cut-flower industry posted flat earnings in 2013 as high production costs and competition took their toll.

New data shows that depressed export demand has dealt a heavy blow to the European market, which is a prime destination for flowers from the region.

The flat earnings in the flower industry were as a result of high production costs, uncertainty over the EAC’s trade talks with European Union and growing competition from Ethiopia and India, industry players said.

The delayed deal on Economic Partnership Agreements (EPAs), which seek to create a preferential reciprocatory trade arrangement between the EAC and the EU, has halted expansion plans for horticultural farming as investors await the outcome.

READ: EAC-EU trade deal talks hit obstacles

Kenya’s flower sector could suffer losses if the issue of taxes and duty on exports is not solved by the end of October.

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ALSO READ: Scarce tax forms halt Kenya flower exports

Unlike the other EAC states, Kenya is not listed as a Least Developed Country and as such its products attract a tax rate of up 16 per cent on exports to the EU. Another ministerial meeting is expected to be held by March on how to solve outstanding issues.

Other key export commodities like coffee are expected to post better returns in the first half of this year, as coffee prices at the Nairobi exchange rise in the wake of a drop in supply from Brazil — the world’s biggest producer.

The dry spell in Brazil’s coffee growing belt has raised fears of a global shortage of the commodity, in part helping reverse a slump in prices that had dropped to five-year low a few months ago.

Last year, a production surplus drove international coffee prices below the costs of production, according to data from the International Coffee Organisation (ICO).

The glut in the international market translated to low returns on investment. ICO data indicates that Brazil is expecting to harvest 49.15 million bags, 3.3 per cent lower than last year’s output. There are mixed prospects from other major coffee exporters.

READ: Kenya forex earnings plummet on drops in tea, coffee prices

Little change in earnings

Data from the Kenya Flower Council shows that the country exported 115,000 tonnes of flowers worth $482.3 million as of November 2013. 

KFC chief executive Jane Ngige said full-year earnings are likely to close at $491.4million — the same amount earned in 2012 from 120,000 tonnes of flowers.

“We expect very little change in our earnings as growers hold back on expansion pending the outcome of the EAC-EU EPAs, and the impact of devolution on the cost of doing business,” Ms Ngige said.

Uganda hopes to earn $37.2 million from exporting about 6,773 tonnes of flowers in 2013, up from $36.3 million earned from 6, 444 tonnes in 2012. This represents a marginal 1.4 per cent growth in value and 4.7 per cent growth in volume.

Uganda Flower Exporters Association executive director Juliet Musoke told The EastAfrican that the increase in demand for the country’s flowers locally could have contributed to the lower than expected export earnings.

In Rwanda, officials at the National Agricultural Export Board say the country’s horticulture exports, with flowers representing only a small percentage, increased over the past seven years — from $1.16 million in 2006 to $10.2 million last year.

Rwanda hopes to make $22.8 million from horticulture next year as envisaged in the country’s Economic Development and Poverty Reduction Strategy.

NAEB director-general George William Kayonga said Rwanda plans to increase its flower exports this year through the construction of the Gishwati Flower Park in Kayonza in eastern Rwanda.

READ: Rwanda woos private sector to boost flower industry

With expansion of the area under flowers, and introduction of high-value varieties, Rwanda aims to produce 54 million stems per year. The country currently produces 1.4 million stems of summer flowers per year.

Tanzania Horticultural Association (Taha) executive director Jacqueline Mkindi said vegetables registered the biggest gain in both quantity exported and earnings. Horticulture earned the country $375 million in 2013, up from a similar period in 2012, where the industry earned $350 million.

Mussa Mvungi, CEO of horticultural export firm Home Veg, said although they expect to increase exports in 2014, business could be disrupted by an increase in electricity prices.

“The overhead costs have soared by 40 per cent and we have a full-year contract with European customers to supply the green beans and other products, meaning that we cannot change price of our products,” Mr Mvungi said.

Last month, EAC and EU delegations meeting in Brussels for talks on EPAs failed to reach an agreement on how to levy export taxes on goods destined to Europe and the most favoured nation (MFN) clause.

The MFN clause would bar signatories of the EPAs from entering into bilateral talks with other trade partners in areas where the EU does not enjoy preferential terms.

Kenya’s coffee exports will drop by three per cent in the 2013/14 season because of the relatively low global prices, according to Isabella Nkonge, the Coffee Board of Kenya’s acting managing director.

Earnings will be $208.4 million, down from the previous season’s earnings of $214.2 million.

Kenya Tea Development Agency chairman Peter Kanyago said tea farmers must be prepared for lower earnings this year as prices dropped by nearly 30 per cent.

“The prices are stabilising, but may not go high enough to compensate for the massive drop in prices experienced between June and December last year,” he said.

Additional reporting by Steve Mbogo and Adam Ihucha

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