Joseph Olanyo
13 May 2008
Kampala — High production costs and stagnant prices on the international market may soon push flower investors into alternative investments as the sector continues to register declining exports and revenue for the third consecutive year running.
The investors say that while the cost of production is going up every other day, international flower prices have remained stagnant.
The incompatible situation has sent alarm bells to investors in the sector. In what would probably bring an end to the once blossoming industry, some of the investors are contemplating turning their flower farms into real estate business.
"The consumers in Europe are pushing business down because they are not paying us more for the products. We are not going to continue like this," said businessman Mr Sudhir Ruparelia who owns Rosebud Uganda Ltd, the biggest flower farm located on Entebbe Road.
Mr Ruparelia, also the chairman of Ruparelia Group, contends that if things don't change in the short run, then he will have no other option but to turn the flower farms into a housing project.
"We look into putting a housing complex for low and medium income and slowly as the flower business dies, this will absorb all the farms," Mr Sudhir said.
"The dynamics of the present world has changed so we have to change with the dynamics. We are waiting to see from next year (2009), but the long term prospect of Rosebud after clearing with NEMA is to put up housing and we shall absorb workers to develop it".
Ugandan exporters are paid between Euro 7 cents to Euro 8 cent per stem of 50 centimeters. But the investors contend that the same flowers are reportedly being sold three times what they are offered. These are the same prices registered in the last few years.
UFEA Executive Director Juliet Musoke admits that the situation will affect the sector, which employs about 6,000 people and has been generating an annual income of about $30 million (Shs50 billion).
"We will lose all this if the industry collapses. The scenario right now is that every input that goes into the flower sector farms has increased," Ms Musoke said.
Businessman Gordon Wavamuuno who owns Victoria Flowers is also not a happy man. Mr Wavamuuno contends that the government and the European Union (EU) should negotiate good flower prices if the sector is to continue adding value to the economy.
"If I reach a stage where I can not pay my staff and chemicals, I will close," Mr Wavamuuno said.
Mr Wavamuuno says buyers in Europe are exploiting them and reaping from where they had not sown.
"You can not grow flowers and somebody is selling three times what you are offered. We are just living for survival on flowers. Those who are in fish processing get big money," he said.
Mr John Rutten, the managing director of Fiduga, another flower farm says electricity crisis, high freight prices and delays in getting materials for irrigation and fertilizers from abroad through Mombasa is affecting his flower business.
Mr Rutten, also Secretary UFEA, says despite the challenges, maintaining good quality of products is what is making him remain in the market.
"Things are not easy. The government is aware of our problems, but nothing has been done since," Mr Rutten said.
Asked whether he would switch to other alternatives investments when the situation does not normalise, Mr Rutten said: "Not at the moment. We will see how those factors I mentioned develop."
The government's 10 - year tax holiday to all sectors of the economy and tax waivers on all capital investments like machinery does not seem to help the sector come out of the agony.
The Managing Director United States Agency for International Development (Usaid) funded Agricultural Productivity Enhancement Programme (APEP) USAID/APEP Mr Clive Drew, said increases in electricity cost, which seem to stay; transport costs as a result of the world energy situation have dealt a blow on the production costs.
"It's true prices have stayed relatively stagnant and yet input costs have doubled for most of agro-chemicals like fertilizers," Mr Drew said.
"No matter how efficient the farmers are, there is already a cost squeeze as the industry continues to operate at a very light margin".
Until last year (December 31, 2007) Usaid through APEP was funding Uganda's flower sector since 2004. The sectors was receiving a financial support $200,000 on average annually for technical support to UFEA and flower trials. But the funding is no more.
The sector's misery has further been compounded by lack of capacity to help them negotiate for reasonable freight costs. Uganda unlike neighbouring Kenya can not generate enough flowers to fill a cargo airline.
The Financial Manager Fresh Handling Ltd (FHL) Entebbe Mr M.S Reddy says freight costs for one kilogramme of flower cuttings from Entebbe to European destinations now range between $2.15 to $2.50 depending on the carrier and destination. Still exporters have no option but to pay the escalating bill.
Prior to the surge, freight cost used to be at $1.30 per kilogramme.
While Uganda flower exporters have to pay a lofty $2.50 for a kilogram of flowers, their major competitors in Ethiopia and Kenya, pay $1.6 and $1.8 respectively per kilogram of flowers to the same destination in Europe.
This has made Uganda's flowers less competitive than those of its rivals hence hurting the sector and economy generally.
As a result, Uganda has become less attractive to new investors with some farmers previously operating from Uganda relocating to Ethiopia where conditions are more attractive because of the incentives offered there.
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