Kampala — THE once-blooming Ugandan fresh flower exports are withering due to crippling transport costs, a lack of new investors and the global economic downturn.

Hard currency inflows from agricultural exports including coffee, cotton and flowers are an important source of foreign exchange for the economy and support for the shilling.

The country produced 6,700 tonnes of flowers worth $34m last year, and the Uganda Flower Exporters Association (UFEA) expects output in 2009 to be flat or to decline slightly.

Flower export earnings peaked at $35m in 2005 but declined to $27m in 2006.

"The flower business in Uganda has become disappointing," Juliet Musoke, the EFEA executive director, said.

"Demand has remained terribly down since the credit crisis began at the end of last year, and when you add the high cost of fuel and airfreight, the margins drop to a very low level."

Uganda basks in a year-round tropical climate that makes production cheaper than growing in heated European greenhouses, meaning it should be well placed to serve markets in the West, as well as growing markets in the Middle East, Russia and China.

Five years ago, industry players forecast that sales could double in three years with the right government support.

They have long complained that they are being hindered by high transport costs and interest rates on loans, which is vital because setting up a modern flower farm costs at least $1m (about sh2b).

Given the tough environment, Musoke said, the sector had seen no new investors in the last six years.

Instead, some growers were scaling back their operations and one major player, Victoria Flowers, had closed.

In 2006, Rosebud and Victoria flowers farms were devastated by hailstorms that destroyed 40 hectares, causing a 22% drop in the annual earnings of the sector. The two farms accounted for 15% of the export tonnage and value.

"I decided to close the farm because I was not earning any money," said Gordon Wavamunno, a prominent businessman and the owner of the defunct Victoria Flowers.

"The Government has not given us adequate support and I decided to cut my losses," Wavamunno added.

Uganda boasts 20 flower farms covering 300 acres, mainly in the central region, and the sector employs about 6,500 people.

Most of its exports are bought by European Union member states.

Apart from transport costs and lack of access to affordable loans, the big problem for growers is unreliable power.

The country suffers from chronically insufficient electricity supply, much of which is now generated by expensive diesel-fuelled plants, meaning tariffs have risen too.

"Electricity is prohibitively expensive in Uganda," said John Rutten, the managing director of Fiduga Flowers Ltd.

"We use a lot of fuel to power generators and the price for diesel is too high.

"What worsens the situation is that we have to transport our inputs over a long distance through Kenya," he explained in an interview.

Neighbouring Tanzania and Rwanda also want to develop their exports, seeking to emulate the success of regional leader Kenya, which earned $980.7m from horticultural exports in 2008, more than half of which came from flowers.

Ethiopia is in second place, earning $178m last year from flowers.

The impact of the economic crisis has hit the multi-million-dollar floricultural industry, precipitating the worst for the nearly-15 year export earner. The industry players also complain of lack of incentives and high freight charges.

The situation has been worsened by the current global meltdown, which has pushed down the flower prices on the international market.

With reduced credit, flower sales have dropped as the tightening of purse strings mean everyday necessities take precedence. The shift has sent prices plummeting to between 30 and 50% since September 2008.

"The crisis has exacerbated negative trends, sending demand for flowers into a steeper downward spiral. Prices are dropping and (we) exporters are locked in constant price negotiations with the European buyers," said one exporter.

He added that most of the growers have empty green houses due to lack of demand and are lying off staff to keep afloat.

"We desperately need the Government's intervention," he said.

The growers propose that the Government grants them the incentives it promised three years ago. The UFEA had asked the Government for land, exemption from double taxation of profits, improved cold storage facilities, infrastructure, subsidised airfreight charges and access to long- term financing.

UFEA was granted the 10-year holiday on income tax and tax incentive from double taxation of profits. With flowers being a luxury product and therefore, a vulnerable commodity in times of recession, there is a substantial impact of the credit crunch on the horticultural sector.

The most important reason for the decrease of consumption is the loss of income as a result, a decline in the demand.

Experts, however, hope that the industry will bloom again as people wish to have their houses decorated.

"The commodity is still essential in the life cycle because events like funerals, birthdays and weddings can not go without flowers," they argued.

Flower export earnings for 2007 touched $35m from 6559 tonnes, up by $5m from the $27m in 2006; in 2005 ,$35m was registered from 7500 tonnes able weather that ravaged farms, lowering export volumes.The export volumes slumped to 6,868 tonnes from 7,500.

Juliet Musoke, the UFEA executive director, cited lack of new investments, high power and production costs as hindrances to Uganda's competitiveness in the European markets.

"Apart from the economic and financial crisis, our competitiveness on the global market is hindered by high production and transportation costs. The over $80m (about sh16b) industry once employed over 12,000 local workers.

However, over 1,600 jobs have reportedly been lost due to the increased costs that are forcing some growers out of business.

Despite the fall in export earnings and lack of new investors, stakeholders are optimistic about the industry's future.

"Our strategic plan was to expand the production area to 350 hectares, which would fetch us at least $44m and create employment for 1,000 people. The success of this plan depended on the private-public partnership with the Government but red tape in public offices killed the plan," Musoke said.

The rise in commodity prices in 2008 left a strain on the cost of farm input, while the surge in oil prices experienced last year, put an upward pressure on fertiliser and air freight.

Growers explained that though oil prices dropped from the $150 level per barrel in 2008 to between $50 and $60, the resultant higher operating costs have lessened the industry's ability to live through the period of low sales and prices.

"Flowers are getting more expensive to ship and even harder to sell, while production costs continue to rise. The drop in oil prices has not helped reduced transportation or agricultural input charges."