Kenya's Flower Industry Can Retain Its Global Lustre

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(file photo)
30 October 2019

Last year, a CNN report hailed Kenya's flowers as some of the best in the world, describing with relish the "boldest shades of roses, from a glossy red to a bright yellow and even a vivid pink".

The report attributed the country's flower power to Kenya's sunny climate, which enables high quality blossoms to be grown all year round without the need for expensive greenhouses, and the country's "excellent transport links to Europe, and from there, the rest of the world".

Today, the industry is in turmoil, threatening to tear off the lustre that brought the country Sh113 billion in 2018 and indirectly employed more than 500,000 people.

Last week, Finlays Kenya said it would close its two flower farms in Kericho County by Christmas, citing stiff competition and the increasing cost of doing business.

DECREASING DEMAND

Finlays General Manager Stephen Scott cited decreasing demand in the European market, staggering labour costs, unfavourable weather conditions and weakening exchange rates as the reasons for closing the farms.

"It is no secret that in the last 18 months, the flower industry has been facing severe challenges. As a result, the directors have made the decision to close Chemirei and Tarakwet farms earlier than initially communicated," Mr Scott said. The company had planned to close them down next year.

The development dampened the hopes of 2,000 employees and industry players, who say the effects will be devastating to the local economy.

"I don't know how that area will look like in eight months or a year later. The shops, the schools and the people there. It is not merely the question of numbers laid off," said Mary Kinyua, a director at Oserian, a leading flower farm, and vice-chairperson of the Fairtrade International Board, an agency that helps producers in developing countries achieve better trading conditions.

"It has been long in coming. Kenyans should not be surprised. The high cost of production, oppressive taxes and bureaucratic hurdles are weighing down the industry."

Last year, the procurement of fertiliser was marred by corruption reports, delaying imports of the input for months.

"This industry is a key employer. It brings foreign exchange and sells Brand Kenya. Are we ready to look at it as a subsidy? It is time we began that conversation," she said.

VALUE ADDED TAX

At the centre of the industry woes is delayed reimbursement of value added tax, which stands at Sh6 billion, having accumulated since 2013.

"One company is owed as much as Sh800 million in VAT reimbursements. We cannot expand in this kind of environment," Kenya Flower Council chief executive Clement Tulezi said.

Devolution has also squeezed the firms between the county and national government administration, which are imposing multiple regulations, taxes and fees.

"A flower grower now pays up to 42 levies," Mr Tulezi said, warning that the coming into force of the proposed 2019 Crops (Food Crops) Regulations and the 2019 Crops (Horticulture Crops) Regulations would further burden the industry with more taxes and bureaucratic gridlock.

The draft rules seek to introduce a movement tax, which industry players oppose as there are already similar levies affecting agricultural products.

They include cess tax imposed by devolved governments and branding, outdoor advertising, distribution, offloading and landing taxes.

The overlapping roles and the several charges raise the cost of doing business and are an administrative burden on the industry.

The council has challenged some of the levies in courts in Meru, Kajiado and Kiambu counties.

The government also imposes a 2.5 per cent Free on Board cess on growers from which it makes approximately Sh650 million every year.

Industry players say any more levies would see more exits, leading to Kenya's unemployment crisis growing worse.

They want support from the government "rather than coming in only for taxes".

Naivasha is the bedrock of the industry in the country and critics say the deplorable state of the 36 kilometre Moi South Lake Road, which leads to most of the farms, is symptomatic of neglect by the government.

INFRASTRUCTURE

Other infrastructure related challenges exporters cite are closer access to the cold room at the airport and reduced freight charges, which experts say are higher than in comparable economies.

Cut-throat competition from new entrants like Ethiopia has also meant that Kenya's traditional clients now have options.

Industry players want the government to start negotiations with Britain, which accounts for about Sh20 billion worth of Kenyan flower sales, before the Brexit deadline.

They add that the consequences would be devastating if the UK crashes out without a deal.

Already, Kenya has reached a "verbal" deal to continue trading with Britain under preferential terms even after the UK's exit from the European Union.

Industry players, however, fear that such an arrangement is shaky.

Under the deal, the UK has committed to provide duty-free, quota-free access to imported Kenyan goods.

What complicates the Kenyan dilemma is that East African Community member states are navigating a rough terrain of stalled Economic Partnership Agreements (EPAs) with the EU, after Tanzania, Uganda and Burundi refused to sign it. They are classified as Least Developed Countries, which grants them duty-free, quota-free arrangements.

The latest hurdles to hit the flower industry are the stringent rules introduced by Australia, a key emerging market now valued at Sh3 billion. The country requires zero pest tolerance on imports.

This has prompted Kenyan firms to invest heavily in fumigation to keep the market they control 50 per cent.

FLOWE FESTIVAL

Landing restrictions at Schiphol Airport in the Netherlands -- the main gateway to the European market -- is also denting the local flower industry.

Agriculture Principal Secretary Hamadi Boga says the government is open to dialogue with the flower industry stakeholders.

"The most important thing is to continue talking. There are always opportunities to engage," he said without providing details.

Other players like Kenya Flower Festival Marketing and Communications Director Rosemary Kimunya believe the country's carnations can still flourish if more aggressive international selling is complemented by exploiting the local market.

She organised the first ever flower festival in the country at the Lord Erroll gourmet restaurant in Nairobi last week.

But it will take more than this for the industry to flower again and take its hallowed place in the world.

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