The flower sector is at a crossroads due to spiralling production costs and delays in concluding a key trade deal. A possibility of flower growers and exporters earning less this year emerged after negotiations to have them exempted from paying extra taxes under the European Partnership Agreement (EPA) failed to materialise.
The irony of the demands is that county governments on their part have failed to explain the nature of services flower growers benefit from the levies. “Embracing ICT at national and county levels means number of taxes will reduce,” Ngige said. The sub-sector is subjected to 45 different taxes.
This is in addition to the nightmare of high cost of production flower farm owners have had to endure. “Absence of the EPA deal means flowers exported to the European Union (EU) market will be subjected to higher taxes. Profit margins will nosedive,” said Kenya Flower Council Chief Executive Officer (KFC), Jane Ngige, adding: “Energy, value added tax labour and farm inputs costs have been on the rise.”
Ngige estimated this year’s flower production at between 115,000 and 120,000 tonnes compared to last year’s 121,000 tonnes that earned the county Sh4 billion in foreign exchange. Signing of the EPA agreement would have led to flower producers access to the EU market duty and quota free. It now means the industry is faced with the prospect of having a penalty of up to 12 per cent duty.
Despite these hurdles, Global Industry Analyst report says Kenya is the second largest exporter of flowers in the world after Colombia. Kenya is also the second largest horticulture exporter in sub-Saharan Africa after South Africa, and the largest supplier of flowers to the European Union.
Pundits say several other East African nations like Ethiopian and Tanzania are already following the footsteps of Kenya. In the last five years, the Ethiopian floriculture industry has become the second largest flower exporter in Africa after Kenya. One quarter of Kenyan exports are absorbed by the EU market. This represents more than Sh100 billion a year.
Several factors made Kenya attractive for growing flowers — educated labour force, suitable climate conditions and proximity to Europe’s big markets. There are currently more than 300 active exporters of floricultural products to the EU, with total capital investment being more than $800 million (Sh68 billion). The area under commercial floriculture is more than 2,000 hectares.
Main production areas in Kenya are around Lake Naivasha, Mount Kenya, Nairobi, Thika, Kiambu, Athi River, Kitale, Nakuru, Kericho, Nyandarua, Trans Nzoia, Uasin Gichu and eastern Kenya. Data from Kenya Bureau of Standards indicates there has been a flat growth that experts blame uncertainty over the conclusion of the EPA pact and a relatively cold weather in key production areas for the poor performance.
According to Ngige, Market Access Regulation (MAR), was introduced in 2007 to allow African Caribbean Pacific countries that had signed an interim EPA to continue to benefit a duty-free, quota-free access to the EU pending the finalisation of a full agreement.
The MAR will cease to exist on Tuesday (New Year’s day). From this date the unilateral system of preferences, known as EU Generalised System of Preferences (GSP) will be applicable to all ACP countries which will not have signed and ratified an EPA. The European economic crisis has not helped the industry either.
“Flowers are popular but the demand has slackened because of the crisis ,” explained Ngige adding: “Producers are hesitant to increase the size of land on which flowers are produced because of demand by county governments for multiple cess charges.”