Summary
The Corvid-19 pandemic has caused economic disruptions which have crippled the Kenyan cut flower industry, which directly employs 200,000 people. Tens of thousands of workers are being sent home, with farms closing. Given the uncertainty over Kenya’s future duty free access to the UK market, many of these farms may not re-open, unless current uncertainties are urgently addressed. With all East African Community meetings cancelled, this will require unilateral action from the UK government to reinstate the proposed Transitional Protection Mechanism put forward in October 2019 or the adoption of a similar such mechanism.
The cut flowers and ornamental plants sector has been severely impacted by the consequences of the Corvid-19 pandemic, with flowers and plants simply not being a priority in the circumstances now faced. The Managing Director of Royal Flora Holland, Steven van Schilfgaarde, has described the market situation in the Dutch cut flowers and ornamentals sector as ‘dramatic’. Demand has rapidly shrunk, as social distancing strategies have led to the mass cancellation of events which normally generate high demand for cut flowers and ornamentals (weddings, funerals and other ceremonial and ecclesiastical events) (1).
Despite a peak period for flower demand approaching with Mothers-Day on the 21st March, since March 13th the Dutch flower auction has had to destroy between 30% and 50% of cut flowers placed for auction. Following calls from Royal Flora Holland for its members to restrict supplies to 30% of normal volumes (1), only around 50% of the volumes normally traded are now passing over the auction floor (2).
In the face of limited demand, prices have fallen by up to 50%. Exports from Holland to Germany, Italy and the USA have been halted. Royal Flora Holland MD, Van Schilfgaarde, has argued that ‘without emergency loans from the government and banks and other forms of financial support, healthy businesses will soon fall over’ (1).
The market situation in Europe is threatening the collapse of the cut flower industries in Kenya (1). During March Kenyan cut flower exports fell initially by 50% in response to the impact of the Corvid-19 pandemic. Hundreds of thousands of stems are being destroyed daily, with this now seeing thousands of workers laid off (3). A farm Workers representative Caroline Mengesa said, ‘workers in the grading halls were the first to go home while a skeleton staff has been left behind to manage the farms.’ The scale of the disruption is seen as unprecedented (3).
The Kenya Flower Council describes the situation as ‘dire’, ‘warning that it will only get worse with the sustained lock-down in European Union countries, which include Italy, France and Spain’ (1). With exports ‘fluctuating from day to day’, from lows of 35% of previous levels to an average of 50%, some farms have ‘totally suspended shipping of their flowers’, while other farmers have had their ‘orders cancelled’ given current market uncertainties (3). By 18th March the Kenyan Flower Council had announced ‘all Kenyan farms reduced their volumes to below 70%’ (4).
This needs to be seen in a context where some 50% of Kenya’s total cut flower sales are destined for the European market (5). Fully 86% of Kenyan cut flower exports to the EU enter the market via the Netherlands.
There is profound disappointment in the cut flower sector at the lack of Kenyan government action, with the current crisis compounding structural problems faced in a sector which ‘directly employs over 200,000 workers’ (3). The current Corvid-19 related market crisis comes on top of growing competitive pressures on the cut flower sector in Kenya. In the final quarter of 2019, several flower farms closed, with Finlays Kenya citing ‘decreasing demand in the European market, staggering labour costs, unfavourable weather conditions and weakening exchange rates as the reasons for closing the farms’ (6).
Other flower producers have complained of ‘oppressive taxes and bureaucratic hurdles’ which are ‘weighing down the industry’. According to the CEO of the Kenya Flower Council, Clement Tulezi, some SH 6 billion in ‘delayed reimbursement of value added tax’, dating back to 2013, is owed to the cut flower sector by the Kenyan government. In addition, the cut flower sector in Kenya continues to pay no less than 42 separate levies, with this situation having been compounded by the decentralisation process underway with each level of government wanting a slice of the to date lucrative cut flower financial pie (6).
In recent years the Kenyan cut flower sector has been facing growing competition from Ethiopia, where the government is seen as being more supportive of cut flower sector development (6). In a context where 86% of Kenyan cut flower exports to the EU enter the market via the Netherlands, Ethiopia’s share of Dutch cut flower imports has grown from under 8% in 2012 to around 30% in recent years (with the exception of 2018 when it fell back to 18%).
0603 Cut Flowers EU28 Imports: All Sources, Kenya and Ethiopia
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | % change 12-18 | |
| EU28 Total | 223,887 | 292,961 | 306,577 | 340,237 | 362,040 | 358,776 | 329,947 | +47.4% |
| Kenya | 95,117 | 133,752 | 141,800 | 146,418 | 158,551 | 133,137 | 149,639 | +57.3% |
| % Kenya | 42.5% | 45.7% | 46.3% | 43.0% | 43.8% | 37.1% | 45.4% | |
| Ethiopia | 37,351 | 46,619 | 52,522 | 88,558 | 88,869 | 88,766 | 61,699 | +65.2% |
| % Ethiopia | 16.7% | 15.9% | 17.1% | 26.0% | 24.5% | 24.7% | 18.7% |
EC Market Access Data Base: https://madb.europa.eu/madb/statistical_form.htm
0603 Cut Flowers Netherlands Imports: All sources, Kenya and Ethiopia
| 0603 cut flowers | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
| Netherlands Total | 127,386 | 198,909 | 201,514 | 269,664 | 291,676 | 291,707 | 249,377 | +95.8% |
| Kenya | 73,580 | 111,850 | 118,844 | 124,368 | 136,140 | 111,872 | 128,791 | +75.0% |
| – % Kenya | 57.8% | 56.2% | 58.9% | 46.1% | 46.7% | 38.6% | 51.6% | |
| Ethiopia | 10,026, | 20,118 | 18,782 | 86,416 | 85,842 | 86,131 | 44,709 | +345.9% |
| – % Ethiopia | 7.9% | 10.1% | 9.3% | 32.0% | 29.4% | 29.5% | 17.9% |
EC Market Access Data Base: https://madb.europa.eu/madb/statistical_form.htm
| Comment and Analysis The impact of the European cut flower market collapse is having an immediate and severe effect on the Kenyan cut flower sector, with tens of thousands of workers being laid off and farms closing. This has exacerbated an already difficult situation for cut flower producers in Kenya, linked to what are perceived as government policy and bureaucratic shortcomings. The impact of the Corvid-19 outbreak is coming at a particularly difficult time for the Kenyan cut flower sector which has major concerns about the future basis for exports to the UK market once the UK leaves the EU customs union and single market (currently scheduled for 1st January 2021). Once the UK leaves the EU customs union and single market, the existing trade agreement which allows full duty-free access to UK market will no longer apply. The UK takes around 17.7% of the value of total Kenyan cut flower sales, although this could be larger given the extensive onward trade in cut flowers from the Netherlands to the UK. Unless an alternative arrangement is in set in place to perpetuate Kenya’s existing duty free access, cut flower exporters will face an import tariff of 8.5% on their cut flower exports to the UK market, in a context where Ethiopia and other east African LDCs are guaranteed continued zero duty access to the UK market (see companion epamonitoring.net article, ‘UK government commits to extending EBA access for LDCs post Brexit’, 30 June 2017). Any loss of duty-free access for Kenyan exporters would seriously undermine their competitive position on the UK market, whether they export directly to the UK or via the Netherlands. The situation facing the Kenyan government is complex. Rolling over the existing EU-EAC Economic Partnership Agreement (EPA) into a UK-only Continuity Agreement, is complicated since the EU-EAC EPA process has not been completed. The Government of Tanzania has refused to sign and ratify the current draft economic partnership agreement agreed with the European Commission. As a result, this EU-EAC EPA cannot legally enter into force under East African Customs Union rules. This greatly complicates the conclusion of a UK-only Continuity Agreement. Significantly, when facing the prospect of a no-deal Brexit in October 2019, the UK government offered to establish a unilateral Transitional Protection Measure, which would have guaranteed Kenya continued duty-free access to the UK market for an 18 month period to allow outstanding regional issues holding back the conclusion of a UK-only Continuity Agreement to be addressed (for more details see companion epamonitoring.net article ‘What Challenges Does Kenya Face in Ensuring Continuity in its Current Access to the UK Market?’, 17 March 2020). However, this UK offer of a temporary transitional arrangement has now been withdrawn. Earlier in 2020 UK officials took the view there remained enough time to conclude a Continuity Agreement before the end of the year which would ensure continuity in Kenya’s current duty free-quota free access to the UK market. However, this view is being brought into question by the severity of the Corvid-19 pandemic. The lack of consensus on the EU-EAC EPA amongst the concerned East African governments remains. With all EAC meetings being cancelled because of the Corvid-19 pandemic, the prospects of progress in the foreseeable future looks remote. The underlying need for a unilateral UK trade measure to preserve Kenya’s duty-free access to the UK market thus remains. What is more with many countries in lock down, the prospects of substantive negotiations aimed at concluding a Continuity Agreement with the UK, is receding. Even under best case assumptions international travel and inter-regional dialogue processes are unlikely to get back to normal before June 2020. However, this is looking an increasingly unlikely scenario, as the focus of Corvid-19 mitigation efforts in the UK is strongly focussed on deferring the peak of the outbreak until after the winter flu season has passed. This could see the UK in the grip of the pandemic well into the summer. This would carry serious implications for Kenyan cut flower exporters for in the second half of 2020 they would not only have to face the difficult process of recovering from the immediate and severe economic fallout from the Corvid-19 pandemic but would face ongoing uncertainty over their future duty free access to the UK market (which takes far more Kenyan cut flowers than indicated by the volume of direct exports to the UK given the critical role of the Dutch flower auctions in supplying UK florists). This could see buyers turning away from Kenyan cut flowers to other least developed country East African cut flower suppliers (Ethiopia, Tanzania, Uganda, Rwanda, Zambia, Malawi) all of which would continue to enjoy duty free access to the UK market. Alternatively, it could see Kenyan exporters being offered prices which factored in the prospect of the imposition of an 8.5% import duty. Either way this could greatly complicate the recovery of the Kenyan cut flower sector in post Corvid-19 period. There is however an obvious policy measures which could be taken to avert this difficult post-pandemic recovery situation, namely, the reiteration of the UK governments proposal for a unilateral Transitional Protection Measure, which would guarantee Kenyan exporters continued duty-free access to the UK market, until a regional UK-EAC trade agreement can be concluded. This however is only one of the options open to the UK government, which could decide to take a regional approach to defining eligibility for duty free access under the scheme established for LDCs. This needs to be seen in a context where most of the population of the East African Community live in least developed countries, with Kenya being a lower middle-income country which for trade purposes sits in a community of least developed countries. Either way it is clear that some unilateral UK policy initiative to remove uncertainty over Kenya’s continued duty free-quota free access to the UK market is needed, if the vitally important Kenya cut flower sector is to be assisted in recovering from the profound economic disruptions arising from the Corvid-19 pandemic. |
Sources:
(1) FloraDaily, ‘Ornamental industry trying to survive COVID-19 frenzy’, 17 March 2020
https://www.floraldaily.com/article/9199470/ornamental-industry-trying-to-survive-covid-19-frenzy/
(2a) .floraldaily.com , ‘Royal FloraHolland tightens supply regulation’, 17 March 2020
https://www.floraldaily.com/article/9200032/royal-floraholland-tightens-supply-regulation/
(2) the Star, ‘Flower exports drop by 50 percent: Dutch flower auction collapses’, 18 March 2020
https://www.the-star.co.ke/business/2020-03-18-flower-exports-drop-by-50-percent/
(3a) floraldaily.com , ‘Industry unites to boost sales of flowers and plants’, 18 March 2020
https://www.floraldaily.com/article/9199937/industry-unites-to-boost-sales-of-flowers-and-plants/
(3) standardmedia.co.ke, ‘Flower farm workers sent home as coronavirus wipes earnings’, 17 March 2020
htts://www.standardmedia.co.ke/business/article/2001364595/flower-farm-workers-sent-home-as-coronavirus-wipes-earnings
(4) nation.co.ke, ‘Kenya’s flower industry can retain its global lustre’, 30 Oct 2019
https://www.nation.co.ke/news/Kenyas-flower-industry-can-retain-its-global-lustre/1056-5329730-155alxj/index.html