Kenya Looking to Market Diversifications in Face of Growing Complications on EU Markets and Covid-19 Related Increases in Air Freight Costs

While some SPS protocols allowing entry to non-traditional markets have been concluded (8), operationalising these protocols at the product level can be a lengthy process. Thus 27 months after the signing of the Kenya/China Memorandum of Understanding on Sanitary and Phytosanitary Measures, Kenya was still unable to export fresh avocadoes to China on SPS grounds (9).

What is more, developing commercial exports to high value non-EU markets requires substantial investment in market development. As a consequence, where alternative non-traditional markets have been developed, these have tended to involve second grade products, with these markets being complementary to European export markets. The consideration has always been revenue maximisation across markets, in light of the relative costs of serving these different markets and the returns which can be obtained.

However, Covid-19 related freight disruptions are seeing renewed attention being devoted to developing non-traditional markets for premium grade products traditionally exported to European markets. This is likely to require substantial investment in clear market development strategies if these non-traditional markets are to be developed into genuine alternatives to the existing dependence on the increasingly difficult EU market. Such investments can be costly, with the Covid-19 generated financial losses making such investments a difficult proposition for Kenyan exporters at the present time.

Against this background, some form of public sector assistance is likely to be needed if a sustained change in the markets served is to be promoted. This could, for example, involve tax breaks for specified investments in the development of alternative non-traditional markets for high value horticultural exports.

The second dimension to note in regard to the costs of increasingly strict EU SPS standards and import control arrangements, is the existence of a traditional export market where these increasingly strict EU SPS related import requirements may no longer apply, namely exports to the UK market.

Since 1 January 2021, the UK is no longer part of the EU SPS regulatory regime. While pre-existing EU regulatory standards have generally been carried over, the UK has made no commitment to ‘dynamic alignment’ with evolving EU SPS regulatory standards. Indeed, in certain areas the UK has already begun to diverge from existing strict EU SPS requirements. Specifically, the UK no longer requires phytosanitary certificates for a range of products where these requirements continue to exist for entry to the EU market. These products include mangoes, citrus fruit, kiwi, passionfruit, guava, kumquat, bitter orange, persimmon, cotton (bolls), and curry leaves.

This means these products now face less stringent controls for entry to the UK market than for entry to the EU market. This potentially provides a ready alternative market for consignments denied entry to the EU market, thereby reducing commercial losses arising from increasingly strict EU market entry requirements.

Unfortunately, there is currently an obstacle to expanded direct exports to the UK, in the face of reduced UK phytosanitary certification requirements, notably the UK ‘red-list’ travel restrictions on entry from Kenya, which has served to compound Covid-19 linked air freight cost increases. It is unclear when such restrictions will be lifted and the restoration of passenger services, which is essential to reduce air freight cargo fees will occur. High air freight prices could be around for years to come given the uneven progress in containing the Covid-19 pandemic.

Against this background the impact of differential rates of increase in air freight charges needs to be assessed on a product-by-product basis, in light of the circumstances facing competing suppliers on the EU market and the strength of the position of Kenyan and other East African exporters on the EU market.

The complexities of such assessments are illustrated by the situation in the UK fresh bean sector. While Kenyan fresh bean exporters face increased air freight costs, Moroccan fresh bean exporters now have access to direct ferry services to the UK which cut the traditional trans-European road transport times in half, while also avoiding new post Brexit trade administration costs faced by third country suppliers serving the UK market via the EU27. The competition faced by Kenyan fresh bean exporters on the UK market is thus likely to intensify as these ferry service become firmly established.

However, acting as a counterweight to this development, is the well-established reputation of Kenyan fresh beans, which are increasingly being exported in prepared form, packaged, and labelled in line with retailer requirements. This strong established market position gives Kenyan exporters of these quality differentiated fresh bean products an advantage in the marketplace. Against this background the main weight of increased competition from Moroccan exporters on the UK market is likely to primarily fall on exporters of undifferentiated fresh beans. This highlights the complex product-by-product assessments now required, in responding to changing market entry conditions.

There is however, a downside to the process of UK/EU divergence in phytosanitary certification requirements. Since these products still require a phytosanitary certificate to enter the EU market, if these products are exported to the UK without a phytosanitary certificate issued by the authorised authority in Kenya, then there is no basis for the UK authorities to issue a phytosanitary re-export certificate, which is now required for such re-exported products to cross a UK/EU regulatory border (particularly since such phytosanitary re-export certificates need to be accompanied by the original phytosanitary certificate issued in the country of production).

This is seeing the re-export trade in mangoes (and similarly positioned products) from the UK to Ireland and other EU markets grinding to a halt. Without phytosanitary certification these products are simply being denied entry to the EU market. The only exception is where these products are shipped via the UK under formal customs supervision with the appropriate phytosanitary certificates issued in Kenya.

This UK re-export trade to the EU in the 10 products affected, from all third countries, was valued at €80 million in 2020 (see companion epamonitoring.net article, ‘Brexit Costs Are Leading to a Restructuring of UK to EU Supply Chains’, 11 June 2021).

Thus, while it should come as no surprise the commercial possibilities of alternative non-EU markets are being explored in the face of stricter EU SPS import controls and Covid-19 related freight disruptions, the commercial challenges faced in bringing about such a market reorientation should not be under-estimated.