Summary
Lock-down and social distancing measures collapsed demand for cut flowers in the EU. This saw a virtual closure of the Dutch flower auctions, with operations only now beginning to recover. However, demand is likely to remain depressed for a considerable time. Any relaxation of emergency supply management measures introduced by the EU cut flower industry is likely to see already depressed prices fall further. Should freight constraints on East Africa cut flower exports begin to be addressed while social distancing restrictions remain in force this could exert further downward pressure on prices. In the longer term a serious rethink of freight strategies and market orientation may be required in the East African cut flower sector.
After five weeks of disruption the activities of the Dutch flower auctions are gradually recovering, with volume now down 30% on a seasonally adjusted basis compared to a drop of 85% from the 13th to the 20th of March 2020. However, while the sector is beginning to prepare for Mother’s Day and the end of the lock-down, there is a keen awareness that strict social distancing measures are likely to remain in place for some time, limiting the scope of social and cultural events, as well as weddings and funerals, which are major consumers of cut flowers (1). This will have a significant impact on overall EU demand.
It is recognised ‘all sales channels will remain deeply affected with a significant impact on the overall EU market’. What is more it is recognised that many flower shops will have been bankrupted by the lock-down, with this having knock on effects on the wholesale sector, which could also see bankruptcies in the wholesale sectors as unpaid debts mount. This ‘domino effect is expected to continue disrupting the European market for a long period’, with any semblance of normality taking some time to return to the functioning of the cut flower sector in the EU (1). This may however result in a cut flower retail and wholesale sector in the EU where there is less competition and a greater concentration of buyer power.
What is more, it needs to be recognised that prices to date on the EU market have been supported by product withdrawal measures, which has limited the supply of cut flowers. Once these measures are phased out at the end of April this could impact on price levels, given continued depressed demand. This needs to be seen in a context where ‘price levels are nowhere close to where they should be’ (1).
Not surprisingly therefore, Union Fleur continues to view the demand situation in the EU with considerable concern. While having welcomed the EC announcement of a relaxation of competition rules to help the cut flower sector adjust to the Covid-19 disruptions, Union Fleur has called on the EC for ‘a more ambitious plan at the EU level’ which should include financial assistance to the cut flower sector to ‘compensate the losses growers and operators have faced since the start of the crisis and guarantee liquidity to their businesses’ (1).
To date however, in the EU cut flower sector, financial support measures have been limited to the granting of flexibility in the deployment of funds allocated to existing EU programmes. It is unclear to what extent this is possible given the limited pre-existing EU support extended to the cut flower sector.
In terms of African cut flower exports, efforts by the Kenya Flower Council and other stakeholders to address shipping constraints arising from the disruption of passenger flights which lockdown measures and movement restrictions generated are slowly beginning to yield results. According to a 20th April statement from the Dutch Embassy in Nairobi ‘starting Tuesday, April 21, and Sunday, April 26, Air France/KLM/Martinair Cargo will operate two weekly cargo flights bringing 45–50 tons of cargo from Nairobi to Amsterdam’. These freight operations will take place using KLM Boeing 777-300 passenger aircraft which have ample belly capacity. It was highlighted how these services will be additional to ‘the existing full freighter flights Air France KLM Martinair is regularly operating’ (2).
This to a limited extent helps get Kenyan cut flowers to markets in the Netherlands, which is the main outlet for Kenya cut flower exports in the EU, having taken in 2019 fully 85% of Kenyan cut flowers exports to the EU28 (3).
However, it is important to place these new cargo flights between Nairobi and Schiphol in context. This expansion of dedicated cargo services by France/KLM/Martinair Cargo, while welcome given the current shortage of freights services from East Africa to Europe, is equivalent to around 29% of normal total weekly export volumes of Kenyan vegetables to the Netherlands, but less than 2% of normal total weekly cut flower exports to the Netherlands (3). Any recovery in Kenyan exports of cut flowers to the Netherlands would put considerable competitive pressure on the freight rates charged Kenyan vegetable exporters, for which demand held up strongly in the early stages of the Covid-19 pandemic.
While France/KLM/Martinair Cargo are not alone in taking expanded cargo initiatives, with Kenya Airways and other regional airlines having reconfigured passenger planes to take increased cargo volumes to destinations across Europe, a much more extensive initiative to restore air freight cargo services is required. This will be vital to establishing more normal freight rates, given the restoration of pre-Covid-19 levels of passenger services could be deferred until well into 2021, if not into 2022.
Kenyan Exports of the Netherlands of the Main Air Freighted Fresh Vegetables and Cut Flowers 2019 (tonnes)
| Netherlands | EU28 | |
| Beans (070820) | 6,571 | 31,239 |
| Peas (070810) | 1,981 | 5,223 |
| Broccoli etc (070410) | 323 | 6,871 |
| Sweetcorn (07099960) | 11 | 859 |
| Chilies (Pimenta) (070960) | 42 | 816 |
| Sub-Total Vegetables | 8,928 | 45,008 |
| Cut Flowers and Plants | 134,457 | 158,328 |
| Total Tonnage (Main Products) | 143,385 | 203,336 |
Source: EC Market Access Data Base: https://madb.europa.eu/madb/statistical_form.htm
However, it should be borne in mind that once Kenya cut flower export volumes to the Netherlands begin to recover, this could exert a strong downward pressure on prices, given ongoing social distancing requirements will curtail a resumption of earlier levels of demand. This situation of depressed demand could continue until the end of 2020 and even into 2021, depending on the evolution of the projected second wave of Covid-19 infections. This will have an important bearing on when social distancing restrictions are relaxed (i.e. for weddings, funerals, conferences and other social events which account for a substantial regular demand for cut flowers) and even the prospect of further lockdowns.
| Comment and Analysis
Any financial package to assist the floriculture sector in the EU in the face of the Covid-19 crisis, should include the extension of financial support to developing country floriculture exporters, who for many years have been an integral part of the European cut flower market equation. No third country plays a greater role in the EU cut flower market than Kenya. In 2019 Kenya cut flowers accounted for 54% of total extra-EU imports of cut flowers into the Netherlands, with the Netherlands accounting for 74% of total extra EU cut flower imports. Supporting the restoration of the cut flower trade with Kenya and the wider East African region needs to be seen in the context of the hundreds of thousands of formal sector jobs created in the cut flower sector, many of which strengthen the economic position of women and lift whole families out of poverty. The cut flower sector is also a major contributor to foreign exchange, contributing in Kenya fully 38% of foreign exchange earnings in trade in goods with the EU. Financial assistance to help growers and exporters restore production after the Covid-19 related disruptions will also need to be accompanied by an accelerated implementation of the new EU Unfair Trading Practices Directive which for the first time extends to a prohibition of unfair trading practices in relations with 3rd country suppliers (see companion epamonitoring.net article ‘Impact of Yellow Vest Protests on Cameroonian Pineapple Exports Highlights Importance of Tackling UTPs along ACP-EU Supply Chains in Context of Potential ‘No-Deal Brexit’, 13 May 2019). More fundamentally, the bankruptcies which are underway amongst independent florists and the market gains made by supermarkets during the lockdown, when they were the only source of cut flowers in many countries, could serve to change the structure of demand for cut flowers across Europe. This could see the cut flower market in EU27 member states begin to resemble more the situation in the UK, where the supermarkets dominate cut flower sales. Such a change would carry implications for how ACP cut flower exports are prepared and packaged (and even product range decisions) as well as the routes to market used (i.e. more direct sales to supermarkets). This changing structure of demand could strengthen the market position of larger East Africa cut flowers exporters, who are better placed to meet supermarket requirements and volumes. In the immediate short-term the major issue is the availability of air freight capacity and the freight rates charged. A strong case can be made for linking state support to European airlines in the face of the Covid-19 passenger service disruptions, to wider EU policy objectives such ensuring trade continues to service the development needs of African countries. This, for example, could require airlines receiving state support to expand air freight services to African countries at more normal pre-Covid-19 freight rates, so as to ensure the availability of reasonably priced fresh fruit and vegetables to EU consumers and the delivery of urgent medical and other essential supplies to African countries (see companion epamonitoring.net article, ‘Linking Bail Outs to Broader Policy Objectives’, 28th April 2020). For example, if similar initiatives to expand freight services to East Africa were to be launched by the Belgium based airline, SN Brussels (which previously had scheduled passenger services to East Africa), this would provide additional cargo capacity equivalent to almost of quarter of exports to the main Kenyan air freighted vegetable and cut flower which took place to Belgium in 2019. Similarly, extending the KLM initiative to Air France operations to France would accommodate 38% of East African air freighted vegetables and cut flower exported to France in 2019, while if Lufthansa initiated a parallel initiative, this would accommodate 33% of air freighted Kenyan vegetable and cut flower exported to Germany in 2019. Stipulations related to expanded service provision could usefully be included in EU state aid programmes as an integral part of the EU’s ‘trade for development’ strategy, given the important contribution the cut flower sector has made to socio-economic development in East Africa over the past 30 years. This is an important issue, given it could be years before passenger flight services to East Africa return to anywhere near pre-Covid-19 levels. This may require a rethinking of the market orientation of the East African cut flower sector |
Sources:
(1) COLEACP, ‘Focus on the global flower industry’, 24th April 2020
https://eservices.coleacp.org/en/actu/focus-on-the-global-flower-industry
(2) Kingdom of the Netherlands, ‘Two Air France KLM Martinair Cargo flights a week to depart from Kenya to the Netherlands to foster economic ties’, 22nd April 2020
https://www.netherlandsworldwide.nl/latest/news/2020/04/22/two-air-france-klm-martinair-cargo-flights-a-week-to-depart-from-kenya-to-the-netherlands-to-foster-economic-ties?fbclid=IwAR0p2eYneXwdcjoR0I0NuLETTY_txBm2477as3z5oXTIjXzvmGJNkEV_Jd8
(3) EC Market Access Data Base
https://madb.europa.eu/madb/statistical_form.htm