Is the party over for horticulture industry?

By Benson Kathuri

It all began with the banks in US. Then house prices for the world’s largest economy began to tumble. In the months that followed, the shock waves spread, engulfing first high streets, then factories – and thousands of jobs. Europe’s relatively stable economies were also not spared from the fast spreading crisis.

In this gripping account, Kenya’s then recovering economy also become victims to the domino effect as the globe stared at the harsh reality of a recession. Even as the country’s tourism become the first casualty, the risk now threatens to chip away at the country top foreign exchange earner — horticulture sector.

Despite recording Sh73 billion in foreign exchange last year, the horticulture industry is headed for rough times due to low value addition and over reliance on the now recession-hit European Union (EU) market.

Exporters are concerned that the on-going global recession might wipe out gains achieved in the last decade and kill investments running into billions of shillings and render over 350,000 workers jobless.

For the first time, the players who include the Fresh Produce Exporters Association of Kenya (FPEAK) and the Kenya Flower Council (KFC) have admitted that lack of market diversification might work against them.

According to records availed to the FJ, the EU accounts for 50 per cent of the export market, with the United Kingdom credited with 32.8 per cent. The players are now asking for a Sh500 million bailout from the Government to mount an aggressive marketing campaign in new markets — Japan, the Middle East and the emerging economies of Eastern Europe.

"The Government has assisted the tourism sector to market their destinations and we feel it is time the Government set aside similar money to assist the sector at this time of crisis," KFC Chief Executive Jane Ngige told the Government during a recent meeting in Nairobi.

Sources say the exporters are worried that the UK market is likely to shrink further, an inclination that would expose the sector’s underdeveloped domestic market for flowers.

Last year, the sector exported 423.1 million kilogrammes of produce that earned Sh73.7 billion. The EU took 248.3 million kilogrammes that accounted for 49.6 per cent.

Other markets

The UK consumed 79.6 million kilogrammes that represented 32.8 per cent. Other markets were Russia (0.4 per cent), US (0.9 per cent), Dubai (1.4 per cent), Japan (0.7 per cent), South Africa (0.4 per cent) and the rest of Africa (11.2 per cent).

Out of the amount, flowers earned Sh39.9 billion last year, up from Sh29.7 billion the previous year. Fresh and processed vegetables fetched Sh23.9 billion, up from 19.9 billion.

According to FPEAK Chief Executive Officer Stephen Mbithi, Japan, though also affected by the financial crisis is a promising market, but her market requirements are too high to be met by individual exporters. Agriculture PS Romano Kiome concedes that the sector that has thrived with little Government intervention is now vulnerable, but ruled out direct Government subsidy.

He, however, revealed that the Government was holding talks with the Japanese government and its quality standards agencies in an effort to harmonise standards so as to enable the country penetrate the market.

"The current economic melt down across the world has depressed demand since November last year, especially in flowers," Kiome said.

However, demand for fresh vegetables and fruits has picked up in the EU, but this has not been matched by an upward adjustment in prices, owing to consumer concerns.

Though the sector recorded an increase in exports to the EU by 20 per cent in January, stakeholders are cautious about this growth and contend that this will depend on how soon the world recovers from the recession.

According to Kiome, the exporters should not panic but instead seek innovative ways to cushion themselves against the external shocks that have affected performances in all other export sectors. The sector has proved resilient to an extent that the Government seems confident that it would be able to weather the storm and remain the top foreign exchange earner. Though most sectors of the economy were affected by post-election violence early last year, horticulture and especially floriculture that is concentrated in the rural areas managed to overcome the impact and record impressive performance. "Horticulture sub-sector returned a commendable growth last year, despite the difficult political and trading environment experienced in the first two months," said Kiome.

The Central Bank of Kenya (CBK) has also raised concern that exports are not growing in tandem with imports that now threaten to deplete the foreign exchange reserved.

Economic Report

"Official usable foreign exchange reserves held by the CBK has declined from $3,346 million (equivalent to 4.75 months of imports) as at March 5, last year to $2,626 million (equivalent to 3.13 months of imports) as at March 05 this year," said CBK in its Monthly Economic Report for December.

"The trade deficit deteriorated by 20.1 per cent to $5,908 million in the year to November last year compared with $4,917 million in the year to November 2007."

CBK attributed the situation to sustained demand for merchandise imports, which rose by $1,752 million to $10,793 million in the year to November 2008.

Exports in goods also improved during the period in review but by a lesser margin of $761 million to $4,885 million, putting a strain on the reserve.