Recession wilts Kenya’s flower export market

“Unfortunately, the drop in crude oil prices has not had significant impact on the cost of transport and agricultural inputs such as fertiliser and seeds. In some countries, prices have gone up. Labour and packaging costs are also fairly rigid showing no signs of improvement,” CBI said.

The report indicates that although short-term turnover statistics for most west European countries did not show a severe effect of the current global economic downturn, consumers have recently become more price conscious-leaving products with slightly higher price values at a disadvantaged.

“Replacement of Kenya’s fine beans by other bean varieties is an example of this ‘down trading’ to more basic varieties,” CBI said.

Analysts said this latest developments could spell doom for Kenya especially taking into consideration the fact that horticulture has in recent months become the top earner of foreign exchange having overtaken remittances and tourism that suffered a double hit from the effects of the violence witnessed after the disputed December 2007 Presidential elections and the global credit crunch.

The horticulture industry shrugged off a turbulent business environment in 2008 to realise a 29 per cent climb in earnings to Sh73.3 billion over the previous year. Combined export volumes also rose by 10 per cent to 423,000 tonnes over the previous year.

Horticulture sector players warned that the financing and pricing threats in key export markets pose a risk to continued growth, raising the prospect of deeper erosion of country’s forex receipts.

Economic Survey 2009 shows that Kenya’s BOP position was significantly diluted in 2008 with the decrease in foreign direct investment inflows and a widening of merchandise trade deficit. This saw net official reserves fall by Sh33 billion in 2008 compared to an increase of Sh63.2 billion in 2007.

“The depletion of reserves was occasioned by the growth in import bills and unmatched growth in exports of goods and services and net capital inflows,” the survey said.

Current account balance also took a hit deteriorating to a deficit of Sh136.8 billion in 2008 from a deficit of Sh69.6 billion the previous year.

“Moreover, tourism earnings, remittances and private capital inflows are expected to decline in the current financial year,” Treasury says.

Exert pressure
It further warns that these developments will exert additional pressure on Kenya’s external balance of payments, exchange rate and official foreign exchange reserves in 2008/09.

To mitigate against such knocks, the CBI calls for increased investment in quality and product certification in the horticulture sector. “Effort should be made to increase awareness among buyers.

Specific opportunities may exist for cheaper alternatives of exclusive fruit and vegetable varieties already being marketed in the EU,” the CBI says.

The bureau however warns that concerns among European consumers over the carbon footprint of the food they ate remains an important factor even though a downturn in the airline industry that has resulted in some players lowering their charges has helped exporters.

Though debate over carbon footprint/foodmiles concept has recently fizzled out, it is expected to re-emerge as European economies rebound.