The flower industry is raising the red flag over dwindling growth, which they link to high labour and input costs.
Lobby Kenya Flower Council (KFC) in its recent annual general meeting said annual growth rate of exports had declined to 1.7 per cent since 2008 from 10 per cent for 13 years.
The slow growth coincided with the global financial crisis, dealing a heavy blow to the European market, a dominant destination for Kenyan flowers.
“The reasons for this are a reduction in the investment due to the Kenyan shilling remaining artificially strong against the pound and euro, rapidly increasing input costs and labour wages growing by more than 10 per cent per annum,” said Richard Fox, chairman of the Flower Council.
Mr Fox said of cut flowers prices had also declined, wiping out benefits of Kenya’s entry into new markets such as Russia and Japan.
Kenya last year earned Sh44.5 billion in foreign exchange from 121,000 metric tonnes up from 120,221 metric tonnes in the previous year.
The weakening of the shilling last year helped the industry to rebound from a three-year drop of revenues from 2008 while export tonnage was rising.
The industry is facing another round of salary increments after the Naivasha MP John Mututho introduced a Bill seeking to increase wages from Sh3,100 to Sh7,000 a month. The Bill also seeks to provide for house allowances.
Labour minister John Munyes has also said that the ministry is forming a special board to address problems in the floriculture industry starting next month.
Floriculture has been one of the anchors of Kenya’s forex market but players think that position is under threat. “The industry is sadly a victim of its own success and already there are signs that the financial stress on small growers is becoming unsustainable and businesses are closing down,” said Mr Fox at the AGM in Naivasha.
Some of the flower companies that have closed shop in the recent past include Bawan Flowers, Lake Flowers and Beverly Flowers. Ethiopia has also diverted a number players from the Kenyan market through enhanced incentives.
Mr Fox also blamed the Kenya Revenue Authority (KRA) for the woes facing the industry, saying the taxman owes sector more than Sh2 billion in tax refunds.
The refunds are expected to go down with the Treasury’s recommendation of scrapping the zero-rating of farm inputs.
KRA owes exporters about Sh18 billion in refunds which keep growing despite the Treasury’s efforts to provide more cash to settle the liability.
The Treasury gets cash then refunds KRA.
To deal with the challenges facing the industry, flower firms have hedged against the shilling with banks countering currency fluctuations while also doing more deliveries to auctions rather than direct markets where the process is more elaborate.
The Kenya shilling has stabilised at around 84 to the dollar, a situation expected to help the industry in planning and also tone down the cost of imported inputs.