The horticulture sector suffered a blow after one of Kenya’s main flower farms, Karuturi Ltd, was placed under receivership over debts owed to lenders including CfC Stanbic.
Kieran Day and Ian Small of the Business Advisory Group were Tuesday appointed receiver managers as security group G4S took control of the farm’s assets.
The fate of over 3,000 workers was not clear as they camped outside the farm’s gate waiting for communication from the new managers, according to reports by NTV.
“We are in the initial stages of assessing the state of Karuturi’s business. Already, we have received enquiries from parties interested in acquiring the Karuturi’s business and assets,” said Mr Day in a statement.
He added that Karuturi had failed to pay workers for the last three months and had slow payment of suppliers.
The flower firm, which is associated with India’s conglomerate Karuturi Global, owed the bank and other debtors over Sh400 million.
Data from the Kenya National Bureau of Statistics (KNBS) shows that export of cut flowers fell 13.9 per cent to Sh56 billion last year, making it the third consecutive drop on subdued demand from Europe.
The high cost of production, mainly wages and input expenses, also squeezed the flower farm’s margins.
Horticultural exports, which also include fruits and vegetables, dropped 7.2 per cent from Sh89.9 billion in 2012 to Sh83.4 billion last year in line with a declining trend that started in 2011. The industry had hoped to register a 10 per cent growth in the year.
“This business is no longer profitable because earnings have remained flat over the years while the cost of labour, equipment and inputs continue to soar,” Homegrown CEO Richard Fox told the Business Daily last week.
Weak demand resulting from the European economic crisis and low shilling equivalent of dollar earnings also significantly narrowed the gap between expenses and revenues, discouraging farmers.
The shilling averaged 85 units to the dollar and about 115 against the Euro throughout the crop season compared to a low of Sh107 against the dollar in 2010.
The dwindling fortunes have rekindled debate about Kenya’s preparedness to compete for investment with emerging producers like Ethiopia.
Most growers, however, see uncertainty over preferential trade with Europe where Kenya exports up to 82 per cent of horticultural commodities as the biggest threat to their investments.
The uncertainty has seen a number of growers scale down on capital investments, hurting the industry’s competitiveness even more.
“Nobody in the sector is willing to put money in long term projects because we face the danger of losing our largest market,” Mr Fox said.
Kenya and its East African Community partners have failed to formalise the preferential trade deal in the last 10 years, forcing the EU parliament to impose October 2014 as the deadline for concluding the talks.
If the pact is not signed by the deadline, Kenya’s horticultural exports will attract taxes of up to 8.5 per cent. Kenya has made slow progress in developing new markets, especially in Russia and Japan.