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Kenyan flower exports to EU face new tax threat
Flowers for export. Experts warn that failure to support the industry will encourage neighbouring Ethiopia to take over the global flower market from Kenya. Photo/JARED NYATAYA
Kenyan flower exports to the European Union face a new tax if a fresh trade deal between the East African Community and the market is not signed.
EAC members were expected to sign a new 25-year trade deal known as Economic Partnership Agreement (EPA) in November but did not, putting the country’s top foreign exchange earner at risk.
The trade deal is reciprocal, meaning that goods from the EAC will enter the EU market duty free and vice versa.
In the absence of the pact, Kenya’s flower exports could be subjected to a 16 per cent duty to enter the EU which will edge them out of a market that is under attack from South American flower exports.
“EPA need to be signed soon otherwise the industry will perish,” said Kenya Flower Council acting chairman Erastus Mureithi.
“The EU did the same to India and that country only sells its flowers in the EU market during Valentine,” he said. “For us, there is no alternative but EPA. We risk losing two million jobs.”
The EU provides 70 per cent of Kenya’s flower market.
The product is perishable. For example, flower farmers are struggling financially because of last year’s volcanic eruption in Iceland that led to suspension of flights and closure of flower farms for five weeks.
The December extreme cold in Europe also disrupted the market for a similar period.
As a result, the flower industry made an estimated Sh30 billion in 2010 compared to Sh36 billion in 2009.
“We expect this year to be better than 2009, especially because we have found new markets in Japan and Russia and hope to make a foothold in the United States,” said Mr Mureithi.
The industry has also been hit by rising inflation in the EU that is diverting household budgets from non-essentials like flowers.
He said the industry was banking on Valentine Day sales to compensate for low sales experienced last year.
Experts warned that failure to support the industry will encourage neighbouring Ethiopia to take over the global flower market from Kenya.
Ethiopia has been offering farmers incentives leading to relocation of six flower farmers from Kenya, the most high profile being Sher Agencies that sold to Karuturi.
The company owns a farm in Ethiopia “larger than all the flower farms in Kenya combined,” said Mr Mureithi.
More markets
“The option is to get more markets. If Kenya Airways had a direct cargo flight to the US the industry would do very well. We have also received orders from Australia that delayed because of the raging floods.” Ethiopia Airways flies to the US.
It was not clear when a trade deal between the EU and EAC will be clinched.
Negotiators will meet this month and later in March for renewed discussions with their EU counterparts.
The main focus of this month’s discussion is to brainstorm on critical issues on EPAs before the March meeting.
A Trade ministry official, who spoke on condition of anonymity because he is not authorised to speak for the ministry, said the new agreement will most likely be signed towards the end of this year.
The East African Legislative Assembly, however, said the integration of the bloc should be completed before the region signs the EPAs.
The assembly said in a statement that it was important to ensure the region has adequate capacity for industrial upgrading, export diversification, food security, region-wide employment creation, and political stability.
EPAs agreements allow partners to impose duties on goods and services whose importation hurts local industries.
