Euro zone cuts spend on Kenya flowers as inflation bitesMonday October 03 2022
Consumers in Europe have cut spending on Kenyan flowers amid a cost of living spike in the western world that has forced households to drop essential purchases such as food and drinks, threatening thousands of jobs locally.
Inflation in the Eurozone — a group of 19 countries which use the euro as a common currency — rose to a fresh record of 10 percent in September from 9.2 percent in the prior month.
The runaway inflation is eroding the consumer purchasing power in those markets, the Kenya Flower Council says, with households and businesses cutting down on less essential buys such as cut flowers.
The decline in exports is a blow to Kenya as the industry faces the sharpest earnings fall in a decade.
Horticulture is a major source of foreign exchange for Kenya alongside tea, tourism and remittances and the industry employs over 150,000 workers.
KFC, a lobby representing large-sized growers, fears that the surging cost of living in Europe together with weakening euro and sterling pound has dashed hopes of full recovery of the sector from effects of Covid-19 restrictions.
“We were optimistic at the beginning of the year and we were looking at full recovery in 2022 because we had seen good signs in 2021 in terms of sales,” KFC chief executive Clement Tulezi told the Business Daily.
“But when the Russian war came, we were subjected to high prices of fuel and other inputs coupled with inflation in Europe and weakening of the currency we use for international trade.”
Kenya’s floriculture industry enjoys a relatively long high-season, which runs from September through May, peaking in February as flower farmers maximise on the festive season, Valentine’s Day and Mother’s Day.
Europe is the largest market for Kenya’s fresh farm produce, accounting for 70 percent of the country’s cut flower exports.
Most of Kenya’s roses go to an auction in the Netherlands to be sold throughout Europe to decorate weddings and funerals, given by courting couples or old married folks.
The surging inflation in Europe has seen consumers deepen cuts on non-essential purchases like flowers.
“In response, household budgets are continuing to evolve, with basic needs like food, transport, and energy accounting for a higher share,” says a report from consultants McKinsey.
“In ongoing trends, spending on discretionary items has been cut, as has money put toward savings. Consumers are buying smaller quantities or delaying purchases.”
Data released by the European Statistical Office (Eurostat) Friday showed price growth in the Eurozone — including the Netherlands, which is the largest buyer of Kenya’s cut flowers — exceeded market expectations of 9.7 percent. Some Eurozone countries are experiencing the fastest growth in 70 years.
Inflation in Europe has largely been driven by soaring energy and food costs on the back of Russia’s brutal war in Ukraine which disrupted supply chains.
The price surges have, however, broadened to other categories of goods and services in recent months.
“With [inflationary] pressure that people in Europe have, especially on energy costs, they are cutting expenditure on things like ornaments where cut flowers fall. We are also incurring a lot of production costs on the shilling which we cannot recover on the euro and pound when you are selling,” Mr Tulezi said.
“This year the market has been horrible. It is not working in favour of the growers. A lot of farms are struggling with liquidity challenges because money is not coming in as they had expected.”
Latest data collated by the Central Bank of Kenya show earnings from horticultural exports fell 11.94 percent in eight months through August to $1.003 billion (Sh120.36 billion) from $1.139 billion (Sh136.68 billion) in the same period last year.
Earlier, official statistics for the half-year period ended June also showed income from horticultural exports dropped 11.27 percent year-over-year to Sh64.84 billion, the sharpest fall since 2012.
On Friday CBK governor Patrick Njoroge warned that the double-digit inflation in Europe will have a considerable spillover effect on emerging markets like Kenya.