January 2010 Issue 3

Kenya‘s commodities of emotions as we approach Valentines day.

The Chairman of Kenya Flower Council Hon. Dr. Erastus Mureithi has said that Kenya flower industry went through a crippling crisis in 2010 owing to the largely unprecedented difficulties, specifically the Icelandic volcanic ash cloud in April, and adverse weather in Europe just before Christmas both of which occurred during industry peak seasons of the year. The spell of the severe winter led to flight cancellations, kept consumers indoors and grounded ground transport further aggravating the situation.
In a press conference held in the Sarova Stanley Hotel Nairobi on Wednesday 19th January 2011, he said that the industry is resilient after weathering an enormous loss of 400 – 500 tonnes of cut flowers, commodities of emotions, worth between 1.5 to 2 million dollars a day, a major blow to an industry that rakes in over 30 billion shillings (400million dollars) a year to the Kenyan economy and provides between 50,000 to 60,000 livelihoods directly and over 500,000 indirectly through gainful employment. He added that in every three flowers sold one is from Kenya.
Hon. Mureithi recognized Government investment to promote the flower industry abroad, one of the most noteworthy milestones for the industry. The Ministry of Foreign Affairs, through its economic diplomacy portfolio, is now aggressively engaged in facilitating promotions in Europe, Eastern Europe, Japan, Asia and the USA which have been very successful.
In regards to ECA EU EPA Negotiations, it’s expected that the Government will act fast so that the final agreement can be signed by September 2011, following resolution of outstanding issues like the most favoured nation (MFN) clause, Provision on export taxes, development of infrastructure support needed among others.
At the international level, Hon. Mureithi noted that Kenya will host the International Association of Horticultural producers (AIPH) of which KFC is a member, for the first time in Africa from 3 rd to 6th April 2011.
He also acknowledged the continued formation of useful bridges between growers and service/products providers addressing industry needs. This includes, mentioning but a few, the agrochemical companies, insurance, logistics, bank, packaging companies among others.
Hon. Mureithi added that through the Lake Naivasha Growers Group, growers have relentlessly remained at the forefront of stewardship of the Lake Naivasha, by initiating effective measures on the usage of available water equitably and responsibly to ensure that all water sources, including the Lake are used in a manner that minimizes wastage of water as well as ensuring the most efficient use for example use of hydroponics techology.
In regard to water issues, he said approval for abstracting and use of water is given by Water Resources Management Authority (WRMA) where water usage by growers is monitored and they are commited to ensuring the sustainable use and protection of Lake Naivasha and its catchment area.
According to a survey report by Lake Naivasha Water Resource Users Association LANAWRUA), the actual volume of the water abstracted is 82% of the volume allowed where by 98% of the of the volumes are under permits.
Farms that have put in place strict measures to ensure the prevention of pollution of the environment where waste water is treated before disposal through acceptable means as outlined in the Environment Management and Coordination Act (EMCA99) and monitored by the National Environment Management Authority (NEMA).
In conclusion, the flower industry is looking forward to a fruitful year 2011 with an enhanced engagement with Government, through initiatives such as the Government Private Sector Development Strategy (PSDS) as well as the Vision 2030 through forums such as the Kenya Private Sector Alliance (KEPSA), Federation of Kenyan Employers (FKE) as well as Kenya Plantation & Agricultural Workers Union (KPAWU). This is expected to improve the business environment for the floriculture industry in Kenya and also translate into industry growth, project and capture prospects of expansion of current and emerging markets.

Union Fleurs Meetings Brussels 18th January 2010
Kenya Flower council attended a Union Fleurs (UF) meeting in Brussels on 18th January 2011. Represented by Mr. Richard Fox, a Director, the meeting was a follow up on the progress of developments on the proposed revised SPSS regulations that the EU is planning to implement. It was noted that the process being adopted by the EU is one of a more proactive approach involving and consulting with stakeholders. Part of this involves the KEPHIS HORTICAP project funded by the EU to create improved facilities and capacity to undertake SPSS monitoring, inspections/testing.
The revision process commenced in 2008 and was completed in September 2010 with a conference attended by UF. The next stage is an impact assessment to see the effects of the revised regulations on sensitive areas. A study has been commissioned to look at the financial/economic implications of proposals such as plant passports, protected zones and regulatory authorities.
There will be a final stakeholder meeting in Brussels on 18 February and the EU working group is keen to get more feedback and specific data on the anticipated impact. Feb to May 2011 is therefore most important for stakeholder to give feedback, as by mid-year the final documentation will be assembled in preparation for submission of legal proposals to the EU Council by mid 2011 with an anticipated implementation by early 2014.
The EU remains concerned that import controls are still not good enough. There are 8,000 interceptions every year in the region whereby some are to do with documentation and over 2,000 are serious phyto issues.
Strengthening of local inspections is essential and the calibre of these determines the definition of the risk based import inspections.
They appreciated the input and participation of UF and equally encouraging was the opportunity for stakeholder input prior to reaching the final documentation stage. KFC members can look at the new proposals and channel their comments through KFC to Union Fleurs. Moreover they can attend the 18 Feb meeting in Brussels.
In regard to EPA negotiations according to EU, an EPA would considerably strengthen the EAC trading bloc.
The outstanding issues from an EU perspective were:
(a) The phase out of 20% of goods that would retain some protection post signing of the EPA.
(b) The most favoured nation issue (MFN), whereby if Kenya enters into trade agreements with other countries on better terms than the EU EPA, then the EU should automatically enjoy the same improved terms.
(c) Taxes on export materials.
(d) Additional developmental funds
As far as export duties are concerned the EU would accept those currently in place but would wish to be consulted if they were amended or new taxes introduced. The MFN clause could also be negotiated.
As far as development aid is concerned the EDF is available and it was pointed out the Governments were hard pressed to spend their current allocation of project funds from the EU, without adding more.
Moreover, in a meeting with DG Agriculture and Rural Development officer it was said that through the Rural Development Programme the EU offers support of up to 50% of the cost of promotional activity. DG Agriculture is a parent “ministry” and UF has undertaken to assist in awareness creation though invitations to trade fairs, seminars, etc.

Meeting with the Kenyan Embassy in Brussels

A UF delegation including Mr. Richard Fox who is a KFC Director and also a Board member of UF, met with Amb. Kembi Gitura the Kenyan Ambassador to the Kingdom of Belgium. The Ambassador was briefed on the activities of Union Fleurs, Kenya flower industry and the ongoing concerns that the floriculture industry viewed as a consequence of the continued lack of a full EPA.
This includes:
• Uncertainty created within the market causing customers to look for alternative sources of supply hence erosion of Kenya’s market share.
• Uncertainty in the Kenya industry was having a negative effect on investment and renewal.
• Concern amongst buyers/importers in the EU as Kenya is such a major supplier into their market.
• In the event that an import duty of say, 10%, was imposed, this could not be passed on to the customer, as historically requests to increase product prices due to increased freight, labour and other input costs had been unsuccessful.
• Loss of revenue to the KRA of circa €10 million per annum, even if the industry could continue trading with the imposition of duties.
• More likely that a loss of 10% to the bottom line of most businesses would have a devastating and possibly terminal financial effect.
• In such an event the circa 90,000 people employed directly in the industry would be at risk along with all the supporting sector businesses and informal sector services.
The Ambassador appreciated the overview stating that Kenya needed to look at all the industry/trade that would be affected by the EPA and not just floriculture. Kenya needed to keep sight of the regional market.
He recognized the significant contribution the industry had made to the economy over the past 15 years stating that the Government would do everything possible to resolve the issues raised.
He advised that there were several, “red line” issues that the Govt would not compromise on to the extent proposed by the EU.
(a) The list of protected items currently stood at 20% whereas in negotiations with other countries the EU had allowed more than 50%.
(b) Kenya does not agree to the MFN demands by the EU. The regional economy was an emerging one as was other overseas trade and the Country could not be tied to restrictive trading arrangements if it saw benefit in negotiating alternative terms with other countries.
(c) Kenya needs the flexibility to impose tax on raw tax materials to encourage and protect existing and new local industries.
(d) The EPA that had been signed with the Caribbean countries had not been implemented to date for a variety of operational/logistical reasons and Kenya should be cautious.

EU – Pacific interim EPA approved by the European Parliament
On 19th January 2011 in Strasbourg, the European Parliament endorsed the EU – Pacific interim Economic Partnership Agreement by granting its “consent” to the deal. This is the first trade and development agreement to be approved by Parliament since the entry into force of the Lisbon Treaty. The Agreement was initialled in 2007, and then signed in 2009, by Papua New Guinea and Fiji. It grants unconditional duty free – quota free access to EU markets, while committing Papua New Guinea and Fiji to an asymmetric opening of their markets. On top of this, the interim EPA ensures favourable conditions to Pacific countries in terms of rules of origin for fisheries. The EU keeps negotiating a regional comprehensive EPA with all the 14 Pacific ACP countries.

Business support focus group
UK leadership & innovation specialists LeaderGen Ltd, in partnership with KEPSA, have designed a portfolio of business mentoring & support solutions to enhance the growth and competitiveness of Kenyan businesses based on international best practice. This is intended to be funded as part of a new PSDS service provision.
Given the importance of flower sector in driving economic growth in Kenya and as a key stakeholder in Kenya Private Sector Alliance (KEPSA), Kenya Flower Council have been invited to join a Business Support Focus Group to be held on Friday, 28th January 2011 between 10.00 am – 12.00 noon at the KEPSA boardroom.

The purpose of the focus group is to:

a) Outline the proposed menu of practical business support solutions to enhance private sector growth and development, in particular micro and small enterprises.
b) Gain valuable feedback and input, and assistance in identifying any gaps.
c) Share information about emerging trends and challenges facing the private sector in Kenya to inform service design and delivery.

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