June Issue 4 2011

KFC 13th Annual General Meeting

The Kenya Flower Council held their 13th Annual General Meeting on the 24th June 2011 at the Nairobi Serena Hotel. During the meeting the participants were given a presentation by the PKF on Prudent financial management and proper tax planning under the aegis of the new constitution.

The event was graced by Mr. Bernard Rey of European Union Delegation Kenya on behalf of the Head of EU HE Amb. Lodewijk Briet.. Other guests include Mr. Ian Chesterman, USAID- KHCP Director, Audreas Keller of German Embassy, Silvain Geranton of French Embassy, Hiroshi komatsuzaki of JETRO, Givlia Pietrangeli of EU delegation Kenya and Jacqueline Mugo CEO of Federation of Kenya Employers.

Below is the Kenya Flower Council Chairman’s statement. The presentations by PKF will be forwarded to members in a separate email and will also be uploaded in our database.

CHAIRMAN STATEMENT

As I prepared for this 13th Kenya Flower Council Annual General Meeting, I realized how alike driving, especially in Nairobi, is to steering a business in Kenya today. Once you pick your destination, it then becomes a matter of not only how well you plan your journey, but also how skilled a driver you are in terms of not looking where you are going ,  but in being able to see way ahead.

Often times you have to take risks. You stick your neck out of the window, knowing very well that chances of losing it are real. It is a question of how well you manouver round the other drivers, including huge huffing  trucks, energetically revving matatus driven by very agile and crafty  “pilots”, motorbikes and very often absent minded pedestrians. And just when you think you are out of the woods, the traffic lights turn red or they don’t work at all and instead there is a citizen who has volunteered to direct the vehicles but only until you get to where he is standing.

Such, my fellow farmers is the business of growing and exporting flowers from Kenya, where the climate is excellent, and a highly productive people coupled with vast opportunities in the market place. Navigating through the perils of politics, global climate change and economic upheavals, exacerbated by rising cost of production, multiple and dynamic standards and a challenging business environment and adverse publicity takes the lions share of the actual business effort.

Although there is more ground to be covered, negative publicity has been reduced. Needless to say, we have become accustomed to the occasional jibe around major seasons.

All in all, to say that the subsector has been tested and tried is truly an understatement. But like the iron in the hands of a skilled smelter, the industry has come through stronger, finer with new found vigour, to add even greater value through technology and aggressive marketing.

Today,  as we take stock of the subsector and address the impediments in our course, we must also be decisive in planning strategically, to draw from our strengths  and see how  we can turn weaknesses and threats into opportunities, not only at the individual corporate level but also collectively as an industry.

We must be real that gone are the times for soft targets. Demand for performance is at its peak. Our social partners are leaving more responsibility to producers, to provide solid assurance that we are taking care of workers and communities in addition to ensuring protection, preservation and conservation of the environment. The Government on the other hand is making existing rules and regulations more visible and providing more clarity (often with a lot of confusion I dare say) to help us in this process, while the markets are very succinct about their expectations. At both the local and the international level, the media and the civil society maintain a keen eye on the industry, especially around industry peak times.

None the less, I am persuaded as I am sure you are that the image and profile of the Kenya flower industry is on an upswing. Key international shows have expressed desire to have the Kenyan growers present. For instance, this year Kenyan flowers were at the IPM ESSEN Germany in January, World Floral Show in Miami in March and France in April.

Later this year in August, no less than 30 growers will be on a mission to Moscow, Russia, which will include visiting two flower shows between 30th August and 1st September, in addition to experiencing flower distribution and retailing systems in the country.

To what do we owe this development?

I, like you, have no doubt that growers have been bullish in doing an excellent job, particularly given the prevailing conditions in the industry over the last 3-4 years.  You have ploughed in resources to bring in value addition through adoption and adaptation of technology; scoured great heights in marketing and upped your game in quality assurance, demonstrating integrity, transparency and professionalism through our very own cut flowers and ornamentals scheme (we are perhaps the only accredited self regulating scheme in cut flowers and ornamentals).

At this point,  I am compelled to acknowledge the role that the Government of HE The President of the Republic of Kenya, Hon. Mwai Kibaki CGH, MP together with the Right Honourable Prime Minister, Raila Odinga, EGH, MP, for their able leadership, which has given us peace, truly a prerequisite for development.

Under the new dispensation, the industry has benefitted immensely from the new road network in development. For instance, it now takes about 30 minutes to transport flowers from Thika to the airport compared to about one and half hours previously.   The good governance agenda in Government has translated into improved services albeit, on average slow.  In communications, the cost of telephony has come down drastically while capacity building in ICT has grown innovation tremendously.  In part, this is as a result of duties waived on imported computers and computer accessories.

Most significant though, has been the quality of phytosanitary services from the Ministry of Agriculture through KEPHIS. The institution continuously acquired technology, knowledge and skills to identify and manage risks in order to ensure market access in the various and diverse distant and exacting markets.

We cannot forget the Imarisha Naivasha project an initiative of the Prime Minister’s Office and the Prince of Wales’ International Sustainability Unit. Naivasha produces about 70% of the flowers exported from Kenya. This project has created a stakeholder management board to steer the Naivasha catchment towards a more sustainable position that will safeguard the use of resources for the industry and other stakeholders for the future.  I am glad to note that the stakeholders have recognized the importance of the floriculture industry exemplified by electing a member of KFC to chair the board which is a clear signal of a changing attitude that the industry is the cause of all the issues that challenge Lake Naivasha.

Marked support is also coming from the Ministry of Foreign Affairs, where, under the new paradigm shift to economic diplomacy has borne benefits in the coordination of industry promotions in new and existing markets.

The industry is proud to be an important player in the national successes recorded of a growth rate of 4% despite the runaway double digit inflation rates and fears of food insecurity in the face of poor rains.  Of this we understand 22% is attributed to agriculture out of which 7% is due to floriculture.

However there is need to focus on a few areas that still plague the industry:

(i)                 the stalled EPA’s which are causing anxiety here and in the market place for reason well known to all of us and

(ii)               KRA rising costs of export documents ($ 3 for endorsement of C63 for VAT Refunds over and above the fee of Euro 1, GSP and additionally, increased phytosanitary services fees.)  Most poignant issue has been the non availability of these documents with the accompanying anguish.

(iii)             The continued delays on VAT refunds despite the Government’s commitment to hasten the process and

(iv)              The aggressive stance taken by KRA on transfer pricing.

This is part of the reason why this morning, we were taken through a session on finance management and tax planning from the perspective of the new constitution.  We have also organized similar sessions with Kenya Revenue Authority (KRA) staff, the corollary of which will be to understand the mind of KRA and to encourage dialogue in addressing key issues that have a direct bearing on the productivity of the industry.

Coming to the industry story:

From  25,000 tons  worth Kshs 4b in 2005 to 117,000 tons in 2010 valued at Kshs 36b and now employing close if not more than 90,000 people directly and well over 500,000 indirectly with an impact on the livelihoods of about 7% of the population makes floriculture in Kenya important.

Little wonder that it is one of the areas identified for growth under the Kenya vision 2030, particularly from the perspective that the industry has fuelled the development of skills and expertise.

As industry expands into the Eastern African Region and beyond to Mozambique, it is Kenyan managers and supervisors who have highly developed skills are churning out quality flowers.

At a first glance, that we should celebrate migration of home grown skills to countries seen as competition is contradictory.  But in essence, it is in the best interest of the Kenyan growers, that flowers coming from any country in the region bear the same mark of quality as does the Kenyan flower. Given that should the African flower loose its lustre with the international market, Kenya, with the largest market share, 35% of the European cut flower imports, will bear the blunt of consumer flight.

None the less, the massive capital outlay  ploughed in by farmers along with their business  counterparts; the colossal investments by the Kenya Government to build an enabling business environment in regulatory bodies and infrastructure, faces a challenge not only from saturated markets but also from erosion of competitiveness arising from increased cost of production.

Other concerns:

Escalating cost of energy: The cost of energy continues to soar. Additionally constant power surges not only counter productivity but are also expensive through destruction of equipment, an area we need to address as an industry. More vexing, is the fact that transport, ground and air continues to be a major cost due to Government surcharges and taxes.

Taxes and levies: Through the “Business Regulatory Unit”, the Government has reduced the number of licenses. However, as much as we are advocating for a reduction of the tax burden, major work is outstanding to get an industry incentive scheme in place.  We are making slow and unsteady progress. You will recall that last year we momentarily celebrated the possibility of getting an abandonment of the VAT on all inputs.

You also recall that a decision on the same in the 2011 / 2012 Kenya Budget proposals was shelved until exhaustive discussions with stakeholders have been held.

Rolling Exchange Rates: While the exchange rates seems to favour the industry, we cannot under estimate the impact of unstable exchange rates on the overall cost of production, where most inputs, like fuel, chemicals and fertilizers are procured in foreign currency. It also has a direct bearing on productivity the cost of living goes up and fears of food shortage and hence security come to the fore front of concerns.

Climate change: It is imperative that the industry understands the impact of climate change on productivity in order that it may respond adequately to   adapt and adopt the necessary technology to counter the negative effects. Demand for precision water use systems and environment control; effluent water treatment, reuse and recycle; water harvesting and storage; growing out of soil; water and green house emission footprints; new dynamics in diseases and profiles will increase. Of course, this is now common knowledge. What is not common is a national industry strategy that:

(i)                 Focuses on alternative measures or sources energy for and in the subsector.

(ii)               Harnesses knowledge available to create awareness and knowledge on issues of climate change and convert such knowledge into either carbon neutralizing projects, carbon credit trading projects or research for adaptation projects.

At the growers, services and products level, it is clear that there is a wealth of information and knowledge on production skills and research.

Harnessed in a structured manner there is potential to add value through out the value chain but also to deflect misinformation missiles on responsible growing of flowers in Kenya. The KFC Regional Networks provide a forum for engagement in addressing issues of climate change but also to tackle local issues and escalate those that need to come to KFC.  This has been effective with local municipalities and on different levels. Whenever upon request, growers provide information and data, KFC is able to use the same to develop persuasive position papers for common good. For instance there is a lot of work going for biological interventions for pest and disease control and fertigation. Sharing it amongst ourselves can only help all of us collectively to develop a greener industry.

In terms of compliance, pursuing a national mechanism is no longer a long term goal, it’s now a short term, whereby, as industry, we must harness all that is to our advantage to secure and safe guard a hard earned industry profile and of course markets. We are expected by stakeholders to be at the forefront of protecting the environment. We have access to the necessary interventions in terms of technology and knowledge. It does come at a cost and all should invest as the cost of not so doing is even higher. If we deal with this collectively, you will benefit not only from efficiency but also from effectiveness.

Very often we say, the workforce is the most important aspect of our business. As we demand performance from our teams, right down to the operators, let us equip them with necessary tools and above all, with confidence in themselves, in you the investors and truly in the business. We, as a matter of necessity, need to ensure that Government understands the impediments of growth in the sub sector, as envisaged in vision 2030, through effective and objective engagement.

If we succeed with this few actions, we will win favour with the Government; social partners and most of all secure current markets, expand horizons in new markets and open windows in emerging markets. For we all know, Kenya is poised to continue being a key player in this international business.

Thank you and God bless you.

Hon. Dr.  Erastus Mureithi, MBS, HSC.

Chairman

Kenya Flower Council

This entry was posted in Uncategorized. Bookmark the permalink.