Wednesday, May 22, 2024
BusinessUncertain future over flower sector

Uncertain future over flower sector

The horticultural sector, among which the cut flower export sector is the major one, has fetched some USD 245 million in 2014. This stands at a stark contrast to the coffee sector, which brought in less than USD 800 million dollars in the same period, since the total land covered by the former is only 1,500 hectares as opposed to 500,000 hectares of land covered by coffee. It was exactly this high-value nature that drove the government to support sector in every aspect. Nevertheless, it looks like those days have gone. The sector these days is aching out for each hectare of land and the problems get worse when it comes to expansion projects. On the other hand, the sector players are also concerned about the quality of support that is given to them from their lead agency, write Asrat Seyoum andBirhanu Fikade.

So unique is the cut flower sector in Ethiopia, its entire existence and history evolved over the course of 15 years. In this time, the sector moved from zero export and production levels to be crowned as one of the top export commodities in the Ethiopia. By way of export revenue, the cut flower sector leaped from a meager USD 150,000 in 2001 to clinch the fifth position with USD 245 million in 2014. It all happened since the turn of the century. By comparison, other top dollar fetching commodity, especially coffee, are as old as the nation itself. So, how this sector managed to achieve such fast-tracked progress was a question that fascinated a number of research outputs.

In his recent book, Arkebe Oqubay (PhD), a special advisor to the Prime Minister, says that the cut flower sector is one sector in Ethiopia which has flourished as a result of government’s industrial policy. According to him, the sector was pushed into existence and then to prominence due to the special policy interest that is shown by the government. Perhaps, Arkebe might be subtle when assigning the credit to the government and policies, while many, including those in the flower industry today, argue that the sector came into being because of the unreserved support that the late Prime Minister has shown to the sector.

Historically, experimentation with flower farming in Ethiopia goes little further than the early 2000s. In fact, there are documents alluding to the fact that the first flower farms in Ethiopia appeared around 1980s in one of the state-owned commercial farms. These sources also attest to first attempts of export to be made from these state-owned farms.

However, the real experimentations with this line of business came from the first flower farm in Ethiopia established after the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) took office. This open-field summer flower farm, which started operation in 1993, opened investor’s eyes in many respects. The government’s too, for that matter. Since the first consultation and dialogue between the organized flower interest group and the governments started in 1997. After a short break due to the Ethio-Eritrean War, the consultation resumed in 2001 which led to the institutions of one of the most generous incentive and policy regimes in Ethiopia.

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As they say, the rest is history. Today, the humble beginnings of the cut flower sector has incorporated fruits and vegetables and herbs to be called the horticultural sector. And, currently, it its coverage expands over 1,500 hectares of agricultural land, employ some 50,000 workers (by officials estimates), accommodates little over 120 local and foreign firms and produces and exports some two billion flower stems annually (in 2012). According to industry players and scholars, these days, the sector looks to be running out of steam. The growth data substantiates this assertion since the steep increase in export revenue that was observed in early 2000s up until 2010 clearly shows stagnation; it looks to be contained just under USD 250 million.

Hailemicheal Assefa, owner of Endget Ethiopia Fruit and Vegetable Development Farm, a new entrant to the fruits and vegetables sector, vehemently attest to this scenario. “The outlook is rather gloomy; the dynamism seen in the early days is not there anymore,” he told The Reporter. A veteran in the flower sector regrettably admits that the sector has lost its ways especially after the passing away of its ardent champion at the top of the political ladder. In fact, there is little difference as current trends are observed in the sector. 

But, the “why” seems to be a more interesting topic of discussion for many in this industry. Nevertheless, the views expressed appear to be as diverse as the varied interest groups in the sector. For government agencies, the weight of external factors is bigger; while industry players and scholars attribute most of the problems to internal bottlenecks.

According to Alem Weldegerima, director general of the Ethiopian Horticultural Development Agency (EHDA), the persistent decline in the value of the euro against the dollar is the main culprit for the not so impressive growth in export revenue. Ethiopia’s chosen reserve currency, the dollar, appears to be gaining prominence over the euro, the currency used in European markets where the bulk of Ethiopia’s cut flower is sold. The euro to dollar exchange rate of 1 to1.5 before 2012, has taken a drastic fall in recent times. And for Alem, this phenomenon has two folds impact on the flower export receipts and the country’s export revenue as a whole.

He argues that the bulk of the cut flower export which ends-up in Europe, mainly the Netherlands, fetches its foreign currency on basis of the euro. This, according to him, impacts the export revenue receipts in absolute terms since the export is repatriated in terms of the dollar.

On the other hand, the impact of the euro is not limited to undermining the export receipts, Alem says; rather it also means that the purchasing power of the Europeans, who are primary consumers of the cut flower export which originated from Ethiopia, would also be undercut. This would put greater pressure in the effective demand of the sector, according to the director, and thereby compounding the problem that emanates from the exchange rate markets.

The veteran industry player concurs with the director’s assessment and the impact professed on the sector’s earnings. However, he then goes further to explain that the processing banks way of doing business also costs growers few cents on each transaction.

According to him, the grower/exporter gets paid in euros and it has to be converted into dollars. The processing bank, however, receives the euro at a buying rate, the industry player explains. However, the banks then sell it (the dollar) back to exporters at the selling rate which they use to pay for the cargo services for Ethiopian Airlines. Currently, Ethiopian charges some 80 dollar cents per kilogram for cargo services that it offers for flower exporters.

However, if it were for Teklay Gebrekristos, an economist by profession and former employee of the agency, the impact of the decline of the euro against the dollar is not that exaggerated. He rather points his figure at the new measurement system that the country is using since 2012. According to him, measuring the export of cut flowers using kilograms instead of the previously applied number of stem measurement mechanism hurts the country’s exports revenues.

Teklay’s claims aside, the directive which made the move from stem to kilogram as primary measurement mechanism for the cut flower export originating from Ethiopia is by far one of the most controversial directives in the industry’s short-term existence. The directive was first announced in 2012 pursuant to the study that was conducted by a team of professional pulled from the various regulatory and support giving governmental agencies. According to the new stipulations, cut flower exports that originate from the Ethiopia thereafter would be measured only by kilograms and not stems.

A number of things were mentioned to be wrong with directive. For one, the fact that flower is sold at the Dutch auction market and in fact anywhere else in world on basis of stem is something that many in the sector could not comprehended. To this effect, the veteran industry players argue that the kilogram measurement mechanism comes in direct contradiction to the accepted mechanism in the global market.

On the other hand, the clear difference in the stem-to-weight ratio of produce coming from at least three flower growing regions in Ethiopia and the variation that is created among regions in terms of foreign exchange repatriation as a result of the directive is another bone of contention. Apparently, the ecological condition in Ethiopia allows for wildly different varieties of flowers to be produced. Among these, the lowland and highland flower varieties standout as the most different. The highland flower varieties having thick and sizable bodies and weighing significantly more due to their moisture content are predisposed to have small stem-to-weight ratio than their lowland flowers.

Based on Teklay’s estimations, a lowland flower can have as high 52 stems per one kilogram while average being 40. This is much more than 30 to 35 stems-to-weight ratio that is recorded for highland flowers in Ethiopia. Currently, cut flower is exported in a standard box which is estimated to weigh some 13 kilograms. And According to Teklay’s estimation of stem-to-weight ratio, a single standard box coming from a flower farm located in lowlands could accommodate up to 676 stems when this tends to go down to 455 stems for the highland growers.

As far as the directive is concerned, to minimize the discrepancy created by the density of flower and the number of stems per kilogram between the two regions, an average price of 3.68 dollars per kilogram has to be set. Alem calls this the minimum net average price per one kilogram of flower and argues that it is reflective of the variation in the sector. In fact, this figure has been updated recently to 3.86 dollars. As far as Alem is concerned, it is the best one can hope for the since average price is only thing that can reflect the variation.

According to the director, there is no better way of controlling how much Ethiopia exports and determining how much currency should be repatriated by each grower/exporter. “What is the alternative?” he asks. “Previously, we worked under an honesty system, where we solely rely on the declaration of the exporters to determine the level of the flower stem that are shipped to the international markets,” Alem told The Reporter in an exclusive interview.                

This is where this all gets tricky; discrepancy seems to arise when the new system’s repatriation requirement is applied to calculate the per stem repatriation levels. According to the ratios and the updated repatriation requirement (3.86 dollars per kg), the lowland growers expected amount of foreign exchange repatriation could go as low as 0.742 dollar per stem while their highland counterparts are required to bring in as high as 0.1286 dollars per stem.

Do not feel bad for highland growers yet; rather there is another factor which is in the quality of flowers two regions sell. The highland flowers are by far preferable for their longevity of table life and looks. Hence, the price that is charged for the highland flowers is rather much higher than the lowlands with an odd rebalancing impact among the two groups of growers.   

But, as for Teklay, the impact is not limited to the difference observed between growers. Rather, he argues, since more than 60 percent of the cut flower export of Ethiopia is accounted for by the lowland growers. Hence, he says that the majority of the export receipts per stem at lower per stem price which is applicable for lowland growers. And the cumulative effect of this is bound to have impact on the nation’s overall receipts.

In fact, he goes further to say that on average, the nation receipts of foreign exchange from this sector has went down from 0.10 dollars per stem to 0.065 dollars per stem. This is where Alem draws the line. He categorically rejects the assertion that the country had lost revenue due to directive for being unscientific and baseless. “Without any yardstick to measure the previous level of the cut flower exports from Ethiopia, how we make the comparison between the “before” and “after”,” he argues. “Show me any means of measuring the previous levels of cut flower exports from Ethiopia; it is all on the basis of trust. So, I can’t really buy an argument saying the directive have resulted in lower export receipts or decline in volume of exports,” he asserts.

“But, our mini assessment does not really show any sign of decline or lost revenue. In fact, we saw that country has benefited in terms of getting the opportunity to export lower quality flowers when shipped in kilograms. Previously, it was easy to reject low quality stems before they were shipped,” he added.

Nevertheless, he also says that other aspects of the directive, which are much more favorable to the sector, have been completely ignored in this debate. The system has other merits, according to director. He says that previously the settlement process at the national bank has too much delays and complications. An exporter would not be issued an export permit to ship fresh batch of flowers until he settles the repatriation requirements. This was the case even when the exporter has repatriated the currency but has to wait for all the information to inter to the processing banks and clients banks,” he says. That was a big problem for him. Now, the export process doesn’t start with the issuance of the export permit issued by the NBE rather it starts at the customs check point where the product is shipped.

In its broader sense, the issue of constrained land allocation, failure with regards to diversifying market destinations and weakness of the agency to deliver one-to-shop support to investors is widely identified as the cause for the stagnation in the floriculture sector. As far as, Hailemicheal and veteran industry players are concerned, the agency needs to recalibrate its activities to support the sector move forward. According to them, one issue is allocation of land to new and expansion projects in the sector. Halemichael says that he had to wait from 2012 to 2015 to get access to land to expand his investment to the area of fruits and vegetables. “The land I have being given is not yet free from complications,” he bitterly complains. The bureaucracy is getting unbearable, according to Hailemchael, and it is discouraging those who want to join.

Abebe Gebrehiwot, a diaspora returnee, says that he is a victim to the system and elongated bureaucratic process to join the horticultural sector. And sadly, he says, the biggest delay is with agency itself. According to him, he waited for two years and wrote two project proposals to finally get directed to the Amhara Regional State where he is now preparing to start his farming practice. “I don’t see facilitating role in the agency; in fact the two-year delay was while my project is being reviewed by the agency,” he told The Reporter. An agricultural professional by training, Abebe seriously questions the technical capacity of the personal in the agency from the interaction he had with them.

Nevertheless, Alem says that things are not easy for the agency either. He, for instance, says that regional administrations are highly reluctant to give land for flower growers. As a result, he says that a number of land requests for expansion projects are still pending since the agency do not have any power to order the regional administration or other stakeholder agencies.

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