Government intervention is needed in transportation and the supply chain if Kenya is to revive a cut-flower industry that was flourishing until the pandemic, says Tony Watima
This article was first published in the July/August 2020 International edition of Accounting and Business magazine.
Being the world’s fourth-largest exporter in a multibillion-dollar market is a big deal for an African nation. In the global market for cut flowers, after the Netherlands, only Colombia and Ecuador are bigger players than Kenya, and the East African country still has the lion’s share of the valuable European market. It is an African success story, but one that’s wilting under the impact of coronavirus.
Floriculture is not just a prime foreign currency earner for Kenya, it also employs around 150,000 Kenyans directly and more than 500,000 indirectly. With wages making up more than 40% of the cost of flower farming operations, making employees redundant is the first cost-cutting response to any substantial drop in demand for flowers. And demand hasn’t just dropped, it has gone through the floor. Kenyan flower exports plunged by around 80% as European economies shut down.
The sector is clearly of great significance to the Kenyan economy and labour market, and the government has been working on a plan to revive it. The main structural problem is logistics. As much as 40% of flower prices goes on transport and supply chain logistics; with the coronavirus lockdown hitting air travel hard, those airlines still operating are charging more than double what they were a year ago. Hefty transport costs are the biggest barrier to a return to business for Kenyan flower farmers.
Flowers are highly perishable products, so efficient logistics and processes are key. For every extra day they spend travelling, flowers lose 15% of their value. The sector is crying out for logistics efficiency and that is where government should step in to help.
First it needs to subsidise the cost of transportation. Airlines have recently introduced volumetric weight charges for flowers (where the weight of the package is estimated on the basis of its length, width and height). Farmers struggle with these charges as cut flowers have a high value-to-weight ratio.
Secondly, government can work with stakeholders in setting up a reliable cold-chain infrastructure (ie a series of refrigerated production, storage and distribution facilities that maintain a constant low-temperature supply chain), and a tech-based tracking and visibility solution. Kenya may be a leader in perishable goods on the continent, but it needs to streamline its cold-chain infrastructure and comply with protocols and common standards.
An estimated 20% of perishables go to waste between harvesting and the point of sale. This can be improved through the use of technology and a good cold-chain infrastructure.
Europe’s Carrefour has adopted blockchain technology to track and trace fresh produce from farm to shelf. Kenya’s government should help the flower farming sector invest in a blockchain-based supply chain, in conjunction with an efficient cold-chain infrastructure to improve the quality of a product that Kenya has every reason to be proud of, and which accounts for around 1% of the country’s GDP.
Tony Watima is an economist based in Kenya.
"For every extra day flowers spend travelling, they lose 15% of their value. The sector is crying out for logistics efficiency"