Where have all the flowers gone? - The effects of Brexit on East Africa's horticulture sector

Feature | 12 April 2017
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If Britain fails to secure a Brexit deal that gives it some form of access to the EU single market, East Africa's horticulture export sector could be dealt a fatal blow, writes Edward George

The prospect of Brexit and the withdrawal of the UK from the EU's single market has raised numerous questions about the future of the UK's trade relationship with the world. One area that has received scant attention is the impact that Brexit could have on East Africa's most valuable soft commodity export sector: horticultural goods, and in particular, the lucrative niche sector of cut flowers.

Over the past decade the production and export of cut flowers has grown from a cottage industry into a sophisticated international value chain, stretching from greenhouses in Kenya and Ethiopia to flower auctions in the Netherlands and the UK. By 2015 horticultural goods had become Middle Africa's single largest soft commodity export, accounting for 18.2% of the total (Figure 1). This was larger even than cocoa, which for decades has been Africa's most valuable soft commodity, and this has helped re-establish East Africa as the continent's leading soft commodity exporter.

Diversification by flower

East Africa's soft commodity exports have historically been dominated by tea and coffee. Kenya remains Africa's largest producer and exporter of tea, serving markets in the UK and South Asia, while Ethiopia is the origin of Arabica coffee and Africa's largest exporter of the bean (its closest rival, Uganda, is Africa's largest exporter of the more bitter Robusta variety).

East Africa is also a leading producer of nuts, most of which are exported to India and Vietnam for processing, and of sesame seed (led by Ethiopia). East African farmers have long produced horticultural goods for local markets, and to this day Ethiopia remains the region's largest exporter of vegetables (fresh and frozen) to its neighbours. But cut flowers were not a viable option for export, given their perishability and the high cost of refrigerating and transporting them to foreign markets.

However heavy investment by international flower companies has changed the picture, drawing on the regions ideal climate and abundant water resources, new technology and strong support from local government. Today millions of cut flowers are exported from the region every day, using a sophisticated cold storage value chain that loads crates of cut flowers onto aircraft for rapid delivery to flower markets in the EU. The explosive development of this sector has transformed East African economies, providing employment, tax receipts and surging export revenues (17% of the region's total in 2015) as well as helping diversify exports away from dependence on tea and coffee.

But the cut flower sector is dangerously dependent on a single export market (the EU) which takes around half of all horticultural goods exports from Africa (Figure 2). Around three-quarters of all cut flowers are exported to the Netherlands, which is the home of the world's largest flower auction complex, from where they are distributed across Europe.

The next largest export markets are the UK and Germany, which take 10% and 8% of East African flowers, respectively, for local consumption (figure 1). Given the UK's integration into the single market, there are substantial flows of flowers & finance between the UK and the Netherlands, tying both countries into the value chain. As a result the prospect of the UK leaving the single market has called into question the functioning of the value chain, and could jeopardise its future in East Africa.

Figure 1: EU importers of African cut flowers, 2015

 

Kenya decides not to gamble

Ethiopia and Kenya are especially at risk. Both dominate cut flower exports to the EU, accounting for an estimated 86% of the total in 2015 (Figure 2). The profitability of cut flower exports reflects the duty-free access both countries' flower exports have to EU markets. But the future of this access has been put into question by Brexit, which could cut off the UK from the single market and redefine its role in providing finance and insurance to EU companies.

This has put a 'Brexit handbrake' on the EU's attempts to conclude negotiations for Economic Partnership Agreements (EPAs) with Africa's key regions. This is because the EPAs, while continuing preferential access for African goods over a period of 25 years, have been widely criticised for doing little to promote African value addition or the transfer of skills. Consequently the prospect of a better deal from a post-Brexit UK has prompted several African countries to refuse to sign up to them.

Kenya has broken ranks with its peers and signed the EPA, concerned that if it missed the deadline its status as East Africa's only Medium Developed Country (MDC) would result in it losing preferential access to EU markets for its cut flower exports. In contrast, Tanzania and Uganda, which are both classified as Least Developed Countries (LDCs), have refused to sign the EPA, as their trade with the EU is already covered by the Everything but Arms (EBA) deal, which guarantees them duty-free access for all goods except weaponry.

Figure 2: African exporters of cut flowers to the EU

 

This has raised huge uncertainties for Kenya's cut flowers sector, as the status of its duty-free exports remains uncertain while fellow EAC members refuse to sign the EPA. There is also a question mark over how this value chain can continue to be financed and insured by institutions in the UK, which currently have free access to EU markets under 'passporting' regulations that are likely to end at the conclusion of Brexit negotiations.

Doubts also hang over the sustainability of Ethiopia's cut flowers export sector, after a number of foreign-owned installations and greenhouses were targeted during the country's recent wave of popular protests, threatening to scare off investors. And finally, there has been long-standing criticism (which has been present since the early days of the sector) that exporting refrigerated goods by aircraft from Africa's east coast to Europe is environmentally unsustainable, given the large carbon footprint produced by industrial-scale refrigeration and air transportation.

East Africa's cut flowers export sector is a powerful example of the complex value chains that have developed in tandem with globalisation, deploying new technology and linking together producers and consumers from opposite sides of the planet. The speed with which this sector has emerged is a testament to the success of this model.

But it will require smart thinking to keep it flourishing, and it may require some parts of the value chain to be reorganised or moved into or out of the EU/UK, as well as a rethink of the financing model. For now, the flowers will keep flowing to the EU. But should Brexit fail to produce a deal that continues the UK's access to the single market, it could deal a fatal blow to the sector's prospects.

Edward George is country head, UK representative office and head of group research at Ecobank

 

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