Global Crisis Hits Flower Industry

February 16, 2009


After the badly hit local tourism, now the second major revenue earner for Arusha – the horticulture industry – has its leaves burnt in the raising heat of global economy recession.

As global credit crunch continues to bite, life is no longer flowering to Northern based horticultural growers in Tanzania. Their exports are getting more expensive to ship and even harder to sell while production costs continue hitting the greenhouse roofs.

The petals of cash, mostly grown in the northern zone regions of Arusha and Kilimanjaro are no longer yielding the anticipated fortune even during this season of flower demanding observations like Valentines’ Day, Mothers’ Day and Easter holidays.

The Arusha-based Tanzania Horticulture Association has just released a comprehensive report on the impact of the global credit crunch on the horticultural industry in Tanzania.

According to Jacqueline Mkindi, the Executive Secretary for TAHA, the industry is, ” as badly hit as articulated on the document and we are trying to get necessary support from various stakeholders including the government of Tanzania, banks and development partners in rescuing the industry from this crisis ,” she said.

” To tell you the truth, if something is not done immediately, some big companies here will collapse. Imagine now it is cheaper to throw away flowers than shipping them due to high freight costs, and low prices at the market. The funny thing is, we are even responsible in paying the dumping costs if flowers are not bought at the auctions,” maintained Ms Mkindi.

Since September 2008, according to the report, when the whole world was being confronted with a financial meltdown, the crisis’s multiplier effects have inevitably drastic implications for the global horticultural sector, with the Tanzanian industry faring at worst.

The horticultural Industry has been detrimentally affected by certain factors over the last four months which have put pressure on flowers and vegetables demand and sales prices in the market. From October 2008, prices on average have declined by between 30 to 50 percent as compared to the previous year and as for flowers certain varieties and lengths have had zero demand.

The Decline in the World Economy and Purchasing Power has played a major impact on the horticultural Industry by reducing consumer spending including the retail of flowers as a major example.

The impact of reduced credit, higher unemployment and erosion of personal savings and investments has reduced the demand for flowers, especially in emerging markets. We saw major growth in the World Economy in 2007 of 5.2 percent with resultant growth in the Flower Industry, but this increased supply now exceeds demand with resultant downward pressure on prices.

Usually, there is a trend in the flower auctions of the buyers giving a higher priority to the flowers produced in Europe before looking for flowers from Africa.

If the financial crunch will continue causing a lower demand in the flower market, the flowers from Africa (Tanzania included) which are usually given a second or third priority might find themselves completely pushed out of the market.

This, according to local growers, is a very serious threat to the Tanzania flower producers because with the high operational costs (especially fuel and labour) most of them are now contemplating closing down their businesses should the fall in demand prevail.

Another group of exporters greatly affected by the financial crunch is the fresh fruits and vegetable exporters. Some of the major markets for Tanzanian vegetable products are supermarkets chains in Europe like TESCO, Sainsbury and ASDA. These supermarkets have now cut down their vegetable prices by more than 25 percent, a phenomenon that have left our vegetable producers counting huge losses

Two major importers of East African flowers have seen their currencies weaken dramatically which has curtailed imports of flowers. The UK Pound has weakened by 28 percent over the last year, resulting in a 20 percent reduction of imports and Russian Rouble by 35 percent which has had the equivalent downward impact on Russian prices.

The exchange rates have greatly shot down to the extent that a ratio which was 1: 2 (pound to dollar) is now 1: 1.47. Prior supply to the UK have now been diverted to the Dutch Auctions, thereby causing an unforeseen over supply on the Auctions, which have affected Tanzania Companies being mostly Auction suppliers.

Most European countries have had severe weather this winter, worst since 1997 with temperatures falling as low as -30, impacting on the delivery, handling and distribution of flowers. Outdoor and florist sales are most affected, as consumers reduce their purchases. Wholesalers and distributors have suffered machinery breakdowns and cancellation of deliveries due to impassable roads.

But there are other factors currently nipping the flower industry in the bud.

The weather patterns in the country and region have also gone to the extremes.

The very hot weather of late is having some impact on the operational costs of horticultural producers. When it is dusty, the farmers use more chemicals to control pests like aphids and Red Spider Mites. The farmers say they also fail to get the quality of products they expect as far as color intensity, the correct weight, height, sizes and even taste. The yield per Hectare has also gone down due to high temperatures.

Arusha and Kilimanjaro offer the most favourable climatic conditions for flower growing in Tanzania but even they are now getting hotter as time goes by.

Kenya and Ethiopia growers on the other hand have continued to expand in 2008, with the larger successful farms increasing their hectares. The industry is becoming increasingly more vertically integrated, with large retail groups purchasing direct from supplier farms. To meet the demands of large retailers, supplier companies have grown in size to meet customers “one stop supplier” requirement with commensurate savings from economies of scale.

The Rise in commodity prices in 2008 has also affected input costs, with oil peaking at US $146 barrel in July 2008, putting upward pressure on fertilizer and air freight. The weakening Euro (versus the US Dollar), has also resulted in higher input prices as majority of operating costs are dollar based. Therefore the resultant higher operating costs have lessened the farms ability to weather this period of lower sales prices.

Generally, this is the toughest moment the players in the horticultural industry have experienced over the past 20 -30 years. There is a great threat of some of the
horticultural producers closing down their businesses if the situation is not salvaged.

Tanzania flower producing companies for example, arefaced with stiff competition from Kenya and Ethiopian companies, which due to their size and superior infrastructure, including air freight, and better growing conditions, are in a stronger position to weather the impending World Economic Depression.

Tanzania’s horticultural industry has registered tremendous growth in the past three years and has recently been recognized and prioritized by key stakeholders including the government, as a significant contributor in the national economic growth and poverty
alleviation strategy.

The industry earns the country more than US $ 130 million and employs around 50,000 Tanzanians , of course this is minimum compared to Kenya which earns more than US $ 1.7 billion per year and employs 500,000 new citizens every 12 months.

The industry has requested the intervention and support of the central government of Tanzania and the financial institutions like the Bank of Tanzania (BOT), the Tanzania Investment Bank (TIB), and other key stakeholders like the development partners like USAID, the Dutch Government, in effort to cling afloat in the ongoing economical downturn.

Source Flowerweb