Kazimierczuk Policy brief Flower sector 2017

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POLICYBRIEF

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DutchCompaniesandProduc<veEmploymentintheFlowerSectorinKenya

TheflowersectorinKenyaIn 2017, floriculture in Kenya earned KES 82.2 billion. It is Kenya’s fourth foreign exchange earner aAerremiCances,teaandtourism.Withintheplantgrowingsub-sector,wedisHnguishthreemainacHviHes:breeding(developing new varieHes), propagaHon (mulHplying by any process of natural reproducHon from the parentstock) and growing plants. Growers provide the highest employment opportuniHes in the enHre chain,predominantly for women . Due to the nature of their work, breeders and propagators hire less people.However, breeders contribute substanHally to indirect employment creaHon. Indirect employment is alsocreated by a number of local and internaHonal companies operaHng in the flower value chains. The KenyaFlowerCouncil(KFC)esHmatesindicatethatthesectorgeneratesabout90,000jobsdirectlyatflowerfarmsandabout500,000 indirectly.Throughbackward linkages,thefloriculture industryhasan impactonover2millionlivelihoods,whichequatestofivepercentoftheKenyanpopulaHon.

ForeigninvestorsandpartnersplayedacriHcalroleinlaunchingandexpandingthefloricultureindustryinKenya.IniHally, large and medium flower farms were owned mostly by foreigners, Kenyans of foreign descent ormembersoftheKenyan(poliHcal)elite.Kenyansmallholderswerealsoinvolvedinflowergrowingatthatstage.Danish and Dutch companies started flower export businesses, and Dutch and Israeli advisors have beenimportantsourcesoftechnicalsupport.SincetheliberalizaHoninthe1990s,thesectorhaslargelybeendrivenby themarket forceswith theprivate sector taking the lead.Today,flowergrowing isdonepredominantlybyKenyan-ownedfarms,whileDutchcompaniesdominatethebreedingandpropagaHonacHviHes.

An important step in Kenyan floriculturewas signing the InternaHonal ConvenHon for the ProtecHon of NewPlantVarieHes (UPOV)under the1978ConvenHon inMay1999and the1991ConvenHon inMay2016.Sincethen,severalbreedingcompanieshaveenteredtheKenyanmarket.Asaresult,foreignbreedersswiAlystartedto introduce their flower (and other horHcultural) varieHes in Kenya, with the majority of applicaHons for

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protecHonconcerningdifferentvarieHesofroses. AllflowerbreedvarieHeswereofforeignorigin;nevertheless,1

their introducHon has contributed to the diversificaHon of the Kenyan floricultural sector and to thedevelopmentofaglobaltradeoffloriculturalproducts.Consequently,theexportofKenyancutflowerstotheEuropeanmarketincreasedrapidlyandsubstanHally.

In 2016, more than 3,000 hectares, divided into 190flower farms owned by 145 companies (medium2

enterprises and largemulHnaHonals), were devoted tocommercial floriculture. Out of 190 farms bigger thanthree hectares, 17 per cent (33 companies) can beconsidered Dutch (Table 1). The expression ‘can beconsidered’ is used deliberately, as actually all thecompaniesareregisteredasKenyan.Forthepurposeofthis study, however, we ‘consider’ a company Dutchwhen capital and management come from theNetherlands;orwhenthereisanacHvelinkwithaDutch‘mothercompany’.ItisthereforeobservedthatwhilelocalKenyaninvestorshavebeenabletoenterintothecutflowergrowingbusiness, theyoungplant segment is somehowofftheir limitsandremainsdominatedby theestablishedEuropean,mostlyDutch,breedingcompanies.Understrictbreeders’licences,youngplantmaterialisincreasinglypropagatedatproducHonfaciliHesinlow-costcountrieslikeKenya.

AsfortheflowerproducHon,rosesconsHtute75percentoftheoverallflowerproducHon,butwecanobservea(re-)growingnumberofsmallholderflowerfarmersandcompanieswhosourceflowersfromthem.Smallholdersgrowmostlysummerflowers.ThemainflowergrowingareasareconcentratedaroundNairobianditsenvirons,MountKenya,andtheCentralandRiAValley,withthebiggestproducHontakingplacearoundLakeNaivasha.Finally, there is a number of companies, both internaHonal and local, that work in the supply chain. Thecompaniesareresponsibleforsellingchemicals(usuallyKenyancompaniesrepresenHng internaHonalbrands),necessary equipment, farm inputs and infrastructure (like greenhouses andother tools), packaging, transportandhandling.

SurveyThe survey looked at the impact of (predominantly Dutch) mulHnaHonal companies on the promoHon ofproducHveemploymentinKenyainthesectoroffloriculture.Thedatausedinthispaperwasgatheredusingamixed methods approach. First a survey was conducted among 46 firms operaHng in the Kenyan flowerproducHonsub-segmentusingastandardizedquesHonnaire.Thiswasfollowedbyacasestudyofselectedfarmsdrawn largely from the survey informaHon to get in-depth informaHon, as well as interviews with sevencompaniesinthesupplychain.

ThesurveywasconductedbytheUniversityofNairobi (UoN),KenyaAssociaHonofManufacturers (KAM)andAfrican Studies Centre Leiden University (ASCL) in the frame of a NWO-funded project “DutchMulHnaHonalBusinesses, Dutch Government and the PromoHon of ProducHve Employment in Sub-Sahara Africa: AComparaHveStudyofKenyaandNigeria”.

Between 1997 and 2003, the number of applicaHons for roses represented 40.4 per cent of the total applicaHons for1

protecHon.

Asthesectorisverydynamic,thecompanies’mergersand/ortakeoversarequitefrequent.2

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!Numberofallcompanies

NumberofDutchcompanies

%Dutch

Grower 135 19 14%Grower,propagator 18 0 0%Propagator 1 1 100%Breeder,Propagator 3 3 100%Breeder 9 7 78%Grower,sourcing 5 0 0%Sourcing 4 2 50%Flowerbroker 11 1 9%Smallscalegrower 4 0 0%GrandTotal 190 33 17%

Table1.FlowercompaniesinKenya

Source:Owncalcula.onsbasedonthedeskresearchandfielddata(informa.onforJune2016).


Mainresults

Out of the 46 surveyed companies, over half(61 per cent) consider themselves a Kenyancompany with headquarters located in Kenya.Only nine indicated having headquarterselsewhere (one in Israel, one in Germany andseven in the Netherlands). Although morecompanies could be classified as Dutch (byhavingaDutchDirectorandownerorbyhavinga sister company in the Netherlands), thesecompaniesareofficiallyregisteredasKenyanenHHesandpresentthemselvesasKenyan.AsoneoftheobjecHvesof this survey is to comparehowDutch companiesperformcompared tonon-Dutchflowerfirms, companieswitha‘DutchconnecHon’areconsideredasDutchforthepurposeofthisanalysis.

The majority (83 per cent) of the responding companies are growers, while 13 per cent are breeders andpropagators. Among the laCer group, all the companies areDutch. The surveywas also conductedwith onesmall-scalegrowerandoneflowerbroker(Table2).

Employmentcreated

TotalemploymentcreatedbyalltherespondentswasesHmatedtobe23,849intheflowerproducHonand1,227intheinterviewedcompaniesoperaHnginthevaluechain.RegardingtheflowerproducHon,Dutchcompaniesareresponsiblefor33percentofthetotalfigure.Growersandpropagatorsareresponsibleforthemajority(98per cent) of the employment created by the respondents,while breeding companies for least of it (0.03 percent).

Salaryinthesector

Withregardtothesalary,onaveragethesurveyedflowerproducingcompaniesprovidehigherthanminimumwageintheagriculturalindustry(2016:KES6,780onaverageandKES5,436forunskilledlabourers)butnotyetanequivalentofthe(rural)livingwageofapproximatelyKES14,000.IfwezoominontheDutchcompaniesinthesector,wewillseethattheyprovideanaveragesectorsalary,whichisdoublethestatutoryminimumwage,butonly in twocasesofbreeding companies, it surpasses the (rural) livingwage standard for theproducHonworkers.Workingforabreedingand/orpropagaHngcompanyrequireshigherskillsandaddiHonaltrainingevenfortheproducHonworkers.Finally,itcanbeobservedthatDutchcompaniesareofferingamuchmoreaCracHvesalaryonthemanagementlevelincomparisontothesectoraverage.

All companiesofferaddiHonalbenefitsontopof thebasesalary. InaddiHontoobligatoryhousingorhousingallowance,most of the employers provide their employeeswithwriCen contracts,maternity/paternity leave,meals,transport(allowance),healthcare,breasoeedingfaciliHesandchildcarefaciliHes.Dutchcompaniesappearto discriminate least regarding the division of the benefits among the high management and permanentproducHonworkers,andtheyprovidemostofthebenefitstotheirtemporaryandcasuallabourers.

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Table2.SurveyedflowercompaniesinKenya

Figure2.AveragesalaryinKESbytheDutchcompaniesinthefloriculturesectorFigure1.AveragesalaryinKESinthefloriculturesector(2016)


Skillsdevelopment

Mostofthecompaniesprovideon-the-job, in-housetrainingfortheiremployees,buttheydonoprovidetrainingtoothernaHonalcompanies. Ifthesector istodevelopfurther,thefollowingskillsareinthehighdemand:

• Agronomist(incl.pests&diseasesmanagement)• BreedingandpropagaHon• GoodagriculturepracHces• Post-harvesthandling• Technical(i.e.maintenanceformachines)• Management(includingaspectsofH&S;logisHcs)• Professionalsalessupport

Supplychainandimportedproducts

The majority of the companies in the supply chainare local suppliers, yet they are distributors ofimported products. Among the most frequentlyimported products , the fol lowing can bedisHnguished:

• GreenhouseandirrigaHonmaterials• Organicinputs• FerHlizers/Chemicals

These products are imported because of threepredominantreasons:

• There is no domesHc source of the product inKenya

• ThedomesHcsourceisofaninferiorquality• The imported product or service is significantly

cheaper

BoSleneckslinkedtothesupplychain

1.Bureaucracy

• DelayswithVATrefunds• Too much paperwork and delays in geqng

documentsforimport• Unreasonablyhighimportduty• LongclearanceHmeinMombasa

2.Transport

• Highfreightcharges• Badroads• Harassmentoftransportbypolice

3.Input/Seed

• KEPHISrestricHonsonimporHngseeds• Quality,priceandavailabilityofinputs• Manycounterfeitproducts• HighcostsofroyalHesdictatedbybreeders (this

oAenblockflowersmallholders)

4.Qualityandpriceofpackingmaterials

Keyissueslinkedtoopera<onsintheflowersector

“Over-regulaHon”• Some contradicHons on naHonal vs. county

level• NogovernmenthelpnorincenHvesprovidedto

thesector• CorrupHononmanylevels• ManystandardsandcerHficaHon• Manycompaniesaresignatoryofoneormore

standards

• Very important role of the KFC (and Dutchgovernment) in pushing the sector to reachinternaHonalstandard

OperaHonalissues• ExchangeratevolaHlity• Highlabourandlivingcosts• HighcostsofelectricityandproducHon

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Picture1.ApartofpendingunpaidVATreturnsforflowerexport

Source:PhotobyKazimierczuk(2016)


PolicyRecommenda<onsKenyanisintheworldeliteofcountriesproducingflowers.ThesectorhasmaturedovertheyearsandtodayisoperaHngbasedonhigh internaHonal standards.Mostof thenecessarymechanismsarealready inplace,buttheymaysHllneedtobeenhanced.Wethereforerecommendthefollowing:

TotheKenyanGovernment:1. Capacitybuilding

a. InvestincapacitybuildingatthehigherlevelandattheTechnicalandVocaHonalEducaHonandTraining(TVET)leveltoincreasethepoolofskilledlabourinthesectorforcompeHHveness.

b. Invest in local R&D and public research to promote the development of indigenous flowervarieHesforcommercializaHon.

2. Enhanceconducivebusinessenvironmenta. Improve on producHvity and compeHHveness of the sector by enhancing coordinaHon

mechanism between counHes and naHonal government on key issues in the sector. Use theopportuniHes created by plaoorms like the Council of Governors Agriculture and LandsCommiCee,aswellasthePresidenHalRoundTable(PRT).

b. ConHnuethefightagainstcorrupHon.c. Improvethespeedoftaxrefundsfortheindustry.d. Finalizespecialeconomiczonesprovisionforthesector.e. ProvidetaxexcepHonsforcompaniesthatinvestinin-countryR&DacHviHes.

3. Produc<vitya. ReviewandimprovesubsidiesimplementaHononagriculturalinputsandequipmenttobenefit

thegrowerstoreducecostsofproducHon.b. ConHnueimprovinginfrastructure.c. Expandprovisionofagriculturalinsurancetoconsequencesofclimatechange.

4. Wagea. Engage labour organisaHons and workers during wage discussions for consumer/stakeholder

inputwithoutoverridingtheemployers.

TotheInternaHonalCommunity:1. TechnologyandKnowledgetransfer

a. Technicalknowledgei. Engageintrainingsoflocalcompanies.ii. ProvidemoretechnicalknowledgeandsupportonnaHonallevel.

b. PromoteR&Din-countryandcontributetopublicresearch.c. Undertakementorship programmes in partnershipwith running insHtutes (UniversiHes, TVET)

andlocalcompanies.d. Challengea‘closednetwork’ofbreedingcompanies.

2. Responsiblebusinessprac<cesforsustainabilitya. BiologicalpestcontrolandferHliserdevelopmentanduse.b. IntegrateCSRintothecorebusinessoperaHonsforenhancedcommunitybenefits.c. CommittousingasignificantleveloflocalmaterialsintheproducHonprocess.d. Honour and implement climate change agreements in the business operaHon for sustainable

producHon.3. ExpandfinancialinstrumentstoSMEsandsmallholderflowergrowerstosupportprofessionaliza<on,

inclusivenessandsustainabilityofthesebusinesses.4. Invest in capacity training of trade unions for professionaliza<on, including mentorship for proper

workerrepresenta<on.

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ContactDrChibuikeUUche,researchprojectleader,[email protected]

Consor<umMembres• AfricanStudiesCentreLeiden• KenyaAssociaHonofManufacturers• UniversityofNairobi• EnuguChamberofCommerce,Industries,MinesandAgriculture• AfricanHeritageInsHtuteEnugu

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Kazimierczuk Policy brief Flower sector 2017