Saturday, September 20, 2008

Flower exporters face new food miles threat

Kenya’s horticulture industry is facing a new market access threat as the European Parliament prepares to vote on a new law that would see aviation included in the continental emissions trading scheme (ETS).

The law, which has been on the cards for nearly two years, comes before Parliament for a vote later this month and could be implemented in 2010 if passed. 

It will force EU retailers to give preference to agricultural produce that has not been airlifted to meet their obligations under the ETS.

This means that a British supermarket would, for instance, give preference to flowers from the Netherlands that can be transported to its outlets by rail over Kenya’s air freighted consignments.

Such a law would, for example, make it harder for Kenya’s horticultural producers to compete against fresh produce from the Mediterranean that can reach Europe’s supermarket shelves by any means but air. 

The inclusion of airlines in Europe’s ETS is the latest round of the long-fought food miles battle — the idea that the contribution of any agricultural produce to global warming should be determined by the distance it has travelled to reach the supermarket shelves.

Fresh produce, which is mainly transported from the tropics to European and North American markets by air because they are highly perishable, has been targeted under this scheme.

If passed, the new law is expected to be a big blow to Kenya, which has been fighting against the food miles concept for the past three years. 

Food miles

Key research institutions in the UK have supported Kenya’s position and dismissed food miles as representing an oversimplified interpretation of the global warming problem that amounts to erecting a non-tariff trade barrier to fresh produce from outside Europe.

The law which is pending before the European Parliament has its roots in a December 2006 European Commission proposal to include aviation in the European Emissions Trading Scheme (EU ETS). 

Under the scheme is a cap and trade system that specifies the limits of harmful gases that each sector or player is allowed. Those which exceed the limit must pay for the excess in the emissions trading market allocated to players who have cut their emissions below the caps.

Aviation was initially not included in the ETS, which was established in 2005. The inclusion of air freights in the trading scheme means airlines will have to bear additional costs that they will ultimately pass on to fresh produce exporters in form of higher freight charges.

The European Parliament last year voted on amendments to the draft, culminating to an agreement on its passing by the environment committee of the European Council on December 20.

A political agreement between the European Parliament and the Council of Ministers is required for the proposal to become law. 

A final decision is expected by mid this month. The new regulation proposes to cap at not more than 50 per cent the average level of emissions in Europe in 2004/2006 by 2012. 

Thereafter, a cap should be set in line with the EU target of a 30 per cent drop in greenhouse gas emissions by 2020. 

To achieve these targets, the EU plans to bring the various sectors of its economy under the emissions trading scheme, which will include all flights departing from and arriving in the EU by 2010. The global market for cut flowers is worth $5.7 billion with most of the products being air freighted. 

The Netherlands, which accounts for about 54 per cent of exports, is the market leader, while Kenya is the number one exporter of cut flowers to the EU with 36 per cent of the market share.

The value of Kenya’s flower exports has grown from Sh8.5 billion in 2000 to Sh32 billion last year.

Along with vegetables and fruits, the fresh produce sector, which has been growing at rate of 20 per cent per year, raked in Sh70.3 billion making it the second most important source of foreign exchange for the country. But higher cost of air freights is expected to slow down this growth as exporters lose the competitive edge in key European markets such as the UK.

Ms Jane Ngige, the Kenya Flower Council chief executive, says earnings from the sub-sector are expected to climb to Sh40 billion this year and grow next year but could decline significantly once the airlines are included in the trading scheme in 2010.

She says this looming threat in the traditional European market is prompting local producers to start looking for alternative markets.

Germany is the leading buyer of Kenyan cut flowers accounting for 18 per cent of the total exports followed by UK (17 per cent) and US (16 per cent).

Raising presence

Kenyan growers are especially keen on raising their presence in the Japanese market above the current 14 per cent and in the US.

The less than robust earnings forecast is linked to low income in the first quarter of the year when the country was embroiled in post-election turmoil.

St Valentines Day observed on February 14 and Mothers Day marked on March 8, each year, both account for 50 per cent of total sales but the exports supply chain was disrupted by the post-election violence.

This was immediately followed by the low sales season that lasts five months until September.

Most of Kenya’s horticultural exports are produced organically by small scale farmers and are freighted in passenger air craft to foreign markets.