When the United Kingdom exited the European Union, it introduced tariffs on imported goods, including flowers. In practice, most countries were exempt from these tariffs due to existing trade deals of UK to other members of European Union. But that wasn’t the case for flowers from Kenya, Ethiopia, Tanzania and Uganda that were bought through third countries like Netherlands. When the flower of East African Nations supplied through third countries the product is subject to 8% tariffs due to specific rules of origin that was agreed between the EU and the UK at the time the UK’s exit from the EU (Brexit).
It is in April 2024, however, that the United Kingdom Government suspended import duties on fresh flowers of non-EU origin, which are traded directly and through the European Union. The suspensions will remain in place until June 2026, with a possible extension to be considered. Right after the elimination of eight percent duty for flowers and ornamental plants, there was a strong conviction that unlimited quantities of flowers will be exported to the UK with zero tariffs from Ethiopia.
At the commencement of this measure, the proponent of free trade advocate that zero tariffs would greatly lead to strengthen competition, improved resource allocation, boosting output, stimulate investment expansion, increase employments and market share. Previously flower that came from countries such as Ethiopia, Kenya and Uganda that were sold through the flower auctions in Holland had an 8% tariff added. This has already gone.
The suspension of 8% duty for cut flowers will be a big win for major flower growing regions in East Africa. Many stakeholders, who facilitate and promote the floriculture investment and export, were excited with the initiatives and sought it as a significant stimulant and a positive progress for the floriculture export industry.
Despite this opportunity, some critics argue that discontents about seizing this opportunity spread among an optimistic group of societies who are waiting to see changes. According to information obtained from the Ethiopian Customs Authority, before the suspension of the 8% tariff, like between July 8, 2023, and June 8, 2024, the total volume of flowers supplied to the UK market accounted for 7.88%, which is estimated to be 41,109,374.94 USD in value terms.
However, after the introduction of the zero tariffs, no apparent change has been recorded; rather, it shows a remarkable reduction of market share. The most recent information obtained from ECA reveals that the market share of flowers in the UK flower market shows 6% and 5%, respectively, in the months of September and October 2024.
The discontent with the situation has also another dimension. There are very few flowers’ producing and exporting companies who are motivated to maximize their benefit from UK Zero Tariff initiatives. Before introduction of zero tariffs, 2023, out of the total number flower producing and exporting companies, the number of companies who participate in UK flower market ranges from 6-10% or from 4 to 6 in number. Surprisingly, the number of companies who participated in UK flower market dramatically reduced overtime, According to ECA (2024), for the last four consecutive months, the number of companies who participated in UK flower market reduced up to3% or 2 to 3 in number.
The question is what does it mean? Why we can’t seize the opportunities given to us and on the contrary even push the opportunity away unconsciously? Why does it happen?
Unlike Ethiopia, different report reveals that Kenya’s floriculture sector has scored success following the temporal removal of the Tariff for flowers by the United Kingdom. Related report also confirms that the floriculture sector in Uganda and Tanzania benefit immensely from this tariff suspension, as it allows for greater market access and competitiveness in the UK.
So far, effort has been made to explore the casual factors that limit Ethiopian growers to maximize the benefit of UK tariff suspension. One exporter from Oromia Region, Beshoftu cluster, who used to supply flower to UK market for many years expressed that the problem is not overlooking of the advantage of tariff suspension but it is the long-term sales contract agreement that had been made with UK retail and super market before the suspension of tariff. According to the exporter, for the last seven months, his company is trying to negotiate with buyers to make the contract agreement more flexible both to benefit from tariff change and enhance volume of supply.
Indeed, this reason makes sense. Long-term contract arrangements often led to greater volatility and clearing prices that don’t reflect the actual supply and demand. This is because contracts reflect the market conditions at the time they are signed, but conditions can change significantly during the contract’s duration. A long-term contract that was initially advantageous may become unfitting or costly as time progresses; long-term contracts also give rise to cost risks. For instance, they can limit the company’s ability to deal with better pricing from buyers with changes in situations.
Other exporter who operates in central Ethiopia and used to supply flower to England for many years also stated that selling price negotiations in UK retail shop, super market found to be costly. According to this exporter negotiation with buyers in different market segments was time-consuming and resource-intensive, and they may not always lead to a favorable outcome.
A number of other flower farms who operate in different horticulture clusters have other viewpoint on the issues. These farms believe that the suspension of 8% tariff by United Kingdom favored not Ethiopian growers; rather the 19 members of common wealth African counties.
The majority of their members are former British colonies who have common value, a mutual technical and development assistance scheme, preferential treatment in visa arrangements, market access possibility, and direct contact with the British government. These countries include major flower-producing East African nations like Kenya, Uganda, Tanzania, and Mozambique. Since Ethiopia is not a member of this block, exporters consider these as casual factors that limit Ethiopian exporters to maximize the benefit of UK tariff suspension like other neighboring east African nations.
Many other flower farms express that the UK flower market is already saturated by Kenyan growers before suspension of the Tariff. One of the basic requirements to inter into retail, whole sale and super market of UK is Fair Trade Certification (FTC), which entails farms to comply with business transparency and accountability, product traceability, sustainable business practice, safe working condition, fair compensation and environmental protection.
In this regard more than 51% of the Kenyan flower farms are now fair trade certified while in Ethiopia not more than 12% flower farms have fair trade certifications. Despite good volume of Ethiopia flower exported to UK market destination, strict Fair Trade Certification requirements was viewed one barrier to maximize tariff advantage in UK.
On the other side, there is an intuitive argument among people that the significant volume Ethiopian flower is re-exported by crossing the border of imported countries to UK. This re-exporting enables importing countries to reach UK markets that might be inaccessible for flower producing due to certification requirements, trade restriction or other barriers. The implication is quite clear, imported country that has illegible to enter into UK market would eventually benefit from 8% of UK tariff suspension without fair shared benefit prearranged to Ethiopia.
Unless these issues are addressed in time, Ethiopia’s floriculture sector may continue to miss out on the opportunities presented by the UK’s tariff suspension. Coordinated efforts among exporters, producer and exporter association, buyers and stakeholder, and the industry are needed to renegotiate contracts, obtain necessary Fair Trade Certifications, and explore new market access strategies. Without such initiatives, growers may continue to watch from the sidelines as their neighbors reap the benefits of expanded market access and increased competitiveness in the UK.
(The contributor is the horticultural export coordinator at Ministry of Agriculture)
BY MEKONNEN SOLOMON (MoA)
ehdaplan@gmail.com
THE ETHIOPIAN HERALD SATURDAY 16 NOVEMBER 2024
