Ethiopia has been trying to diversify its export base with a view to generate new sources of foreign currency and reducing its exposure to price volatility that characterizes international markets. Ornamental and cut Flowers farming have become an important venture of agricultural investment to meet export needs of the country since 1982. For the last two decades, floriculture industry in Ethiopia has become a fast-growing export business and counted as an important foreign trade sub sector next to coffee.
The attainment of this growth is mainly attributed by export incentive policy measure taken by the government to promote and encourage private sector to engage in flower export business. Among these incentives; easy access to rural and urban agricultural land with least possible rental rate, exemption of income tax up to five years, duty free importation of equipment’s, vehicles, building materials, irrigation set and machinery, easy access to loan, and other public utilities, duty free importation of raw materials etc are the most important ones. As a result, around 120 investors have been flowing into floriculture sub sector to produce flower for export for the last three decades.
Despite considerable physical and non-physical incentives were given to private sector to encourage flower export in Ethiopia, quite a number of flower exporter companies are now inclined to sale substantial volume of their flower product to domestic market or local market.
Today, in many corners of Addis Ababa and other main towns of different regions, large number of Flower Gift Shops have become the phenomenon and the most vibrant market place offering a great deal of Flower Bucketing Service.
The principal source of flower for these gift shops are commercial farms that are originated from the existing clusters namely from Holeta, Bishoftu, Sebeta, Ejere, Wolisso, Welkitie, Sendafa and Bahir Dar. In addition to these, after utilizing export incentives, it is not infrequent where some of the flower producing and exporting farms have gradually changed their projects’ orientation partly from foreign market to home market like propagation and supply of fruits and vegetables seedling (Avocado, Onion, Garlic, Tomato etc. seeds and seedlings to home market)
This trend and leakage have a wide implication on opportunity of the country to diversify its agricultural products and a profound impact on effectiveness of export incentive. As a result, many people viewed this resource diversion as game of Missing the Bull’s Eye.
The concern of this incentive diversion in other sectors was also addressed on 22nd Conference the Intergovernmental Committee of Experts held in Kigali, Rwanda few years ago, under the theme: ‘Implementing the African Continental Free Trade Area in Eastern Africa: from Vision to Action’. On this important conference, Mulu Gebreeyesus (PhD), Senior Research Fellow of Ethiopian Development Research Institute, stated state; “Despite various export incentives and support programs, companies have become increasingly interested in the domestic market sales rather than export market.”
Like Coffee, the Ethiopian law neither prohibits the sale of export-quality flower to local market nor tightly controlled the proportion of allowable sale for export and domestic purpose under existing jurisdiction. The current pressing question raised by some observers of this trend is how long will the government continue its commitment to incentivize flower export while the flower growers have an appetite to supply flower to local market without any legal limit?
Many Flower producers and exporters often expressed that they do not have any desire to supply flowers to local market. Local market supply is considered by some companies as “throwing good money after bad”. According to some commercial flower farm managers, the type of flowers supplied to local market are inferior and low in product quality, non-exportable type, very short vase life, poor grade, and indeed, in very low volume which otherwise disposed or composed. The question is if that is the case, why flower gift shops are now expanding, growing vigorously and becoming the prosperous business venture in main towns of the country?
People often have heated discussions about whether the flower export is in downturn. How can we tell? Many people argue that it the rise of local demand the corresponding price reward offered by buyers are factors that make farms to supply and sale their exportable product to local market. According to this argument, local market for flower is now becoming more lucrative and attractive for growers because of price reward.
On the contrary, many other people argue that it is due to inefficiency or failure of farms to produce and supply quality of flower to Global market that drive them to sale low grade product to the local market. This inefficiency is expressed by failure of farms to look and diversify new market; lack of skill in identifying the right customers and their current needs; lack of good communication with customers; poor product timing; lack of market information and knowledge about different market channels; poor pricing strategy and lag of their business in adopting digital marketing and e-commerce.
At macroeconomic level, there are several intuitive arguments that can explain a negative relationship between domestic demand and exports. One possible reason is related to the demand side. In particular, when domestic demand is growing, the associated inflationary pressures can lead to a decline of the price competitiveness of exports. There are also arguments from the supply side.
On the one hand, during the business cycle, the availability of resources for the exporting sector is affected, which can influence the export performance. Alternatively, in the presence of very different developments for domestic and foreign markets, investment will be most probably oriented to activities that draw more heavily on the most dynamic market.
As many studies revealed, export performance is modeled as a function of the foreign demand for a country’s product outputs and a country’s price competitiveness indicator. The foreign demand is proxied by the evolution of imports in the trade partners and its relative evolution with regard to exports is used as a measure of market share expansions.
The relative price advantage of a country over its competitors is often captured by the real exchange rate. In fact, it is likely that domestic conditions influence firm’s willingness or ability to supply exports. In a context of high domestic demand pressure, firms will work at full capacity and will not be able to follow, in the short-run, external demand increases.
In contrast, during a domestic downturn, firms will be able to allocate more resources to exports. In other words, in periods of slacking domestic demand firms try to compensate for the decline in domestic sales through increased efforts to export while in boom period’s production can be mainly sold on the domestic market.
In Ethiopia, flowers are now visually appealing and come in a wide range of colors, shapes, and sizes in many flowers gift shop. Their beauty can evoke positive emotions for many people and start to associate the flower with different sentiments, such as positive image, attractions, love, friendship, gratitude, and sympathy. Different people consider flower as symbole of growth, renewal, and the cycle of life. For some, being around flowers meant feel more connected to nature and grounded.
Now, we have two choices on issue of our flower business. One is to emphasis on local market sales and the other one is to focus on export market. For me, it is a choice of joy and diet under Ethiopians Context. When deciding between these kinds of two alternatives, we should be careful not to miss the bull’s eye.
The preferred alternative always need to have:- no opportunity costs or forgone output, greater reward than the other alternatives, less expensive, greater incremental wealth than the other alternatives. Unless some measure is taken soon, funnel leakage in supply chain of flower business might end with missed opportunity.
BY MEKONNEN SOLOMON
(MOA -ehdaplan@gmail.com)
The Ethiopian Herald June 9/2024
