Kenya’s exports of cut-flower ornamentals to the United Kingdom could be subject to additional tariffs by the end of this year if the Economic Partnership Agreement (EPA) is not ratified. The Kenyan parliament has refused to ratify it citing certain clauses that have raised concerns from some stakeholders. A section of parliamentarians consider that the EPA, having been adapted from that of the East African Community (EAC) and the European Union (EU), should be ratified with other member states doing the same.
The Kenya-UK trade deal worth £1.4 billion signed on December 8, 2020 provides Kenyan businesses duty-free access to the UK market. Meanwhile, Kenya will start phasing out duty and quota barriers on a set number of UK products 12 years after the EPA has come into force.
According to an analysis by the UK government, the trade agreement is a translation of the terms previously agreed between the EU and the East African Community (EAC) and includes clauses to allow other EAC states to join in the future. The provisions of the Economic Partnership Agreement have already been effected as of 1st January this year.
In under two years, the UK government has signed or agreed in principle trade agreements with 55 other countries. Total UK trade with these countries was worth £170 billion in 2019.
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This agreement is the sixth the UK has secured in Africa, covering 14 countries.
For Kenya’s flower industry, this agreement ensures that all cut-flower and ornamentals companies in Kenya can continue to benefit from quota and duty-free access to the UK market. Cut flowers are now Kenya’s second largest export after tea, contributing around 1.06 percent of the country’s GDP.
The flower industry is also one of the country’s leading employers with over 200,000 people working directly in the industry and an estimated two million indirectly. This agreement therefore supports jobs and economic development in Kenya, as well as avoids possible disruption to UK businesses such as florists and retailers who will be able to maintain tariff-free supply routes for Kenya’s high-quality flowers.
Kenya flowers will therefore benefit from enhanced privileges for agricultural goods that confer originating status to EAC exports, even if they transit through EU’s 27 countries. If the EPA is not brought into effect, tariffs on imports from Kenya would revert to MFN1 rates. This would lead to the imposition of duties on some imports from Kenya and more particularly on cut flowers at a rate of 8 percent. For 2021, the amount of duty on Kenya’s agricultural exports to the UK is estimated to be KSh2.6 billion ($23.7 million) if the EPA is not ratified within a specific time period.
The Kenya flower industry is a leading provider of sustainably grown flowers with a reputation for quality. It is a highly competitive international industry. Kenya’s main competitors are Ethiopia, categorised as an LDC2 and which trades duty and quota free under the EBA3, and Colombia, both of whom already have a bilateral free trade agreement with the UK.
If the Kenya-UK EPA is not concluded, and duty is applied, Kenya’s prices will become uncompetitive and it will lose market share. Coupled with increased freight rates because of the worldwide COVID-19 pandemic, Kenya’s floriculture industry will find it hard to survive. The export volume of cut flowers from Kenya increased to 14.5 thousand metric tons in October 2020, maintaining an upward tendency started in July. The growth approximated the export volume to the levels observed before a strong fall in the second quarter of 2020, which coincided with the outbreak of the COVID-19 pandemic.
Under this EPA, the Kenya Flower Council (KFC) believes Kenya’s cut-flower exports will remain competitive and certainty in terms of trade will encourage investment, leading to more production and more jobs. “It also, in our opinion sets up the framework for further trade negotiations going forward. KFC has been a key player within the KEPSA private sector team that provided input into the Kenya-UK EPA,” observed KFC’s CEO Clement Tulezi. KFC’s Director Richard Fox chaired the Ken-Brexit Private Sector Team. Union Fleurs and KFC’s great support to the government has contributed to the import duty exemption currently in place for Kenya’s fresh produce exported to the European Union since 1st October 2016. The two have played a key role in advocacy activities to ensure that the common interests of its members and of the floricultural trade in general, are promoted and protected.
KFC is the country’s leading representative body for growers, exporters and relevant cut-flower and ornamentals value chain actors whose members account for approximately 75 percent of Kenya’s floricultural exports worldwide.
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The Kenya Flower Council standard to which all members must comply is one of only two internationally benchmarked standards to demonstrate sustainable social, environmental and good agricultural business practices. The UK is a critical development partner to Kenya, as well as the largest foreign investor in Kenya. The UK is Kenya’s second most important export destination.
Generally, according to available data on exports, Kenya is the lead exporter of rose cut flowers to the European Union (EU) with a market share of 38%. Approximately 50% of exported flowers are sold through the Dutch Auctions, although direct sales are growing. In the UK, supermarkets are the main outlets. Over 25% of exported flowers are delivered directly to these multiples, providing an opportunity for value addition at source through sleeving, labelling and bouquet production. Kenya flowers are sold in more than 60 countries and include Holland, the UK, France, Germany and Switzerland among others.
Trade between the UK and Kenya reached KSh44 billion ($399.5 million) in 2019. Presently, Kenya-UK balance of trade is tilted in favour of the latter with exports in 2020 standing at Ksh.49.5 billion ($449.5 million) against imports of Ksh29.3 billion ($266.0 million) in 2019. Top goods imports to the UK from Kenya in 2019 were in coffee, tea and spices ($118.5 million), vegetables ($218.87 million) and live trees and plants, mostly flowers ($100.31 million). The UK market accounts for 43 percent of total exports of vegetables from Kenya as well as at least 9 percent of cut flowers.
As a result of Brexit, trade between Kenya and the UK could not be regulated through the EU Market Access Regulation mechanism and a new agreement was necessary to come into effect on 1 January 2021 at the end of the UK-EU transition period.
On 8 December 2020, the UK signed an Economic Partnership Agreement with Kenya.
This agreement will support Kenyans working in these sectors by maintaining tariff-free market access to the UK.
1MFN – most favoured nations
2LDC – least developed country
3EBA – everything but arms
(Under an initiative of the EU, these terms are the EU’s general system of preferences).