Uganda Flower exports dip as operating costs rise
The escalating cost of doing business has eaten into the volume and value of Ugandan flower exports, making the commodity less competitive in the region. Flower exports last year, recorded a dip in commodity pricing. The prices of all cuttings— the flower stems- that are planted to get new breeds dropped by eight per cent, on the international market.
Seven years ago, Uganda Flower Exporters Association (UFEA) – the umbrella body of flower exporters, laid a five-year plan aimed at doubling production through attracting new investors and encouraging the existing players to expand.
The strategy dubbed ‘Uganda Floriculture strategy (2005-2010),’ focused on enhancing the competitiveness of flower exports through increasing production from 200 hectares to 400 hectares by at least 2010.
However, seven years into the anticipated implementation period, UFEA is still struggling to meet the 400 hectares as five farms have closed business, reducing from the once 22 farms to 17 between 2006 and 2010.
The five companies were- Belflowers, Sai farms, Victoria flowers, Venus and Magic flowers.
In an interview with Prosper, the Executive Director, UFEA, Ms Julie Musoke confirmed that the land acreage had stagnated. “Our target was 400 hectares and value of $50million (Shs125 billion) by the end of 2010. The results show that nothing has changed much,” she said.
The sub-sector that is still reeling from 2011’s economic slump recorded total export revenue worth $30.6 million (Shs76.5 billion) out of the 5,765 tonnes exported in 2011. Mr Olav Boenders, Managing Director Wagagi (U) Limited, says the cuttings have expanded by about 10 per cent hectares over the last two years.
“We now have more than 30 hectares and a workforce of over 2000 people. We are the largest employer by far in the sector,” he says. “The cost of doing business is making life very difficult for our members and volumes are reducing, something which is also impacting on the revenues,” Ms Musoke explains.
This, coupled with the double cost of energy—electricity and diesel, power outages, and high power tariffs have seen a 200 per cent increase in operational costs. Ms Musoke adds that the current cost of energy consumption and charges highlights the need to interlink the growth of agriculture with reasonably cheap and competitive electricity and diesel charges.
Mr Boenders, a dealer in cuttings shares their experience: “Initially Wagagai was spending approximately Shs70 million a month on energy alone. But this has increased to Shs120 million per month, in addition to the unpredicted extra cost of Shs600 million per year.”
Taxes on packaging
Other costs like packaging are also increasing because energy is directly related to the production of boxes. UFEA wants Uganda Revenue Authority to clear the impasse surrounding the Value Added Tax (VAT) refund on biodegradable material with packaging industries.
“As you are aware, URA did communicate that biodegradable material is VAT exempt. However, this seems not to apply to input VAT for packaging industries at importation,” Ms Musoke explains. Musoke adds: “However, the cost of stopping to charge VAT will lead to increase in prices of packaging materials, increasing the flower industries’ input cost.”
Fresh Handling Limited (FHL) which is servicing the Ugandan fresh produce export industry by renting a Cold Store from Das Handling Ltd, has been seeking the transfer of ownership of the Cold Store from Entebbe Cold Stores Ltd, a wholly owned subsidiary of the CAA, since 2002.
Ms Musoke explains that if the facility is transferred to FHL ownership and adjoining land allocated for potential expansion then the company will renovate and expand the current facility to handle the current volumes of approximately 120 tonnes per week.
“Once the facility is handled over, it will be rehabilitated and could be able to handle 150 tonnes per week capacity,” Ms Musoke said.
By Dorothy Nakaweesi
The New Vision Newspaper