05/12/2018 Nairobi trade tariff talks with China to boost flower exports - The East African

Nairobi trade tariff

talks with China to
boost flower exports
TUESDAY NOVEMBER 20 2018

Sorting cut flowers for export: Chinese flower importers are looking to
Kenya to widen their flower variety. PHOTO | NMG 

In Summary Kenyan flowers

The opening up of the Chinese market now growers will be
offers bigger opportunities for Kenyan flower banking on the
farmers and also Chinese importers, who have
recently formed
over the years developed strong interest in the
produce.
working
committee, to
Currently, Kenya’s cut flowers are sold to a
thrash out tariff
single economic bloc, the European Union,
exposing export trade to vulnerabilities. Most
issues with
Kenyan flower reach China via the China, possibly
Netherlands-based international flower auction. easing their
Logistics is, however, still a challenge since
entry into the
only Kenya Airways through its code share with world’s largest
China Southern Airlines flies directly to market.
Guangzhou.
Last week,
Kenya and
China formed a
https://www.theeastafrican.co.ke/business/Nairobi-trade-tariff-China-flower-exports/2560-4859222-12u7649/index.html 1/4
technical work group that will oversee
05/12/2018
the withdrawal of the four
Nairobi trade tariff talks with China to boost flower exports - The East African

per cent duty on most Kenyan exports to China. If successful,

this will allow flower growers to tap into the growing Chinese
market and boost the earnings of the sector, as part of the
country's effort to diversify its markets.

“We are going to have the first meeting next January with China
and we hope to have completed negotiations by the end of
February. Our target is to do away with this four per cent tariff to
make our products competitive,” Kenya’s Trade Cabinet Sectary
Peter Munya said.

In July 2010, China removed tariffs charged on 60 per cent of

the goods that it imports from Kenya and 32 other developing
countries but retained the levy on cut flowers.

Beijing and Nairobi also signed a memorandum of understating

to drive exports of over 40 per cent of Kenya's fresh produce to
the Chinese market that has over 1.3 billion consumers.

Currently, Kenya’s cut flowers are sold to a single economic bloc,

the European Union, exposing export trade to vulnerabilities.
Most Kenyan flower reach China via the Netherlands-based
international flower auction.

However, Kenya enjoys a duty and quota-free export

arrangement in the EU market, and also has a duty-free flower
arrangement with Japan. In the region, it is only Ethiopia that
enjoys a duty- free flower arrangement with China.

“This agreement will facilitate export of agricultural products

from Kenya to China. We would love to see more of Kenya's
products on our shelves,” Guo Ce, the economic and commercial
counsellor at the Chinese embassy in Kenya, said.

For Kenyan growers — who earned $822.5 million last year —

this new development is a boon.

“I haven’t seen the actual documents signed but we are

interested in expanding our footprints in China. Currently our
flowers are being charged higher taxes in China, which makes
them uncompetitive. We hope that the government will
negotiate favourable trade protocols and agreements with
China,” Clement Tulezi, the chief executive officer of the Kenya
Flower Council, said.

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 Kenya flower exports volume
05/12/2018
 f 
Nairobi trade tariff talks with China to boost flower exports - The East African

(metric tonnes) and value ($
in
millions)
Volume Value

150
137
137
137
137
137
122
122 124
124
124
124
124 125
125
125
125
125
120
120
120
120
120 122
122
122

100

Bobby Kamani, the managing director of Primarosa Flowers Ltd

said the government talks with China were welcome
development, especially for the flowers sector, given the
potential it has.

“We were in China with government officials and we saw the

interest. It was an eye opener for us at the expo because Kenyan
growers had an unexpected reception in the Chinese market. We
got contacts of flower suppliers who have traditional dealt with
Ecuador and Colombia and having an African connection further
opens up our access,” Mr Kamani said.

He added that Primarosa has turned around its business model

and now does more than 70 per cent of its sales to individual
buyers with 30 per cent sales in auctions, a model he believes the
Chinese market will sustain.

Some Chinese flower importers have been forced to use a single

import and centralised distribution system to lower costs as it
allows them to import multiple batches of products at a single
time and redistribute them in warehouses scattered across
China, which also reduces their tax obligations.

The opening up of the Chinese market now offers bigger

opportunities for Kenyan flower farmers and also Chinese
importers, who have over the years developed strong interest in
the produce.

Chinas Jiuye Supply Chain in Guangzhou has emerged as one of

the leading contact firms that Kenyan flower exporters are using.

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“We chose to introduce flowers Nairobi
05/12/2018
fromtrade
Kenya to China because of
tariff talks with China to boost flower exports - The East African

the vast number of varieties they grow, including some that you
cannot find in other regions. We were also impressed by the
length of the flowers vase life,” said Qi Bo, the director of Jiuye
supply chain department, adding that with a 25 per cent annual
increase in demand for the Kenyan flowers should see them
double imports from Nairobi to five million stems by the end of
this year.

Logistics is, however, still a challenge since only Kenya Airways

through its code share with China Southern Airlines flies directly
to Guangzhou.

The other options are Ethiopian Airlines flights from Addis to

Shanghai, with a two hour transit time, while the Gulf carriers
are costly because of connections.

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Written: 30/1/2018 Word Count: 750

Commentary#3

The Chinese and Kenyan governments conducted talks concerning “the withdrawal of four per cent duty
on most Kenyan exports to China”. These talks present a grand opportunity for many farmers in Kenya because
currently Kenyan flowers are taxed in China which makes them uncompetitive compared to local or Ethiopian
flowers. Ethiopia is the only country in the region that has “a duty-free flower arrangement with China”. Moreover,
this tariff caused Kenya to sell flowers internationally, in the European Union, as they have a duty-free export
arrangement, but still restricted profits due to the inability to reap the full benefits of flower trade with China.
Chinese government officials encourage these talks as they welcome the changes, especially within the
flower-trading sector, given the potential benefits that can occur, such as accessibility to a more diverse market
while allowing domestic resources to be used for production of other goods. These tariffs have reduced export
competitiveness in China where agriculture is limited due to environmental issues, which leads to increasing costs
of production and reduced efficiency in the domestic market. These increased costs of production will in turn affect
consumers, as they will have to pay a higher price for the flowers. Without the threat of competition from abroad,
there will be a lack of quality in the local flowers, as they do not have to compete with the imported flowers from
Kenya, which have a longer vase life.

Diagram 1 shows the demand and supply curves of Kenyan flowers in China. As seen in Diagram1, the
tariff, S causes the market to operate at quantity demanded of flowers at Q for the price of P , and the Chinese
Kenya+Tarrif 1 t

producers only contribute at Q . Subsequently, the distance between Q and Q is the amount being imported from
2 1 2

abroad. After removing the tariff, the Kenyan supply curve will shift downwards from S to S causing price
Kenya+Tariff Kenya

of flowers to decrease, from Pt to PW, and total quantity demanded for flowers to increase from Q to Q , and 1 3

imports to increase from the distance between Q Q to the distance between Q Q .

2 1 4 3

The removal of the tariff will cause domestic flower producers to face a more competitive market as they
will now have to compete with importers who can provide the products at a lower price causing the revenue of
domestic producers to decrease from the area of m+d+i to the area of m. For Kenyan florists, the tariff restricted
their revenue to the area of j as their flowers were being sold at a higher price, but after tariff removal, their revenue
increased to the area of i+j+k, allowing them to be more competitive in the Chinese flower trade.
Due to China’s fast-growing population, resources such as land need to be allocated towards agriculture,
but when these resources are used to grow flowers, the opportunity cost incurred is the agricultural produce that is
foregone.
 Diagram 2 is a PPF Model that illustrates the opportunity cost between agricultural goods and flowers
that the China is facing. Point a is where China is currently operating, as scarce resources such as land and capital
invested in farming are being split between production of flowers and agricultural output. This results in a
misallocation of resources, as flowers are a luxury product while agricultural produce is a necessity. Production
occurs at point b if China removes the tariff placed on import of flowers from Kenya. Domestic producers will
reallocate natural resources away from the production of flowers towards agricultural production
Tariff removal means a loss in government revenue but officials encourage this trade deal with Kenya
“given the potential it has”. Opening the flower market to Kenya will lead to increased competition between
foreign and domestic producers creating lower prices and higher quality goods leading to greater consumption
within the sector as more flowers being available at lower prices. As Kenya has a comparative advantage in the
production of flowers, the Chinese government and producers can move resources from the production of flowers
to agriculture goods, which are necessity goods. This is in the best interest for China as they can use their limited
resources to focus on feeding their large population.
China’s choice to remove the tariff on Kenyan luxury goods will have a profound impact as “opening up
of the Chinese market now offers bigger opportunities for Kenyan flower farmers and also Chinese importers” and
has a heavy impact on domestic producers in terms of reallocation of resources towards agriculture.
 Bibliography:
Olingo, Allan. “Nairobi Trade Tariff Talks with China to Boost Flower Exports.” The East
African, The East African, 20 Nov. 2018, www.theeastafrican.co.ke/business/Nairobi-trade-
tariff-China-flower-exports/2560-4859222-12u7649/index.html.