This article was originally published by the IFC.
By Gloria Mwaniga
One cold morning in April, as Esleen Rotich walked up a dirt road that led to the manicured lawns of Equator Flowers farm, she could sense that something was off. On ordinary mornings, when she would arrive for her 7:20 a.m. shift, the farm was usually silent as employees worked quietly at their stations. But this morning, she heard chattering voices. She also noticed her colleagues huddled near a pit.
Rotich, team leader of a production unit on the farm, changed into her blue overalls, put on her face mask – a permanent addition now to her work gear – and squeezed her feet into black flat-heeled boots. She moved quickly toward the group, curiosity churning her insides. What she saw shocked her.
“My colleagues and I watched in disbelief as over 1 million stems of roses we had carefully tended were dumped into a pit,” she said.
Since the Covid-19 pandemic began, its impact on businesses and sectors has been dramatic – and dramatically different. Some companies, such as delivery services or grocery stores, have found new opportunity and a spike in growth. Many more have faced devastation, not knowing how long they could survive but also knowing that they needed to put in place remedial actions to stay alive as long as possible.
For the cut-flower businesses of Kenya – long a key supplier for shops, weddings, and funerals in Europe and beyond – Covid-19’s impact has been particularly harsh. With restrictions on international flights and domestic transport, the business lost a key part of its logistics supply chain. And as weddings, funerals, and other public gatherings stopped or were severely curtailed around the world, demand for the product bottomed out. That meant many flower producers such as Equator Flowers were forced to discard their unsold blooms.
As the world’s third-largest exporter of cut flowers, Kenya sells 70% of its flowers to Europe. The horticultural sector is Kenya’s third-largest foreign exchange earner. The flower industry directly employs 150,000 people and contributes 1% of the country’s GDP. According to the Kenya Flower Council, flower sales generated $960 million in 2019.
Equator Flowers, one of three autonomous farms belonging to Sian Roses Group, had a 60% decline in its revenues over the past five months. The company’s leadership had to make some tough decisions. They cut back on salaries for workers and managers, lowered the price of their product, bought four months’ worth of fertiliser, and reduced the amounts used on crops to make available supplies last longer. The company also suspended plans to upgrade farm systems and equipment. The experience of this flower producer in Western Kenya is an example of how various export industries are rethinking their business model and finding solutions to survive Covid-19 and its lasting effects on trade and business.
Adapting to plummeting demand
The changes started in April. Flower wholesalers, unable to afford high freight charges, cancelled orders. Supermarkets abroad also cancelled monthly purchases. There was no use for flowers in Kenya or abroad. They could not even be donated to charity.
For Equator Flowers, finding buyers for the 100,000 rose stems harvested daily became difficult. When demand started to plummet, said Nehemiah Kangogo, a manager at Equator Flowers, the most pressing need was to keep operations going and to prevent job losses. This decision had consequences for the company’s overhead costs.
“With over 80% of orders cancelled and losses rising over three months, it was difficult for us to pay salaries,” Kangogo said, adding that the company lost $300,000 in revenue during this time. “We therefore agreed to send our workers on a one-week unpaid leave in rotational shifts every month.” The management team also took pay cuts to minimise operational costs and retain the workforce.
Elsewhere in the flower industry, other firms also took drastic measures at the height of the pandemic. The Agricultural Employers Association, an affiliate of the Kenya Private Sector Alliance, reports that among its member organisations in the agricultural sector, 3,949 workers have lost jobs due to non-renewal of contracts and redundancies because of Covid-19, as of August 2020. A further 2,071 workers have gone on compulsory leave.
According to a rapid assessment of the impact of Covid-19 by Hivos East Africa – a nonprofit organisation working on labour rights – more than 30,000 temporary workers had lost their jobs by the third week of March. Forty thousand permanent workers had been sent home on compulsory annual leave.
Adjusting to supply disruptions
In August, many months after the pandemic began, the interior of the vast greenhouse felt like the inside of a large lidded jar. The heat was stifling, and the air was filled with the scent of roses and chemicals. Rows of colourful blooms stretched out into the vista. At the far-right corner, workers in blue overalls and gloved hands clipped away at thorny stems. The cut stems were carefully placed on mats propped up on crooked arms.
Nicholas Kadiri, the farm manager at Equator Flowers, picked up a rose and stared at its head. He shook his head disapprovingly.
“The roses we are harvesting now aren’t our best variety,” he said. “Their quality has gone down because we reduced the fertiliser quantities and undernourished them. We are still forced to use our fertilisers and chemicals sparingly.”
Just before Kenya closed its borders on March 25 and restricted air travel, the managers at Equator Flowers suspected that shipment of fertilisers and chemicals from China would be delayed. Instead of buying their monthly quantities, they stocked up four months’ worth of fertilisers while supplies were still available.
An acute shortage followed and prices skyrocketed. Unsure of how long the shortages would last, Equator Flowers decided to reduce the quantities of fertiliser applied to roses in the field so that their reserves could last longer.
“Flowers need a particular ration of fertilisers every day so that you get the right crop for the market. It will take time before the roses recover completely,” Kadiri said.
Expansion on hold
Before the pandemic, Equator Flowers planned multiple capital projects for 2020. The first was to expand the business by adding two more greenhouses to the 42 already operating on the 36-hectare piece of land outside Eldoret town. Because of the uncertainty, the expansion was cancelled.
Cash-strapped, Equator Flowers also suspended another project: the annual replanting of roses. This is done to align flower varieties with consumers’ preferences.
“Every year, it costs us $55,000 per hectare to replace roses with varieties and colours that are popular with our consumers. This year, we suspended the rose replanting. We weren’t ready to spend that amount of money in the middle of a pandemic,” Kadiri said.
Neither was the farm ready to spend on overhauling its old irrigation system or buying new tractors to collect flowers. Managers’ greatest concern was making enough money for operational expenses. As long as the firm could buy chemicals and fertilisers, capital investment costs could wait.
A race against time
Inside the pack house at Equator Flowers, a clock on the wall ticked. Time is critical in the flower business. Cut flowers must reach consumers within 72 hours if they are to survive seven days in a vase. For every extra day spent travelling, flowers lose 15% of their value.
The incessant hum of refrigerators in the receiving cold store commenced the cold chain. Multiple hands sleeved, then packed, then boxed, then passed roses into the export cold store.
Outside, a gentle evening breeze rustled the leaves of a hibiscus bush. In the parking lot, workers loaded a Sian Roses refrigerated truck with brown boxes labelled with green stickers. The flowers are headed to flights out of Nairobi. Ultimately, 30% will end up at the Dutch Auction Market. The other 70% of those flowers will end up in Dubai, Russia, South Africa, and other countries throughout Europe.
But that’s not what happened in April, May, and June. During that period, the Kenyan government’s travel restrictions hurt the transport schedules of flower farms. At Equator Flowers, night shifts were cancelled, and packers had to rush through packing before a 7 p.m. curfew. Unpacked flowers would have to remain until the following day.
Airport delivery schedules also shifted. With passenger flights grounded and cargo planes changing routes to ply more lucrative ones, there were few planes to get goods to Europe. Flower producers were forced to reduce their volumes as they competed with other exporters for space in the few available cargo planes.
The consequence was a rise in the cost of transporting flowers from Jomo Kenyatta International Airport. Kenya Flower Council chief executive Clement Tulezi said that in July, cargo planes increased the cost of hauling a kilogramme of cut flowers to $2.90 from the pre-pandemic price of $1.28 per kilogramme.
Cancellation of orders by clients followed. For those clients, the high cargo costs reduced their profit margins considerably.
“We had only three to four freighters for lifting flowers,” Kadiri said. “We would harvest flowers but there was no space on cargo planes to ship them. The cargo planes were few and with no goods to bring into the country, the planes would come empty and we were forced to pay for both trips.”
Equator Flowers adjusted. Instead of its three trucks making daily trips through the Trans-African Highway from Eldoret to Nairobi, they began delivering flowers to the airport on Mondays, Wednesdays, and Fridays.
Weathering the storm
After months of difficulties, the flower industry began to see signs that better days might lie ahead. On July 7, Kenya lifted the ban on movement into and out of Nairobi, and on Aug. 1, international flights resumed. Demand for flowers has risen and flower exports are up to 80% of their usual sales. In Naivasha, farms have recalled 90% of their workforce.
Dave Mousley, a manager at Ol-Njorowa flower farm in Naivasha, says the farm was so hard hit at the height of the pandemic, managers had to rethink their business model to make operations more cost effective – changes they expect to keep in place after the pandemic.
‘‘Labor is a major [operations] cost and so our main worry at the time was paying our staff and buying chemicals and fertilisers,” Mousley said. “Consequently, we have had to figure out ways to reduce implementation costs.”
For Equator Flowers, the turbulent times ushered in by the pandemic offer a lesson for the future.
‘‘Covid-19 has taught us that with quick, sober, and well-informed decision-making, coupled with good customer care and market intelligence, we can weather any storm,’’ said Kadiri.