Entrepreneurship Zone: 04 September 2020: How a Kenyan flower producer weathered the Covid-19 storm

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Entrepreneurship Zone: 04 September 2020: How a Kenyan flower producer
weathered the Covid-19 storm

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.

Employees at Equator Farms

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.

Harvesting of flowers

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.

Kenya is the world’s third-largest exporter of cut flowers.

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.-Howwemadeitinafrica 

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