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September 28, 2010

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September 28, 2010

Should we buy roses from Ethiopia?

September 28, 2010
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ethiopia roses 2OK, back to Ethiopia week. On leaving Addis, we head off to the Rift Valley on one of Ethiopia’s many excellent roads (shame about the driving…) to an enormous flower farm owned by a company called Sher, which rents them out to three large Dutch flower companies, including Herburg Roses Ethiopia plc, who we are meeting. And I mean enormous – rows of identical green plastic greenhouses, each one a kilometre in length, covering a total of 325 hectares so far, and aiming to reach 450. What follows is a classic flying NGO visit – a hurried conversation with the managers, a quick chat to some workers, and then we have to leave with a steadily accumulating series of unasked or unanswered questions, what the French call pensées d’escalier (‘thoughts on the stairs’).

So what is (more or less) certain? Roses have boomed in Ethiopia, overtaking Kenya this year. According to Alemayehu Geda, an economist from Addis Ababa University, about 100 firms are involved, 2/3 of them foreign-owned. Cut flower exports have risen tenfold over the last 3-4 years and now bring in an annual $170m in 2008 – that’s 11% of national exports. Peter van Heukelom and Jos Kliks, respectively Herburg’s Managing Director and Farm Manager, think Geda’s figure may even be too low. 90% of Ethiopia’s roses go to Holland.

Flowers create jobs: Herburg needs 26 people per hectare to grow its flowers, which is a lot more than can make a living from a hectare of any other crop I’ve come across. And Ethiopians want to work there, as the long lines outside the farm gates demonstrate.

Flowers bring in vital foreign exchange. The deal between the Ethiopian government and the foreign investors specifies a minimum of €0.08 must enter Ethiopia per flower. Herburg alone exports 80 million roses a year to Holland – that’s a guaranteed €6.4 million entering the country.

But only a tiny proportion of the sales price reaches Ethiopia: Peter says he would be happy to earn €0.13 a stem, (i.e. above

3p for you; 97p for us.....

3p for you; 97p for us.....

the minimum set by the government), but a 12 rose bouquet on a UK supermarket website costs £40, or €3.91 per rose. That means 97% of the final value of the rose you buy in the shop never reaches Ethiopia!

The companies spend a fair amount on social responsibility, including a gleaming hospital, free to all employees, and a nursery and primary school. Herburg is regularly audited and certified on both its environmental and social performance by MPS, a quality assurance company.

Herburg pays no corporation tax, because of a five year tax holiday that runs out next year. But even after that, as long as Ethiopia prevents companies from repatriating profits, they will probably make sure their pricing policy ensures that profits accrue in Holland, so little corporation tax will be paid in Ethiopia.

Beyond that, a one hour visit leaves a large cloud of uncertainty. Wages are low (about $28 a month for a packing worker, $50 for her supervisor), but that is reportedly a good deal more than the minimum wage and the few workers we speak to see it as a good, secure job.

On the environmental questions that always surround flower farms, Peter and Jos point to their MPS certification and say that the firm uses only organic chemicals, and takes great pains to clean up its effluents. A local environmentalist claims the fish are dying in the lake, but the lake looked luxuriant and was full of birdlife (including fish eaters), so who knows? Certainly not me. And I have no way of knowing the health impacts on the workers, if any, of chemical use, although Peter stresses that they are required to wear safety gear and fined if they fail to do so. And I have no information on the views of the small farmers evicted (with compensation) by the government to make way for the farms.

ethiopia roses 3So on the basis of this sketchy information, do I think we should continue to buy Ethiopian roses? Yes. Does Ethiopia earn a fair proportion of the final price for its roses? No. Should we keep up pressure on the companies involved to improve wages, conditions and environmental management? Definitely. I suspect not all readers will agree, though……..

19 comments

  1. In many ways this seems similar to the story of the UK’s industrial revolution, when people were kicked off their farms and forced in to wage labour. Eventually – after 200 years or so of organisaion and struggle – we have ended up with a relatively good amount of the population having their material needs met.

    But the world doesn’t have enough planetary limits for another industrial revolution in Africa – except if it is a green one – and flown in cut flowers aren’t environmentally sustainable.

    The fact is – if we are to achieve the necessary 80% CO2 cut by 2050, we are going to have to cut out flown-in flowers from our western lifestyles. And we don’t have 200 years. We have 30.

    Will the introduction of industrial capitalism to Ethiopia make it rich? No – it will destroy it under the effects of climate change

    The answer is boring but true – trade within Africa (still only about 12% of foreign trade in Africa is with other African countries) aid to support this, and a Green New Deal in both developed and developing countries to tackle poverty and climate change at once.

    (http://www.neweconomics.org/projects/green-new-deal)

    I suspect not all blog writers will agree though 😉

    Duncan: ‘Allow me to retort’, as Samuel L Jackson says in Pulp Fiction. So the first people to lose their jobs as we tackle climate change are Ethiopians – hardly seems fair does it? See previous agonisings on this blog over food miles http://www.oxfamblogs.org/fp2p/?p=7. Also, research from, I believe, Cranfield shows that in the case of flowers, buying Valentine’s day flowers grown in Dutch greenhouses actually generates more carbon than flying them in from East Africa. So boycotting Ethiopia is wrong on both developmental and environmental grounds.

  2. Excellent question, Duncan!!
    I would pose another one: are roses the best crop Ethiopia can grow? More than 5 million people in this country were in need of food assistance in 2009, and 44% of its population is undernourished (most recent data for 2006). In 2010, FAO estimates that Ethiopia will need 1.2 million tones of cereals (part of it as commercial purchases, how much will be the invoice?). I wonder if allocating 450 hectares to cultivate roses, 97% of their benefits going to Holland, is the most intelligent option for this land.

    Duncan: well, you get many more livelihoods off the 450ha under roses, Arantxa – 12,500, I was told. No way would you get that growing food crops. So taking food security as about access to food, not necessarily growing it yourself, then the case for helping poor people by buying roses is still pretty strong, no?

  3. Hmmm. Duncan I agree wholeheartedly with your conclusion. Keeping up pressure on the growers to be a part of creating sustainable livelihoods is the key. Great to hear that the company has built a hospital and a school but they need to be generous with profits too.

    Getting rich off the back of cheap Ethiopian labour is not a sustainable livelihood for those rose growers. We have to share the margins if we want them to last for everyone. And we can do more to encourage consumers to choose the roses that come with a sustainable livelihood guarantee too.

    As for the climate issue I’m not sure if many people would agree I think we have to sort the humans out first and then pray they’ll care enough to save the earth?

  4. Good response Duncan – but I am proposing something more radical.

    I don’t think we in the west should be buying cut flowers on Valentines day at all – and submit that a Green New Deal (essentially Green Keynesianism) will do far more for sustainable job creation in Africa than the approach represented by the Ethiopian flower farms

  5. It’s hard to know how the £40 of the selling price of the roses should be divided fairly without knowing who has all the costs. The cost of the flowers is a tiny fraction of the retailer’s costs.
    97% may not be reaching Ethiopia but the supermarket’s profit margin may only be 4 or 5% too.
    I suspect most of the £40 goes on wages to UK supermarket workers ( and they are not that well paid either)

  6. Duncan
    Interesting blog. But if I could wage a one-person campaign against this common but misleading comparison I would:
    “But only a tiny proportion of the sales price reaches Ethiopia: Peter says he would be happy to earn €0.13 a stem, (i.e. above 3p for you; 97p for us…..
    the minimum set by the government), but a 12 rose bouquet on a UK supermarket website costs £40, or €3.91 per rose. That means 97% of the final value of the rose you buy in the shop never reaches Ethiopia!”
    The point is that as soon as the rose crosses the border and there are (non-tradable) services involved the numbers are bound to look like that. All you are really stating is that wages and prices are much higher in rich countries. I imagine the average Ethiopian would be incredulous that I, a bald man, pay €20 for a haircut in Paris! (Actually I’m incredulous too)
    Jon

    Edit: Fair point Jon, but the % was less in this case than I have seen in the case of other commodities such as coffee and bananas, so I still found it striking. And I didn’t even work out how much of the 13 cents goes to the workforce, but it is a pretty tiny percentage of that 3%!

  7. A very insightful post.
    One the one hand, it is good to see around 100 firms involved in the business in Ethiopia, but on the other, it means that there is tough competition. And given that, about 2/3 are owned by foreign companies, the local firms must be facing tougher challenges. In this context, I would like to flag a very interesting post on a local ‘Ethiopian Rose Farm’ on the ‘Let’s talk development blog’- https://blogs.worldbank.org/developmenttalk/the-story-of-the-first-rose-farm-in-ethiopia- hosted by World Bank chief Economist Justin Lin. According to this post- last three years have been tough on the industry, with much lower demand as a result of the global financial crisis, higher fuel costs and tough competition from an increasing number of countries. The rose farm owners are fighting to reduce the cost of doing business in Ethiopia and are looking in to other potential horticulture business options. However, no one knows which fruits are smart investments for the region.

  8. Hi All. I’m currently in the final stages of writing up my PhD on the economic sustainability and poverty impacts of the Ethiopian flower industry and am pleased to see this well reasoned discussion.
    While obviously not a forum for an exegesis I would like to address a few general questions and would be happy to answer further specific questions:
    Duncan: My conclusion is certainly that we should continue to buy roses from Ethiopia. There have been issues with repatriation of sales revenues with one of the primary objectives for the government being foreign currency. One correction would be that the government do allow repatriation of 90% of sales revenues once it has been brought back to Ethiopia at no charge (10% being operational funds). There are also no plans to introduce corporate tax on countries that have exceeded the 5 year tax holiday as a measure to support the industry after the price issues of recent years. Once firms are further embedded with infrastructural investment etc. the plan is to introduce taxation gradually. The allocation of value within the production network is significantly skewed toward the retail end with mark-ups of 50% not uncommon (not accounting for supermarket overheads).
    Environmentally, there is no question that carbon emissions of African roses are a fraction of those produced with artificial light in Europe. Given the strict environmental standards of the codes in Ethiopia, the most significant environmental problem could come in the form of the export of virtual water. Please feel free to respond…

    Duncan: thanks Ben, and other commenters, for fleshing out the discussion (and correcting the odd mistake!)

    1. Dear Ben Taylor
      I am writing a paper about a similar topic regarding the benefits and downfalls of the flower industry in Ethiopia. Would you be interested in discussing some questions I have- maybe leading me to some reliable sources.
      my email is taramulloy@hotmail.com
      this would be a lot of help
      Tara Mulloy

  9. As always, it’s not as simple as it seems. I spent a month in Ziway, one of the towns that has ‘benefitted’ from a large Sher flower farm in Ethiopia.

    In Ziway, Sher have built a gleaming hospital. But it’s almost unused. We had workers from Sher coming to the private clinic I was working at, because they didn’t like to go to the Sher hospital. And the large hospital employed local doctors privately (thus taking them out of the government health system). Intra-country brain drain is an often- ignored problem for hospitals
    I don’t know what the situation is like for schooling, but would be interested to find out.

  10. Ha. Duncan – that is a horrible post. I”m laughing because it’s so bad.

    Of course, we’ve all had the same experience – catching a tiny, fractional view on something that is big, important, and potentially very good, very bad, or both.

    I saw those cut flower developments when I visited two years ago, visited nearby projects, had all the same questions and hopes. But what’s a bit troubling to me is that, NGOs and observers, we don’t seem to be gaining much clarity on the costs/benefits/risks. Not getting good information, impact analysis, and oversight. I’ve only ever heard about people wanting to look at this issue, no one actually getting information, developing hypothesis, testing ideas.

    Meantime, the development continues.

    It could be that the ethiopian fruit/vegetable/flower export business is purposely dark. I heard one local say that the reason investors are coming to Ethiopia is that Kenya is getting too transparent, labor is getting organized, and NGOs and supply-chain critics are shining a bright light. So there’s a migration over to Ethiopia.

    Wonder what Kenyan cut-flower workers, plant managers, investors think of Ethiopians.

    I was especially intrigued with the Isreali strawberry projects I saw near the cut flowers.

    So many questions.

    Anyway – looking forward to more your “reporter notebook” blogs.

    gawain

    Duncan: Probably a fair point on the lack of research, Gawain (though it might just be we don’t know what’s out there – readers, please add references), but you seem to be taking a ‘guilty until proven innocent’ approach to the potential benefits which is a bit alarming. 12,500 jobs on one farm is surely something to celebrate, until we find reason not to, no? The only attempt to answer these questions that I’ve come across from academia is an IDS paper by McCulloch and Ota based on household survey data in Kenya, which concludes: ‘smallholders producing for export horticultural companies benefit from both higher incomes and the access to credit and extension services which exporters provide. By contrast, non-horticultural smallholders are much worse off than households involved in export horticulture.’ See http://www.eldis.org/fulltext/mcculloch_neil_export_horticulture_2002.pdf

  11. It is very important to treat each situation individually due to the institutional and historical context – the Kenyan situation varies considerably and its post colonial path-dependency is very different from the Ethiopian post-socialist context. This paper, which outlines some of the labour issues in Ethiopian floriculture may help flesh out some of the issues. http://eastanglia.academia.edu/BenTaylor/Papers/304677/Labour-Patterns-in-Export-Floriculture–The-Case-of-the-Ethiopian-Flower-Industry

  12. Duncan, An interesting but frustrating post. You and your readers may like to know (see Gawain who is quite right on the lack of rigorous research) that a team of researchers at SOAS is conducting research, funded by DFID, on agricultural commodity exports, employment, and poverty reduction. This includes the production and export of flowers from Ethiopia. It is not a speedy NGO report, not journalism, not consultancy evaluation, but very carefully designed (quantitative and qualitative) research over a period of years. We hope to address many of the questions you raise. But we do so with careful analysis rather than the kind of crude and, if I may say, at times misleading assessments of the type you had time for in your visit. What is clear, as you do point out, is that there are no simplistic answers (has economic development ever been even, non-conflictual, linear and equally beneficial to all at the same time?). What is also clear is that the debate you touch on cannot make any progress till more careful empirical research is published – we will keep you posted!

    Duncan: Thanks Chris, do send me the results as they emerge. Have you got anything I could post now, to inform this exchange? You and Gawain raise interesting and important challenges over the nature of these imperfect ‘flying visits’. In their (and my) defence, I would argue that they are a) better than just sitting at home reading research, not least because you are more likely to be struck by new and surprising angles that are unfiltered by the rather fixed assumptions and frameworks of academia and b) all that is feasible, given hours in the day – sure, you can research one thing (roses in Ethiopia) in depth, spend a month on rose farms etc, but what would be the opportunity cost? However, the danger is that these fleeting and quite possibly misleading impressions stick in the mind more than more rigorous research – I’m sure we are all familiar with arguing with politicians or other big cheeses who have ‘seen’ something for themselves, that trumps all evidence to the contrary (or the NGO equivalent – ‘what I saw three decades ago on my year in a Tanzanian village is still more real to me than anything I’ve read since, or am going to hear from you’. So is it possible to do these trips but somehow keep all the impressions in mental parentheses as hypotheses, pending more rigorous testing? Sounds hard, given how powerful first hand impressions can be.

  13. You could at least have checked up the price of roses in the UK. A dozen roses seem to be going for nearer 25GBP than the 40GBP you mention.

    Flowers are different from other commodities. For a start you don’t airfreight coffee.

    Duncan: £40 is from a Tescos site (link in the article) so is hardly top of the range, Stephen.

  14. I think that you can easily destroy the little that these people do have by deciding to stop buying the flowers that they produce. If they weren’t piking flowers then they would have no work at all and then they will be in an even worse position then they are now. If it was possible to increase their wages then that would be the best result.

  15. Having just returned from teaching agriculture near Ziway, I have mixed feelings about this enterprise. On balance, I suppose it is inevitable that globalization affects agriculture, but as for sustainability, economics will dictate that. There is hardly any other agriculture in the semi-arid Oromia that could be viewed as sustainable, as the expanding population pushes more subsistence farmers out into lands of low productive potential. I actually have hope that should a flower export industry evolve that enjoys more than one corporation, small farmers might be able to produce and market through it. That is the sort of pressure that should be brought to bear on corporate entities like this one; engage the local farmers in even a marginal way to provide some avenue for production of a cash crop. The subsistence production of maize in this region is much too unstable due to climate, unsustainably small plots of land, and lack of input resources such as fertilizers; most of the subsistence farmers around Ziway are still dependent on UN food aid. So for now, if the women of local farming villages can supplement their family’s living conditions with work on the flower farm, then the value of that operation is evident.

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