A recent article in the East African got me thinking about the flower industry in Kenya. In the article, the chairman of the Kenya Flower Council (KFC) hmmm... Mr. Erastus Mureithi was agonising over the lack of "sector specific incentives" for the Kenyan flower industry, given the discomforting rise in the Ethiopian flower industry. In the article, Mr. Mureithi wants special economic zones with their own special tax treatments and incentives to be set up akin to the Export Processing Zones (EPZ's) that the textile industry benefits from.
Data from Kenya Institute of Public Policy Research and Analysis (KIPPRA), suggests that horticulture doesn't measure up to dairy farming as well as beef and poultry farming in regards to the multiplier effect. The multiplier effect measures the effect of a unit increase in the production of one good on the production of other goods, for example if radio production has a multiplier of 4.5, then the production of a radio helps increase productivity in other sectors by a factor of 4.5. This then means that production of a good with a high production multiplier is beneficial since it improves welfare by a higher proportion. From their studies, a unit increase in dairy farming produces a 4.01 increase in production from other sectors, for beef and poultry the multiplier is 3.83 and 3.91 respectively. Horticulture falls behind with 3.70. In terms of the added effect of consumption, the multipliers for dairy farming, beef, poultry and horticulture are 8.44, 7.95,8.86 and 8.46 to be exact. The consumption effect for horticulture therefore is higher than that for beef and dairy production. However, since we are more interested in production rather than consumption, it is clear to see that the government if they are to provide "sector specific incentives" should focus more on livestock than horticulture.
To take the analysis further, one should further analyse the sector given the factor returns to both capital and labour, and for labour we subdivide this into rural and urban labour. A product given our economy would be more beneficial if it had higher returns to labour especially rural labour than higher returns to capital. A higher return to capital shows that only the wealthy capital owners benefit from its production. Given that Kenya is a poor country, higher returns to rural labour are preferred as this will help alleviate poverty. From the Kippra data, horticulture production has higher returns for capital vis a vis livestock production. Furthermore, the labour returns are higher for urban labour rather than rural labour. In terms of livestock production, the return is higher for rural unskilled labour. This then means that livestock production is more beneficial in terms of poverty alleviation as compared to horticulture.
In conclusion, we should not spend a dime of tax payer money helping out the flower industry. That would be a waste of resources, if anyone wants to buy flowers, import them from Ethiopia.
the MP and the (current) Agric Minister are both flower farm owners so they, as are a couple of other MP's so any plea for tax breaks will not be objective
Adds another dimension to the argument, thanks. I guess in general there are a just too many reasons why the government should not heed to the demands of the flower industry.
While I agree that GoK shouldn't subside the industry, I think horticulture is a product in a similar vein to coffee farming. As you maybe aware, coffee is hardly drank by Kenyans. Yet we farm the thing by the bucketful. Moreover, because we currently export beans rather than value-added manufactured product, the differential between what we make and what we could make is so huge as to suggest that farmers shouldn't bother with the crop.
In any case, the bottom-line is that Kenya has no known minerals and farming is where we’ll sink or swim. This implies we must find as many agri-products that the rich consumers (West and East) want and get down to growing them as profitably and as quickly as possible.
I think I'd have to differ, being a mineral-less country is actually a blessing, not only due to staying clear of dutch disease, but also gearing our economy away from dependence on one mineral e.g. Zambia, Botswana and to an extent Nigeria. However, given our ambition (Vision 2030), we should set ourselves up as an African value addition base rather than a farming nation. We are by African standards capital intensive and thus we should focus on manufactures rather than agri-products. Like the West, our agricultural ventures should be geared towards making sure the population is fed thus maize, livestock and other cereals.
First, there's nothing inherently wrong with an outward-looking psyche; at least in theory, self-sufficiency blocks off gains from trade, which go beyond earning foreign currency.
The evidence for export-led growth in the Asian tigers is weak. Sure, the countries are open to trade in terms of trade-to-GDP ratio but were not so… in terms of policy. They engaged in import quotas and tariffs, although to a smaller extent than less well-off countries. Further, there was heavy industrial policy (subsidized industry loans and R&D); and those countries also had high savings rates and investment in public education. So high exports may just as well have been a consequence of growth rather than its cause. Given the weak evidence for this policy, and the stark differences between Kenya and the Asian tigers in the areas mentioned, it's hard to make any inferences about what would work for Kenya.
In terms of an outward looking psyche, I didn't mean that we should become protectionist. The point of the article is that if we are to protect anything, it shouldn't be the flower industry especially from a returns to labour and capital perspective.
Furthermore, I do agree that there is weak evidence for export led growth in the Asian tigers, but weak evidence cannot be your argument. In most economic research evidence can be argued to be weak most of the time. Cases of strong evidence for something are mostly quoted from a ceteris paribus perspective. As long as there are a multitude of factors at play in the economy, evidence will rarely be strong.