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Smells like success

Indian floriculturists embark on an Ethiopian odyssey to cash in on the boom in the flower industry.

By Venkatesha Babu | Print Edition: August 12, 2007

If you board the Ethiopian airlines flight from London to Addis Ababa, the capital of Ethiopia, chances are that several of your co-passengers will be Indians-mostly Telugu and Kannada-speaking floriculturists. Ethiopia-the name that conjures up images of political instability and drought for most-spells a huge new opportunity for these floriculturists. But before we delve further into the Ethiopian lure, here's a flashback to the floriculture business in India.

Floriculturists
The story of Dr Manjunatha Reddy, MD, Euro Flora, runs parallel to the rise and fall of floriculture in India. Dr Reddy, 45, is a qualified vet and like many others, he abandoned his family's traditional business of poultry and agriculture to plunge into floriculture. "In the early 90s, floriculture and aquaculture were the two new opportunities in India and several first-generation entrepreneurs jumped into floriculture as most of us came from rural areas and had some land and experience in agriculture," he recalls.

It wasn't a happy experience for many. There was a steep learning curve for most and several stumbled and went under, unable to service the loans they had taken from banks. It has been more or less downhill since then. The reasons are manifold and have mainly to do with weather conditions and freight, labour and land costs-the four key metrics in the floriculture business.

The flower trade in India is limited to two cities- Bangalore and Pune. While India has all kinds of climatic conditions across its vast geographical expanse, only these two cities offer the right weather conditions and logistics infrastructure required for this industry. Says Dr Reddy: "Though Ooty, Kodai and even the foothills of Himalayas have the right weather conditions, we cannot put up operations there. That's because flowers are highly perishable, so air connectivity is a must. Then, the trained manpower that this trade requires is not available everywhere."

The fact that land prices across the country have shot through the roof, especially over the last four years, has not helped either. Says Dr Reddy: "Earlier, we could get land on the outskirts of Bangalore and Pune for about a couple of lakhs per acre. Today, the starting price is around Rs 50 lakh. It has become impossible to expand."

 
Manjunatha Reddy
Manjunatha Reddy MD/ Euro Flora: "With the rising land prices in India, it has become impossible to expand"

Most Indian players also focussed on the export market. From virtually zero exports in 1990, Indian floriculturists earned around Rs 250 crore in 2000-01 by exporting flowers, mainly roses, to Europe and Japan. Incidentally, there exists a huge domestic market for flowers, but prices are unremunerative. For instance, a single stem of rose in India may sell for about 25-50 paise, while the same will sell for anywhere from 25-50 cents (Rs 11-22) in the international market during the peak season.

The last straw for Dr Reddy and his ilk was the ever-escalating labour cost, a direct result of the economy's turbo-charged growth rates. Wages for agricultural labour, which was at Rs 40 per day in 2002, suddenly tripled to Rs 120-130 a day in 2004-05. The sky-rocketing freight cost, especially during December-March (which is the holiday season in Europe and elsewhere, what with Christmas, New Year and Valentine's Day falling in this period), added to the growing discomfort of Indian floriculturists.

A bunch of opportunities

Here's a ready reckoner on why Ethiopia is a flourishing location for floriculture.
 
India

  •  Land cost in India varies between Rs 10-75 lakh per acre
  • Labour costs Rs 110-130 per head per day depending on the season
    The aroma of success

  •  Greater the height, better the flower quality. Land available in areas like Ooty is at 1,900 metres above sea level
  • Freight charges vary from $2-3 per kg
  • Temperatures range between 15 and 38 degree Celsius in flower growing places like Pune and Bangalore
  •  Indian exports to EU attract tax varying between 6 and 9 per cent
  • Incorporation of operations takes between one and three months
  •  No priority sector loans for floriculture

Ethiopia

  •   The government leases out land at the rate of Rs 500 per hectare (approx 2.5 acres) per year 
  •  The wage rate is about 8 Ethiopian Birr (about Rs 38) per day
  • In Ethiopia, highlands start at around 2,400 metres
  • Freight charges are $1.4-1.7 per kg
  • Average temperatures in highlands vary from seven to 25 degree Celsius, making it ideal for floriculture
  • Ethiopia, under the old Lome Convention, attracts zero tax duties 
  •  Incorporation of new companies and the issue of necessary permits takes three working days
  • Under an EU aid agreement, the government provides up to 70 per cent of the capital cost as loan at a mere 7.5 per cent per annum
     

So, about four years ago, when the Ethiopian government made an aggressive push for investments by putting up stalls at major international floricultural events, Indians, including Dr Reddy, sat up and took notice.

 
Prasad Reddy
Prasad Reddy
MD/Supra Floritech:
"The Ethiopian government is appreciative of Indian floriculturists because of the jobs they create"

For Dr Reddy, it was a journey from red tape to red carpet. He recalls: "Like most people, I had certain notions about the country (Ethiopia). To my pleasant surprise, when I landed there, not only did government officials receive me personally, they also got all the required permissions for us to operate within six days. Imagine, all the paper work was done in six days and no corruption."

The surprise did not end there. Adds Dr Reddy: "Once we identified a suitable piece of land, it was transferred to us under a lease plan for approximately Rs 500 per hectare per year. The trade and investment minister visited my farm (and others) to ensure that his officials were responsive. Can you imagine this in India?"

Another early bird was Vinod Reddy who has a listed company in India called Neha International. He set up another company called Holetta Roses and decided to take the plunge in Ethiopia. Today, this company has 26 hectares of land under floriculture near Addis Ababa.

The weather conditions, freight, labour and land costs in Ethiopia have all worked like a dream for Indian floriculturists so far. Land is available at dirt-cheap prices (see A Bunch of Opportunities) and water supply is very good. The temperature in most places in Ethiopia vary between 7 and 25 degrees Celsius, making it ideal for cultivating flowers.

The Ethiopian government, on its part, has pulled out all the stops to make Indian floriculturists comfortable. Says Prasad Reddy, MD, Supra Floritech: "The Ethiopian government is also appreciative of Indian floriculturists because of the jobs we create and the foreign exchange we earn." His company has 10 hectares of land under floriculture cultivation in Ethiopia.

Sample the largesse: all floriculture activities in Ethiopia are granted a 5-8 year tax holiday depending on the quantum of investment and people employed. Under a European Union (EU) grant, the Ethiopian government provides up to 70 per cent of the project cost as a loan at a mere 7.5 per cent.

 
A blooming business: Vinod Reddy's farm in Ethiopia
Also, freight costs are half of that from India and the EU allows flowers from Ethiopia to be imported at zero duties under the Lome Convention of Preferential Exports, whereas Indian exports are taxed at 6-9 per cent.

Moreover, buyers pay a premium for the long stems and the big head flowers grown in Ethiopia, while labour is available for eight Ethiopian Birr (approximately Rs 38) a day compared to Rs 120-130 in India. Vinod Reddy of Holetta points out: "Though labour is slightly less productive than in India, this problem can be overcome with training."

After the successful Ethiopian sojourn, the sky is the limit for Indian floriculturists. Says Ramakrishna Karuturi, who runs India's biggest floriculture company, Karuturi Networks: "Floriculture, at the end of the day, is a quality and scale business like most others. We are in the race with the Dutch and the Kenyans to dominate the world market. While the Dutch have had a headstart, Indians are catching up."

Meanwhile, Indian floriculturists are firmly ensconced in the land of new opportunities-Addis Ababa-which, befittingly, means New Flower in Ethiopia's native Amharic language.

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