Agricultural Sector Investment, Outsourcing and Political Risks: The Case of Kenya's Flower Trade with the EU

William A. Amponsah, Georgia Southern University

Recent Kenyan agricultural policies have provided the enabling environment and incentives for European entrepreneurs to invest in the growing cut flower industry. The key objective of this study is to evaluate whether the December 2007 Kenyan electoral conflict may have caused EU importers to view Kenya differentially relative to other rose-exporting countries,  resulting in a fundamental change in how they respond to factors such as demand and import prices. Import demand estimates for roses were obtained using the Rotterdam model, and demand elasticities were derived to assess the potential impacts of the Kenyan conflict on import demand parameters and the responsiveness of imports from Kenya and the other leading exporters of roses to the EU.

Import demand projections showed that the conflict had immediate impacts on EU demand for roses. Whereas EU rose imports from Kenya increased significantly by 3.2 percent annually (other factors held constant) prior to the conflict, it significantly decreased by 2.1 percent after the conflict. Cross-price elasticity estimates show that there has been significant substitution away from Kenyan roses to other competitors’ imports from Ecuador and East Africa. However, the structural adjustment estimates suggest that Kenyan roses became significantly more sensitive to changes in EU expenditures following the conflict.