Ethiopia: Sher Ethiopia Sparks Flower Shipping Price War

Ethiopia: Sher Ethiopia Sparks Flower Shipping Price War

Addis Fortune (Addis Ababa)

October 10, 2006
Posted to the web October 10, 2006
Issayas Mekuria


The growing floriculture export and transport business is in a tug of war between two transport facilitators.

A price war was sparked between Ethio Horti Share Company and Sher Ethiopia Plc after an email message was sent by Sher to 77 growers announcing new cargo services to Europe. The email said that the company would begin leasing an airplane to transport flowers and vegetables to Luik, Belgium starting October 5, 2006.

The floriculture industry which had only two flower growers as early as six years ago has grown in leaps and bounds to a total of 90 companies out of which 46 have started to export their flowers to the European market.

Ethio Horti Share Company was formed with a five million Birr capital by 30 of these flower growers in October 2004 to broker and facilitate the transportation of flowers to their export destinations.

During peak floriculture seasons, Ethio Horti charters planes and charges a reduced shipping cost of 1.40 dollars to 1.50 dollars a kilogram. In normal circumstances, when sharing cargo space with other sectors, the company charges between 1.58 dollars and 1.70 dollars a kilogram.

The biggest share of flower transportation out of the country has always been using Ethiopian Airlines. And Ethio Horti renewed an agreement last week with Ethiopian to transport the floriculture exports for the next few years at the usual rates.

But now, Sher announced in its email that it will offer a fixed rate of 1.65 dollars per kilogram to any local flower grower, clearly undercutting Ethio Horti prices outside peak season.

Moreover, Sher mentioned in its email message that it will start its own operations flying with a leased Boeing 747 from Dutch based Lauden Airways. With Sher, payment will only be expected once the flowers are sold in Europe. The shipping charge will be deducted from the hard currency sale proceeds (industry experts told Fortune that the shipping cost is about 40pc of total proceeds).

But Although Sher Ethiopia guarantees its fixed price for a year, Eyob Estifanos, Air Transport and Planning department head with the Ethiopian Civil Aviation Authority told Fortune that Lauden, Sher's transporter, is only licensed for one month.

"They cannot be allowed to operate after this period," said Eyob.

Indeed, according to Eyob, the license for Lauden (and for Sher's new service) was only offered as a stop-gap measure for the peak flower shipping season. But the email from the company clearly infers that the service should be understood as long term.

Gerrit Barnhoorn, general manager of Sher Ethiopia, disagreed with Eyob when approached by Fortune on the one month license issue. "It has not yet been decided," he said, refusing to comment further.

One anonymous flower grower told Fortune the Ethiopian Airlines and Ethio Horti's prices fluctuate making Sher Ethiopia's fixed price an interesting proposition.

Moreover, the grower said Ethio Horti flies flowers to Brussels, Belgium and then transports them to Amsterdam, causing inconvenience, especially for perishable products like flowers. Sher Ethiopia's service, if in fact becomes one, would transport the flowers directly to its own specilaised transporters, according to the Sher email.

Solomon Sibhatu, board chairman of Ethio-Horti, conveyed his displeasure at the new competitor.

"Ethiopian has done a great deal to support the sector," he said, "and we can not take it for granted what it has done, even losing up to one million birr a day in the early days of the industry. The permission granted to Sher to ship flowers should not have been given. There is more than enough air cargo available."

Sher Ethiopia Plc was founded in 2005 by three shareholders, Gerrit Barnhoorn, Peter Barnhoorn and Joost van Klink. It is located in the Zewai area, 163Km from Addis Abeba, on a 450ht plot. Sher develops farms and sells greenhouses to flower growers, charges them on a nine years instalment basis.

Sher Ethiopia's first air shipment to Belgium was scheduled to depart Thursday, October 7. It has been postponed, said company staffers, till October 10. Gerrit Barnhoom could not confirm the new schedule.

The Ethiopian government and the Ethiopian Horticulture Producers and Exporters Association have projected to export 20,000tn of floriculture and vegetable products during the six months peak season, amounting to 40 - 50 million euros. Last year, the country exported floriculture products worth of 21 million euros.