The reducing investments in the horticulture industry together with the challenges affecting the industry have continued to adversely affect horticultural production and export constraining its growth and contribution to the economy. According to , the area devoted to cut flowers and fresh vegetables in Zambia has stagnated at 140 hectares, compared to Kenya’s over a million hectares, because of high lending rates that prohibit most people from venturing into horticulture production. Furthermore, because the industry is largely export oriented, significant financial losses continue to be incurred by exporters each time the currency fluctuates upwards . According to , financial losses of about 30 percent of export value were incurred because of the appreciation of the Zambian Kwacha against the US Dollar and other major world currencies in 2005. Furthermore, tightening standards in the EU export destinations in recent years, mainly to control quantity of imports, have also served a major blow to the Zambian horticultural sector, especially among smallholder producers. For instance, it is argued that the cost of compliance to the European retailers’ private standards for Good Agricultural Practices cut farmers’ incomes in half between 2002 and 2006 . As a result, less than 3 percent of the smallholder and commercial farmers involved in supplying foreign markets in 2000 were still doing so in 2006 . reveals that a total of 22 horticultural farms that were involved in production in 2000 had ceased production by 2004 resulting in the loss of about 1440 and 82 hectares of vegetables and flowers, respectively. Empirical studies have identified two main sets of factors that explain the performance of agricultural exports in international trade. One set comprises factors that are external to the individual country, such as volume of growth of world primary commodity markets and producer prices or commodity terms of trade.
The other emphasizes variables that are internal to the country, including macroeconomic, production and demographic variables, and policies. Many researchers have studied the impact of domestic factors on agricultural exports. Most identify production, demographic, macroeconomic variables, and public investments in infrastructure as important factors. For instance, , using error correction models, found Nigeria’s agricultural exports to be positively influenced by domestic producer prices and negatively by population growth. These findings were consistent with and . also identified relative rainfall amounts, export credit, and improvement in road network as being directly correlated with agricultural exports. In a study in Egypt to determine factors that influence agricultural exports, , using the gravity model approach, found that agricultural exports increase with GDP. These findings are consistent with those by who also found GDP to have a significant positive impact on volume and competitiveness of South Africa’s agricultural exports. While it has been argued that high interest rates attract domestic savings,dutch buckets studies have found high rates to discourage local investments by increasing the cost of capital . As a result, argues that monetary policies should ensure appropriate interest rates that break the double-edge effect of interest rate on savers and local investors by both attracting savings mobilization and encouraging domestic investment. Other studies have assessed the impact of domestic exchange rates on export performance of the agricultural sector. These studies have however produced mixed results. Some show that performance of a country’s exports is highly dependent on its exchange rate regime, specifically the real exchange rate, while others do not. The majority of the studies that have observed the dependence of agricultural exports on domestic exchange rate show that the demand for a country’s exports increases when its export prices fall in relation to the world prices, that is, when the domestic currency depreciates against major world currencies . In contrast, an investigation of the impact of trade liberalization on export volumes by in Uganda found no significant relationship between real exchange rate and volumes of exports. To investigate the factors that influence supply of Zambia’s flower exports to the three main export destinations—the UK, the Netherlands and Germany an error correction model of flower exports, which incorporates both demand and supply factors, was used. Many authors have noted the increased importance of ECM and co-integration methods in analyses that attempt to describe long and short-run equilibrium relationships simultaneously . According to and , an equilibrium relationship exists when variables in the model are co-integrated . A pre-condition for integration, however, is that the data for each variable involved exhibit similar statistical properties, that is, are integrated to the same order with evidence of some linear combination of the integrated series .
The order of integration ascertains the number of times a variable will be differenced to arrive at stationarity . A stationary series has a mean, variance, and auto-correlation that are constant over time . The inspection of the order of integration of variables allows the ECM estimation procedure to thoroughly examine the characteristic of time series, helping overcome the problem of spurious or meaningless regression results often associated with nonstationary historical data . According to and , treating nonstationary series as if they were stationary produces biased OLS results, resulting in misleading economic analysis. The results demonstrate that Zambia’s flower exports are positively influenced by domestic production, GDP and population of importing countries, producer prices, export credit and exchange rate depreciation. For instance, the positive coefficients for real exchange of 0.1413, 0.0267 and 0.1052 indicates that a 1 percent increase in exchange rate increased flower exports to Germany, the UK and the Netherlands by about 0.14, 0.03 and 0.11 percent, respectively. The regression results also show that increases in exports from competing countries, domestic cereal production and interest rates negatively influenced flower exports. The percentage decrease in the quantity of the flower exports to the three main destination countries attributed to a percentage increase in each of the three variables is indicated by the negative coefficient for the respective covariates . Lastly, the coefficients for the error correction term show that there was 98, 10, and 48 percent feedback in the estimated ECMs of flower exports to Germany, the UK and the Netherlands, respectively, from the previous year disequilibrium into the short-run dynamic process. The significant error correction terms in the models confirm the proposed relationship between flower exports to the three countries under study, and the variables considered in the models. Table 7 present results for the ECM which evaluated the impact of the covariates on competitiveness. The R2 of 0.7406 indicates that the estimated relationship explained 74.06 percent of the total variation in the competitiveness of flower exports. In addition, all diagnostic tests show that there was no autocorrelation, the chief source of biasedness in time series analyses. Overall, the findings indicate that flower production, prices and exchange rate depreciation positively impacted while cereal production, export credit and interest rates negatively impacted competitiveness of flower exports. Following Monke and Pearson , a reduction in domestic resource cost indicates an improvement in competitiveness. Finally, the significant coefficient of −0.0366 for the correction term implies that there was 3.7% feedback in the competitiveness adjustment model from the previous year disequilibrium into the short-run dynamic process. On the whole, our results in the two sets of models conform to both our prior expectations and findings by other empirical studies. The positive impact of domestic flower production on flower export supply and competitiveness is consistent with suggesting, in part, that if interventions are to achieve increased flower exports; they should among other things, first increase domestic flower production. According to grow bucket, increasing farm production improves competitiveness and efficiency of the farm sector since fixed costs per unit output decrease as output increase due to economies of scale. Therefore, the decline of flower exports from 2006 onwards did not just result in reduced export revenues but equally resulted in high overhead costs causing a reduction in competitiveness. The positive effect of real GDP and population of importing countries on Zambia’s flower exports too conform to other studies which also found economic growth and population increase in foreign markets critical in stimulating a country’s agricultural export supply and competitiveness.
Explicitly, the result implies that economic and population growth in foreign markets increases demand for a country’s agricultural exports suggesting that the decline of the horticultural industry from 2006 onwards could be partly attributed to the poor performance of the global economy during the same period. Both and found GDP and population growth in importing countries to increase agricultural exports. In addition, conforming too to our findings, found agricultural export credit to have significant positive influence on the volume of Cameroon’s agricultural exports while and found world producer prices to positively impact agricultural exports in Nigeria and South Africa, respectively. Drawing on this result, it could be equally deduced that the significant decline in investments to the industry following the bankruptcy of the largest horticultural firm, Agriflora, in 2004 largely contributed to the slump the industry continued to record thereafter. Besides, the result recognizes the fragility of the horticulture industry in the country suggesting the need for appropriate, broad-based policy support to ensure sustainability and growth of the industry. Conversely, most studies have consistently found a negative relationship between subsidized credit, like in our case, and agricultural competitiveness . Particularly, the negative relationship between subsidized credit and flower competitiveness seem to suggest that while the subsidized credit managed to increase output in the shortrun, it failed to sustain the high production recorded in the earlier years of the EU’s Export Development Project due to resource constraints that followed after the project concluded. Similarly, also found exports from competing countries to reduce Nigeria’s major agricultural exports implying that in addition to increasing production, the replacement of Zambia’s flower exports to the three principal countries by those from other countries dictate that there must be a quality improvement so the country’s exports can compete favorably with those from other countries. Furthermore, our results on interest and exchange rates in both export and competiveness models are comparable with those of . The authors also found high domestic interest rates and appreciation of the local currencies to reduce both volume and competitiveness of agricultural exports. The results therefore suggest that the significant appreciation of the Zambian currency during the late 2000s contributed substantially to the decline of the horticultural industry during the same time period. The observed negative impact on supply and competitiveness of flower export due to the appreciation of the local currency could be attributed to the loss of export revenue among exporting producers arising from the increase in value of the domestic currency relative to the major world currencies such as the US Dollar and Euro . The result could equally be attributed to the decline in competiveness in the international markets because of high export prices for commodities that arise following an increase in the relative value of a country’s currency . On the other hand, the negative impact of interest rates on exports and competitiveness is particularly attributed to the resultant high cost of capital, mainly credit, which makes it difficult for smallholders, especially resource poor ones, to adopt modern and yield enhancing technologies for increased agricultural exports . According to , the area devoted to cut flowers and fresh vegetables in Zambia has stagnated at 140 hectares, compared to Kenya’s over a million hectares, because of high lending rates that prohibit most people from venturing into horticulture production.
Global Horticulture Market Outlook 2015 projects that horticulture industry plays vital role in the future. The globe has initiated measures to support this industry. In 2011, global fruits and vegetables production were 548 million tonnes and 990 million tonnes respectively. And the global floriculture industry size was around USD 109 billion . Globalization has witnessed the focus on integration of developing country firms geographically with PAN world with supply networks or commoditychains. These global supply chain linkages help to connect developing countries’ firms with developed countries’ suppliers and customers. Gereffi , emphasises not only that independent companies in different countries are linked together in trading relationships, but also that the chain should be considered as a network governed to a large extent by key agents within it.