A Duty Scheme That Punishes Its Most Compliant Blooms

Jul 4 , 2026. By Mekonnen Solomon ( Mekonnen Solomon (ehdaplan@gmail.com) is a horticulture export coordinator and senior staff of the Ministry of Agriculture. )

The duty-free packaging scheme protects revenue with mathematical precision, then punishes flower exporters whose living and volatile crop can never match the maths, argued Mekonnen Solomon (ehdaplan@gmail.com), an agricultural economist working for the Ministry of Agriculture (MoA).

Ethiopia's floriculture sector is one of Africa's clearer success stories in export diversification. Beneath that achievement, though, sits an operational tension that could undermine long-term growth.

The duty incentive underpinning flower exports, anchored by the input-output coefficient (IOC), reflects a genuine commitment to export promotion while protecting fiscal revenue and nurturing young domestic industries. Yet applying rigid coefficients to the biologically variable and market-sensitive packaging needs of flower exporters produces distortions no one intended.

The IOC framework grants exporters duty-free access to essential packaging materials, including cartons, sleeves and stripping rolls, as well as price tags and carbon ribbon, provided the materials are re-exported as embodied in finished products. Experts at the Ministry of Industry set the coefficients, a regulatory tool that fixes how much packaging an exporter may draw for a given volume of flowers. Enforcement carries retroactive tax liabilities.

Any shortfall or underutilisation of materials against the set coefficient triggers full retroactive tax, as though the materials had been sold domestically. The mechanism is meant to hold exporters to the standard and to safeguard the public revenue that underpins it.

The design delivers clear advantages. For the Ethiopian Revenue & Customs Authority (ERCA), it offers mathematical auditability, since officers can verify compliance through straightforward calculations without specialised agricultural knowledge. It plugs potential leakage into the domestic market by binding duty-free imports to export volumes in a closed loop. Revenue is protected by contingent liability, and standardised rules apply to all exporters, enabling a level playing field.

For compliant exporters, the scheme eases cash flow by deferring duties, improves planning predictability, and deters unfair competition by abusers. These are a thoughtful response to a developing economy, where customs duties remain a vital revenue source and domestic packaging makers still need shelter from premature import competition. Seen in that light, the coefficient is less an arbitrary burden than a considered bargain.

The strengths fade, however, once the static coefficient meets floriculture. Packaging specifications shift quickly with international buyers, from carton dimensions and wrapping ventilation to humidity management and branding for European, Middle Eastern, and Asian markets. End-market demand rises and falls with events, festivals and holidays. Supermarkets adjust their preferences on colour, stem thickness, length and bud size, and each change alters the volume an exporter had planned to ship.

At times orders for a particular flower surge; at other moments, they dwindle.

The more serious problem is that the model treats a flower farm like a textile factory. These rules were designed for manufacturing, where a producer can predict exactly how many zippers a jacket needs or how much leather a shoe requires. There, the input-output relationship is fixed and easy to audit against leakage. Floriculture is a biological enterprise, not a mechanical one. Unlike a shoe factory, a flower farm works with living  volatile variables, weather, pests and varying stem lengths, which change the demand for packaging by the day. Imposing a one-size-fits-all manufacturing coefficient on a farm is not merely outdated. It is a structural error that penalises exporters for the natural complexity of agriculture.

Several limitations, the first and most important being forecasting uncertainty, remain issues. Coefficients demand a precision that biological and market volatility make impossible. Overestimating output leaves idle packaging stock exposed to penalties. Underestimating it starves the exporter of materials, forcing imports at full tax, borrowing, or the purchase of inferior local stock. Keeping separate stores for duty-free materials adds a heavy administrative burden, especially for smaller farms.

Proving exit is its own labour, since mapping a single low-value item, such as a rubber band, to a specific shipment is logistically demanding. Seasonal buffers become a problem without adequate and longer rollover provisions. None of this is bad faith; rather, it is the everyday pressure of moving a living product through a system built for fixed parts.

For exporters, the scheme becomes a straitjacket of exact reconciliation. Waste and damage, normal in any perishable supply chain, sometime turns into taxable events. A perverse incentive emerges to ship a suboptimal product to meet a coefficient. Most damaging, the system punishes innovation. An efficiency gain that cuts input use, say clever stem bundling that reduces sleeve consumption by 15pc, triggers a tax liability for the now over-imported material.

From the authority's side, setting the "correct" coefficient becomes administratively charged rather than purely technical. Tight coefficients risk strangling the industry, while loose ones invite leakage. Administrative rigidity delays updates to new varieties or sustainable materials, and uniform coefficients ignore differences in business models, from premium gift packaging to standard bulk cartons. The result is a homogenised industry and an incentive for technical fraud, such as over-declaring export weights.

In essence, the coefficient trades industrial flexibility for fiscal control, locking a variable biological process into a rigid mathematical frame. That creates constant disagreement and demands an administrative agility that centralised systems rarely manage. An effective legal framework has to bend to the specifics of a sector. A sequenced shift from control- to facilitation-oriented mechanisms can preserve fiscal integrity while lifting competitiveness.

Regional experience points to a way through. Kenya's more flexible duty-drawback systems and targeted bonded regimes, among other measures for horticultural exporters, imply that hybrid and audit-driven approaches can protect revenue while sharply cutting compliance costs.

Despite Kenya offering a lesson, critics often argue that its flower exporters receive too little government support for buying packaging. The perception grows from the ready supply of high-quality packaging made locally in Kenya. Exporters can buy it at competitive prices with a single phone call, eliminating the need for large inventories.

The arrangement carries several advantages for the state. Domestic sourcing conserves the foreign currency that imports would consume, strengthening reserves. Backing domestic manufacturers deepens the value chain and simplifies the wider business environment. It also creates jobs and income for manufacturers, small traders and workers. And exporters save on administrative costs and procurement time.

Many exporters in Ethiopia ask why their government favours foreign packaging manufacturers and suppliers entering the market rather than building a local base as Kenya has. Some exporters say regulators appear to suspect them of selling imported packaging, rubber bands, wrapping rolls, and sleeves into the local market, or of generating excessive waste. The suspicion sits oddly beside their heavy investment in raising production quality and export capacity. Such oversight undermines their commitment to the sector and breeds distrust, obscuring the jobs and growth they deliver.

Ethiopia's duty incentive shows a mature grasp of the fact that export competitiveness needs supportive scaffolding. But the uniform application of rigid coefficients across sectors with very different characteristics risks operational failure in high-potential areas such as floriculture. By amplifying uncertainty and burden, the present system inadvertently punishes the compliant exporters it means to empower.

PUBLISHED ON Jul 04,2026 [ VOL 27 , NO 1366]