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Kenya is under pressure to develop new products and diversify its exports to stay ahead of the competition from other African nations as well as from Asia.

The East African country has traditionally been a strong exporter of tea, coffee, fresh flowers as well as fresh vegetables and fruit, but due to factors such as high freight costs, Kenya is beginning to lose out to other countries.

“Unfortunately Kenya is losing its competitiveness to countries with lower freight costs. Egypt has effectively taken away the green bean market from Kenya,” Peter Clarke, trade and technical director, from the Fresh Produce Exporters Advisory Service tells GTR at the sidelines of a Kenyan exports conference held in London in early August.

“Kenya is also losing business to India and Pakistan who have come from nowhere in the fruit and vegetable market. There is such a lot of business going on in that part of the world. There are more flights available ensuring freight costs have become very competitive,” he explained.

Speakers at the Kenya Exports event suggested that air freight costs could account for up to 50% of the cost of Kenyan goods. There were calls from delegates for Kenya Airways to invest more in cargo planes.

Clarke tolds GTR that Kenya should try to develop a “new generation” of agricultural products to ensure its competiveness, overcome the barrier of high air freight costs and “give them a few years to profit from these developments before everyone else catches up”.

“What they should be doing is setting up an experimental garden, possibly at University of Nairobi, and trial all sorts of things and they should make that available to exporters to go and look at and then present new products to their international buyers,” he explained.

The agricultural sector in Kenya contributes 26% of the annual Kenyan GDP and accounts for 65% of Kenya’s total exports. However, it only accounts for 1% of the EU-15 market share in edible vegetables and only a tenth of the edible fruit market. The US market remains untouched by Kenyan exports.

Kenya’s traditional coffee and tea markets are also are losing out on profits due to a lack of in-country processing taking place.

Most tea is exported in bulk from Kenya and processed and packaged elsewhere. Egypt imports 21% of Kenya’s tea exports but then this tea is re-exported to other markets.

Nadeem Ahmed, chairman of global tea and commodities, argued at the conference that Kenya was missing out on increased profits by not packing its tea in Kenya.

“Kenya is the largest exporter of bulk tea in world. We need to try to bring about a system to incentivise exporters to invest money in machinery so that instead of the tea being packed all over the world, tea should be packed in Mombasa. You have the port, the tea and the infrastructure. Kenya exports around 300 million kg of tea – that is US$1.5bn of potential profit that Kenya is missing out on.”

Loise Njeru, managing director, Coffee Board of Kenya and Sicily Kariuki, managing director, Tea Board of Kenya, both appealed to UK businesses at the conference to consider setting up joint ventures with Kenyan companies to help add value to Kenyan tea exports by carrying out the packaging or processing of the tea in-country.

Export volumes for tea fell in June to 30 million kg compared to 37.7 million kg recorded in the same period the previous year, according to statistics from the Tea Board of Kenya.

Tea export volumes for the period January to June 2012 also fell compared to the same period last year, declining by 4 million kg from 212 million to 208 million kilos. Projected figures for export volumes for the whole of 2012 are estimated 420 million kg against 421 million kg in 2011.

Kenya’s coffee export earnings are expected to rise by between 5 and 10% for the 2011/12 season, according to press reports in early August.

Promoting exports is central to the Kenyan government’s plans to turn the nation into a middle income country. Following the establishment of a new constitution in 2010, the government introduced its Vision 2030 strategy. This strategy includes plans to target six priority sectors: tourism, agriculture, wholesale and retail trade, manufacturing, IT-enabled services and financial services.

Under the programme, special economic zones are being created, each one targeting a different industry. Within these zones businesses will be able to take advantage of different tax relief incentives.

Addressing the conference, Kenya’s minister for trade, Moses Wetangula, told delegates that it was now time for Kenya to be recognised as a significant economic force.

“At independence we were a better economy than Singapore, South Korea, and Malaysia. Every country has a moment of take-off in its history. I think this is the time for Kenya now to take-off.”