Statement on behalf of the employees and management of Sher Ethiopia
In reaction to the broadcast by ZEMBLA in the series “Hollandse Handel” (Dutch Trade) on May 18th 2016 (repeated on 13-07-2017), we wish to distance ourselves in strong terms from the gross inaccuracies and inadequacies which have been outlined by ZEMBLA concerning the alleged abuses in the management of our production companies in Ethiopia. We deeply regret that our outstanding reputation in the field of sustainability and corporate social responsibility has been depicted in a completely incorrect and unacceptable way in Dutch media, and that, as a result thereof, we have been put in a position of having to defend ourselves for our current policy.
After thorough consideration, we decided to discard the possibility of reacting to all allegations in front of the ZEMBLA camera. We have been advised to do so by various parties, because we were told by various well-informed sources that the ZEMBLA editorial staff has a very selective way of deciding on which comments they do or do not wish to broadcast, in order to minimize impeding the editorial imaging intended by them. It is obvious that the editorial imaging intended by ZEMBLA is of a very negative nature and is mainly aimed at achieving very high viewing rates.
Currently, we are considering to undertake possible (legal) action against the editorial program staff of ZEMBLA and/or BNN-VARA broadcasting companies, in order to enforce rectification of the broadcasted inaccuracies and untruths. In the following we have given an explanation per item of the factual situation, in order to eliminate possible misunderstandings resulting from this broadcast.
Our largest rose nursery in Ethiopia (325 ha production) is located on Lake Ziway, at a height of 1,650m above sea level and approximately 2.5 hours drive south of the capital of Addis Ababa. Besides the Ziway nursery, there are two other locations, where we cultivate roses in a sustainable way. The Koka nursery (25 ha), situated at an hour’s drive north of Ziway and a nursery under construction in the village of Adami Tula (175 ha), within a stone’s throw from Ziway. In 2017 the total area of our nurseries will be 525 ha, which equals the size of over a 1,000 football fields. At Sher Ethiopia approximately 70 different varieties of roses are cultivated. Large and small flowering roses and cluster roses in many different colours and various lengths. Cutting, planting, harvesting, processing, packaging, transport, all work, including management thereof, is carried out by local staff. Sustainability is a core corporate value at Sher Ethiopia and our rose nurseries in Ethiopia. This is reflected through respect for people and the environment. To guarantee independence and objectivity our company is subject to regular controls by internationally recognized companies such as MPS-ECAS and Flo-cert, which are aimed at growers and traders. Sustainably grown roses are based on a sustainable staff policy. In order to have this verified independently, Sher Ethiopia has been certified by internationally recognized standards including MPS- Socially Qualified and Fairtrade (Max Havelaar). These certifications are founded on the ILO (International Labour Organization). This means that Sher Ethiopia uses permanent employment contracts, minimum wage standards, adequate leave and various forms of staff participation. Sher Ethiopia has invested considerably in the construction and operation of its own modern, well-equipped hospital (with a capacity of 240 beds) and an extensive school complex, as a result of which there is medical care and high-quality education available for the entire local community. The medical care is free of charge for the employees of Sher Ethiopia. With the construction of our schools the basis for a better future has been founded for the children of the employees and other members of the local community. Half of the currently approx. 6,000 pupils are children of the employees of the plantation and the other half are designated by the village elders. All pupils receive education free of charge and in addition there is free food and drink for the pre-schoolers. There will ultimately be places for approx. 7,000 children for primary and secondary education in the Ziway region. In addition to the creation of a sustainable personnel policy and the construction of its own school and hospital, Sher Ethiopia has also started a number of social projects in the surroundings of Ziway, including financial support during the construction of churches, a court building and assistance during the construction of roads and drinking water pipes.
After this general description of the manner in which Sher Ethiopia implements its social and societal responsibility, we will subsequently deal with a number of specific subjects, which are represented in an incorrect manner during the broadcasting of ZEMBLA, as a result of which it is possible that the wrong impression can be created.
These subjects concern the following:
- Water management;
- Crop protection;
- Remuneration policy;
- Allocation of land.
ZEMBLA states that with regard to the sustainability of our production serious questions can be put.
Sher daily produces between three and four million roses and that this, according to social geographer Marcel Rutten of the African Studies Centre, requires about 2,000 Olympic swimming pools of water on an annual basis, which is comparable to approximately 7 liters per produced rose. Our water usage would have led to the drying-up of a nearby river. The surface area of Ethiopia amounts to 1,104,300 km², which is 27 times the surface area of the Netherlands (41,543 km²). Ethiopia consists mainly of the spread out and relatively fertile Ethiopian High Lands, which is cut through by the Great Rift Valley from North to South. The Blue Nile, the White Nile and the Tekeze River all flow into the Nile after starting in the Ethiopian High Lands. Although Ethiopia is situated close to the equator it has a relatively moderate climate related to the height it is situated at. The exception are the areas that are situated lower, such as the Danakil Depression and the Ogaden, which have a hot and dry climate. Dye to the large size of the country there are large differences in the average temperature and rainfall. It is evident from the rainfall charts below (source: http://www.bestcountryreports.com/Precipitation Maps) that there are large differences in the average rainfall in Ethiopia. In Ziway, which is situated in the Rift Valley in the centre of Ethiopia there is an average rainfall of 750-1250 mm per year, which is comparable to the rainfall in the Netherlands.
There is relatively a lot of rainfall in the Wets of the country (1250-2500 mm per year), while the rainfall in the South-East is low (0-750mm). The Eastern part of Ethiopia was affected this year by El Nino, as a result of which that part of the country has not had any rainfall for almost one year, wherefore crops failed and shortages of food and water arose. Although there are no food and water shortages in the areas where our plantations are situated, there was also considerably less rainfall there this year than in the previous years, as a result of which the water level of the Ziway has reduced more and the Bulbula river (near Adami Tulu) even temporarily dried up. This situation applied at the time of the presence of the film crew of ZEMBLA in this region. After a period of heavy rainfall during the past weeks the water level of the Ziway returned back to normal and the water flow in the Bulbula river was remedied. Due to the heavy rainfall during the past on weeks there were even floods as a result of flooding of roads and areas.
Sher Ethiopia supports various water projects, including the co-sponsoring of 12 water trucks to assist the Ethiopian population during the fight against the consequences of the dryness of the land. Sher Ethiopia is very much aware of the value and the quality of water and does everything possible to limit the use of water as much as possible. In order to achieve water use that is as efficient as possible we exclusive use drip pipes for the watering of our crops. Drainage water originating from drip pipes is collected and after special filtering completely reused (entirely closed system), but this also takes place when emptying the buckets from packaging sheds, cold stores and toilets. A natural filter system has been developed in close cooperation with the University of Wageningen (wetlands), which filter all the collected water in such a manner that it can be entirely reused. It is evident from research that the filtered water is even cleaner than the water from the nearby Ziway lake, which is also used for drinking water. Contrary to outdoor cultivation, whereby in the course of which (heavy) rainfall drainage of the soil takes place and crop protection substances and fertilisers can flow into the lake, we cultivate our roses in closed greenhouses. Due to the development of a closed water recirculation system the average water use of Sher has been reduced by approx. 30% and wastewater no longer flows to the surrounding areas. We use (after recirculation) for the production in particular of our short-stem roses an average net 1,200 mm per year (based on our production of approx. 325 roses per m2), which can be covered for approx. 80% by the average rainfall at the locations where our farms are situated.
ZEMBLA alleges that approx. 7 litres of water are required per rose for the production of roses. However, the average water use by Sher Ethiopia per rose is approximately (1,200 mm / 325 roses per m2).
The most important reason for this are:
- The production of Sher Ethiopia is of short-stem and small flower heads;
- The application of a very efficient form of watering through drip pipes;
- Reuse of water (approx. 30%).
In addition to using water from the Ziway lake, use is made of various water holes, with which ground water is pumped, to be able to provide for the daily water needs of our crop during periods of relative minor rainfall. The use of water from the Ziway lake is considerably restricted as a result of the combination of the aforesaid measures.
ZEMBLA states that several reports show that our wastewater contains traces of environmentally harmful substances. Laboratory studies commissioned by ZEMBLA detected similar pesticides. According ZEMBLA these substances could be harmful to the unprotected skin of employees during their work. Furthermore, eating fish from the lake that is polluted by pesticides might may cause health problems.
Sher Ethiopia uses a progressive and balanced form of crop protection. Plant protection products are classified in various toxicity categories (cat. 1-5), whereby Sher Ethiopia has totally banned the use of the heaviest types (cat. 4 and 5), which has been achieved in particular by the use of biological crop protection products (Integrated Pest Management). Sher Ethiopia has worked closely together with Koppert Biological Systems from Berkel en Rodenrijs (the Netherlands) from the start of the production of roses. This company is specialised in the development of useful insects, including: predatory mites and ichneumons. In the event of any disease or plague such as spider mite, wool lice or trips, these useful insects are deployed to eat the harmful insects. Koppert Biological Systems breeds useful insects and transports these by air transport to our plantations in Ethiopia. Due to the use of biological crop protection no heavier types of crop protection products can be used, because the use thereof would also kill the useful insects.
Due to the application of the aforesaid biological crop protection the use of chemicals and in particular the heavier categories is reduced by 63%. Less heavy categories of crop protection products (cat. 1 and 2) are exclusively deployed to fight bacteriological damage of the crop and in the event of the presence of fungi.
Our harvested flowers are analysed on pesticides on a weekly basis by an independent Laboratory (Eurofins Agro Laboratories).
As noted above Sher uses a closed system for drainage and recirculation of wastewater, hence no pesticides and fertilizers can flow into the lake.
ZEMBLA alleges that they observed from a distance that during the application of the crop protection products protecting clothing is not always worn. We have set out a response to this allegation below.
Strict safety measures apply to the specialised personnel who apply crop protection products, including the mandatory use of protective clothing and face masks. These specialised people are regularly trained by various national and international organisations. The employees who work daily with crop protection products are examined ever 3 months by an external laboratory for the state of their health.
The management of Sher Ethiopia strictly supervises the compliance with the strict safety regulations for the use of crop protection products and in the event of/that infringements suitable measures are taken.
The use of crop protection products is exclusively permitted at times when there are no other employees present in the greenhouses. During periods of little rainfall the outside air humidity is so low that there is also too low a level in the greenhouses. In that event clean water is atomised in the greenhouses to raise the air humidity to the required level in this manner. This occurs in particular for young crops or types of roses that grow badly when the air humidity is too low. Of course these employees do not have to wear any protective clothing during the atomising and other employees can just continue to work during the atomising.
ZEMBLA states that based on the Financial Statements 2014 it appears that the 42 employees in the Netherlands collectively earned € 3.3 million during 2014, while the earnings of the nearly 10,000 Ethiopian employees in 2014 amounted to € 2.5 million, which corresponds with an average earning of €29 per month.
We emphasize that the above does not reflect the actual situation and results in an incorrect comparison.
The Financial statements ZEMBLA refers to covers the period March 25, 2014 to 31 December 2014. The Dutch personnel expenses as reported in the financial year 2014 also include costs for temporary workers for an amount of € 1.3 million. These temporary workers should be excluded for comparison purposes.
Recalculated for the full year 2014, total personnel expenses in Ethiopia amounted to € 5.1 million, which corresponds with an average amount of €43 per month. This is approximately 50 % higher than ZEMBLA claims.
The current minimum remuneration standard for governmental personnel in Ethiopia amounts to ETB 420 per month. With an exchange rate of €1 = ETB 24 this amounts approx. to €18 per month. There is no minimum wage standard for all other business sectors and usual payment is made (far) below the minimum remuneration standard for governmental personnel.
The average employee payment per month of the currently 13,000 employees of Sher Ethiopia amounted in 2014 and 2015 respectively to ETB 1,025 and ETB 1,100 (including allowances and excluding a pension contribution of 11% of the basic salary), which amounts to €43 and €46 respectively per month (or $49 and $52 respectively). The salary scales are increased annually on average by 10% with effect from 1 July. The minimum salaries paid by Sher Ethiopia amounted in 2014 and 2015 respectively to ETB 810 and ETB 920. The minimum salary will be increased to ETB 1,000 per month with effect from 1 July 2016. The minimum salaries paid by Sher Ethiopia hereby amount to more than twice the current remuneration standards for governmental personnel in Ethiopia and since the start of Sher Ethiopia in 2005 the salaries have quadrupled, because at that time the minimum salary amounted to ETB 250 per month.
ZEMBLA states that Sher in Ethiopia and in the Netherlands evades taxes, among other things by subtracting the interest of a shareholder loan and the amortization of capitalized brand name from the profit. Reference is made to the expert opinion of Mr Boudewijn Janssen, teacher at the Fontys school for business economics. This analysis is completely incorrect and, shows a limited tax knowledge in general, as abovementioned items cannot affect the taxable profit as these items are consider to be non-tax deductible by the Dutch Tax Authorities. As a consequence these items are obviously not taken into account when determining the profit tax.
The financial statements and tax returns of Sher Ethiopia are checked by an external accountant and tax consultant (Deloitte), and each time it is concluded that Sher Ethiopia meets all financial and fiscal legislation in both Ethiopia and the Netherlands.
The past 5 years, Sher Ethiopia invested more than 50 million € in the expansion and modernisation of its nurseries in Ethiopia. According to Ethiopian fiscal rules, these investments must be depreciated in 5 years and charged to the result over which 30% of profit-based tax is raised. After completion of the new nursery in Adami Tulu (mid-2017), these depreciations will decrease significantly and the fiscal operating profit will increase correspondingly.
In addition, Sher Ethiopia is making considerable investments in the annual exploitation of healthcare and education for its staff and other members of the local community, as well as other social projects. In total, these social operational costs amount to more than 2 million € per year.
Finally, the exchange rate of the Euro compared to the American dollar has dramatically weakened since mid-2014 (from approx. 1.35 to approx. 1.14). As most of the costs in Ethiopia directly or indirectly depend on the dollar exchange rate, the general cost level has increased by approx. 16% since mid-2014.
As a result of the above-mentioned issues, we have seen a modest fiscal profitability in Ethiopia in the past years. The Ethiopian government is closely monitoring artificial reductions of results, e.g. by using transfer prices that are too low. When the minimum transfer price standard (currently $3.86 per kilogram) is violated, no export permit will be granted. At Sher, at their own initiative, the transfer price was increased to $4.00 per kilo, which is 3.6% above the minimum standard.
The legal structure of Sher Ethiopia only consists of companies in Ethiopia and the Netherlands and does not include any participations in so-called tax havens. Over the complete operating profit, full profit-based taxes are paid in Ethiopia or in the Netherlands, of 30% and 25% respectively of the fiscal profits.
All insinuations or allegations by ZEMBLA concerning alleged tax avoidance or even tax evasion are considered by us as utterly reprehensible and are fully rejected by us. We would like to emphasise that we fully comply with the fiscal legislation in Ethiopia and the Netherlands, are committed to full fiscal transparency and that we have an excellent fiscal reputation and understanding with fiscal authorities in both the Netherlands and Ethiopia.
Allocation of land
The land for our production greenhouses in Ethiopia is leased from the Ethiopian government for the long term. Land sites are selected and allocated by the Ethiopian government. The same applied to the allocated site for the new nursery in Adami Tulu, the construction of which started mid-2014. For resettlement and compensation of income forgone by farmers and other residents of this site, we paid approx. 2 million € in compensation to the Ethiopian government, who distributed this amount over the persons involved. This whole process was carefully coordinated by the Ethiopian government, who is the owner of these lands. Sher Ethiopia did not exert any influence on the selection, allocation and compensation process, as this process was being fully implemented in accordance with local legal standards and provisions in Ethiopia.
From recent research afterwards into the current situation and income level of resettled persons, it became apparent that the process had been to everyone’s satisfaction. The personal situation of by far most of the resettled persons has been improved in comparison to the period before. Moreover, a substantial part of the people concerned has in the meantime found employment at Sher Ethiopia, while others have started new businesses (hospitality, catering and transport) or have been allocated new agricultural land on the other side of the river Bulbula.
Management and employees of Sher Ethiopia are of the opinion that they take their social and civic responsibilities very seriously and do everything in their power to do business in a way that is respectful to man and the environment and to minimise their ecological footprint. Sher Ethiopia has various international partners that fully subscribe to our company policy and moreover consider us a pioneer in the field of sustainability and as an example to others. For this reason, the prejudiced and negative report by ZEMBLA feels particularly unpleasant and frustrating. It is a comforting thought that our customers, employees and other stakeholders are familiar with our way of working and appreciate this.
Aalsmeer, 18 May 2016
On behalf of the management and employees of Sher Ethiopia PLC and Afri Flowers Holding B.V.
P.R. Barnhoorn (CEO)