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Karuturi's Valentine's Day Set to Be on a Sour Note

February 13, 2014
Business Standard

Company was placed under receivership over claims of bankruptcy after it reportedly failed to pay salaries

Karuturi Global, the Bangalore-based publicly held exporter of cut roses which rose to fame as among the top exporter of roses to global markets, is reportedly under severe stress at its expansive rose farms in Kenya over non-payment of salaries.  

According to reports emanating from Kenya, it was placed under receivership over claims of bankruptcy after it reportedly failed to pay salaries and suppliers for some time. However, late on Wednesday, a court in Kenya stayed the receivership.
According to news24Kenya, the Kenya Planters and Agricultural Workers’ Union appealed to government to intervene in the crisis surrounding flower firm, Karuturi, to ensure workers received outstanding salaries.

The news report added that the organizing Secretary of the Kenya Planters and Agricultural Workers’ Union, Meshack Khisa, said that due to the company’s financial woes, workers had not received their salaries for the past three months.

“We are urging the government to intervene so that workers are paid since they have not been paid since November last year in addition to working in deplorable conditions,” the website quoting him said.

The news report added that Karuturi was said to have been put under the statutory management of Kieran Day and Ian Small of financial services firm The Business Advisory Group who will be charged with taking the company back to its feet.

Karuturi employed 4,000 workers and at its peak, exports 1.5 million cut-roses per day to Europe. Its farm in Naivasha is home to 40 species of roses. The management of Karuturi Global was not available for their comments on Wednesday.

The flagship roses exports business of Karuturi Global started to get into trouble after a winding-up petition filed by a packaging company which is part of the Aga Khan Development Network.

Karuturi Global, which rose dramatically onto the global stage as among the leading rose exporters to Europe from Africa, is already in various stages of untangling issues over its ambitious agriculture foray in Ethiopia, which is facing backlash and is midst of various problems.

"The matter between Karuturi Limited and Allpack is only its preliminary stage and we are unable to comment on the full implication, except to say that the claim in no way represents an ability to close down operations of the company which at present is valued at $93 million. We intend to defend against the petition in a court of law," Karuturi Global said in a statement earlier.

The company's management further noted earlier that they are working with relevant employee unions to ensure that all employment issues are managed and employees have a good working environment, and receive a fair renumeration and most of the salaries have been paid. 

Karuturi Global expanded its base in Africa by acquiring Kenya-based Sher Agencies (now Sher Karuturi) in September 2007 from Dutch horticulturists Gerrit & Peter Barnhoorn. The acquisition brought into Karuturi's fold a 188-hectare farmland in the rich Naivasha region of Kenya. Of this, about 135 hectares are under greenhouse cultivation and 42 hectares in open cultivation and has an average daily output of about 1.5 million stems that are exported from Kenya to Europe.
This latest setback for Karuturi is compounding the problems for the company, which over the past four years, has been trying to establish an expansive agriculture exports business in Ethiopia. It has embarked on an ambitious $300 million agriculture foray in Ethiopia by growing a range of cereals and plantation crops in which it suffered a severe setback in late 2011 due to heavy floods in the region and had to take a hit of $15 million as its first maize crop was hit severely.
The company has acquired 311,000 hectares on a lease-hold basis from the Ethiopian government in the Baka and the Gambela region to cultivate short, medium and long-gestation crops. In the first phase, the company intends to cultivate cereal crops (rice and maize) on 70,000 hectares and oil palm on 20,000 hectares.

Even as the company is going through the painful recovery from the devastating floods, it has been facing allegations of land grab. Human Rights Watch (HRW), a global independent organisation dedicated to defending and protecting human rights, had earlier raised a red flag on corporates from India expanding in Ethiopia.

According to the HRW, the Ethiopian government under its "villagisation" programme is forcibly relocating approximately 70,000 indigenous people from the western Gambella region to new villages that lack adequate food, farmland, healthcare and educational facilities.
State security forces have repeatedly threatened, assaulted and arbitrarily arrested villagers who resisted the transfers, the report added. Karuturi, on its part said that the report is biased and does not reflect the truth on the ground. "We are empowering the locals with jobs and we are not into grabbing land. The report is totally baseless," the company has maintained
Another globally-reputed Oakland Institute also came down heavily on Karuturi on various issues and also noted that the Kenyan government found Karuturi Global guilty of tax evasion to the tune of nearly $11 million, the first time an African government has taken a large global company to court for transfer mispricing through a fully public process.
As part of its financial restructuring, the company in September restructured FCCBs worth $55 million.