End of the Road for Milk Importation?

Bottling point at a milk factory...

For over 60 years of Nigeria’s existence, foreign milk producing companies have fed fat on the thriving population, buying power and lack of political will to set up indigenous milk producing factories. Rising above the realm of mere thoughts and spurious speculations, the Central Bank of Nigeria is set to implement a policy, pulling the plug of funding to milk importation so that the country’s $1.5 billion spent annually on foreign milks could be put into sustainable milk and dairy factories in the country. Adedayo Adejobi examines the implications of the apex bank’s decision

Following meetings of the Monetary Policy Committee (MPC) meeting in Abuja last Tuesday, especially with the conviction that Nigeria loses approximately $1.5 billion yearly on the importation of milk, it is no news that the federal government through the Central Bank of Nigeria , is considering an outright ban on foreign exchange for dairy imports into Nigeria , with a view to boosting local production of milk and investments in ranches across the country.

Equally on the radar of the apex bank is it’s resolve to keep the lending rate, otherwise known as the monetary policy rate (MPR), unchanged at 13.5 per cent. Other decisions arrived at during the meeting, Emefiele said, included retaining cash reserve requirement (CRR) at 22.5 per cent and liquidity ratio at 30 per cent, with the asymmetric corridor of +200 and -500 basis points around the MPR. The CRR is the funds kept with the CBN as a minimum deposit a commercial bank must hold as reserves, rather than lend out.

Although most analysts expected a further reduction in the monetary policy rates, the CBN governor said the committee decided to leave them unchanged to continue to stimulate credit growth to the real sector and accelerate investment and economic growth.

The crux of this article, however, is the restriction to be placed on foreign exchange for milk production. The decision is hinged on the premise that milk and other dairy products, which constitute very high import products, can be produced in Nigeria.

It is worthy of note that the importation of milk into Nigeria as a business has thrived for over 60 years, as frontline milk producing companies in the ilk of Friesland Campina, have fed fat on the diary.

Three years ago, when the policy on the restriction of foreign exchange started, the Central Bank of Nigeria considered inclusion of milk to the list. It then re-considered based on the sentiments that people would show some level of resentment and for that singular reason, the apex bank rescinded its decision.

Extending a hand of courtesy and gesture of partnership to leading milk producers in the country, the central bank governor held meetings with leading milk producers with a view to encouraging them to begin the process of producing milk in 2016. However, there was no significant progress on the part of the companies.

In the words of Emefiele: “After then, we have met with some milk producing companies almost three times in Lagos for them to begin backward integration and bring their investments to Nigeria and begin production here in this country,” he said.

The governor said during the meeting, he advised the companies to collaborate with pastoralists if need be, provide them with grass, some basic amenities like water and schools or anything that would enable them to get quality milk for their industries.

“They should either begin to acquire land to graze their cows, fatten them and extract the milk, with the complement of the pastoralists under a smallholder livestock arrangement to get milk from them,” he said.

To encourage milk producers achieve backward integration, Emefiele said the importers were assured of loan support for land acquisition, artificial insemination of the cows, and development of grazing fields.

“The CBN cannot continue to allow the country to spend $1.2 billion to $1.5 billion annually on importation of milk into the country. If the journey towards backward integration had started two to three years ago, perhaps the problem herder-farmer conflict we see today in Nigeria would not have been as intense as it is today,” he said.

Despite the consultations and offer of support, Emefiele said it was unfortunate that after three years, “nothing has happened”.

The CBN governor said he told a meeting of the milk importing companies three weeks ago of the need to reduce the high expenditure on milk importation into the country.

In a reaction to the apex bank’s decision, the former education minister, Mrs. Oby Ezekwesili, raise d a note of warning on the alarming levels of poverty in Nigeria saying the situation was likely to get worse with the CBN’s plan to ban importation of milk. The ex-presidential candidate painted a dire future for those trapped in poverty, if the policy to restrict milk imports in to the country is carried out, the consequences will be terrifying she warned.” Don’t effect this ban, please. This policy will raise the cost of living for especially the poor in our midst and their misery will create higher profits for domestic producers of milk who pass on their production inefficiencies to them,” she said. “Milk has an impact on child nutrition.”

“If only citizens knew that contrary to what they think, ban on importation of things like milk, in this case, ends up increasing poverty. The amount of milk available will reduce and price will skyrocket above what other countries pay for milk. Don’t do this and punish the poor, please,” she enthused.

It is instructive to note milk producers may have been feeding fat on proceeds from milk importation. For over five years, they have nearly tripled their exports to the West African region and particularly Nigeria, shipping milk powder produced by heavily subsidised European farmers to be transformed into liquid milk for Nigeria and the West African sub-region’s booming middle class.

Giving credence to this position, Ian Brown, an economist based in Maryland, United States of America, said, ‘‘European milk is pouring into Africa, with disastrous effects for local herders and farmers. Multi-billion-euro dairy multinationals are exploiting rock-bottom European milk prices to expand aggressively into Nigeria and West African countries.’’

Another school of thoughts also alludes to the fact that the prevailing economic outlook and possible costs of sourcing, ranching and kick-starting the dairy and milk production value-chain, may have dissuaded investors who know for a fact, a thing or two about the nuances and difficulties encountered and widely associated with doing business in Nigeria. Besides, there wasn’t a policy framework that dissuaded the importation in general, hence, being dumping ground of sort, the milk producers thrived with ease for another three years unquestioned.

Against the estimated annual milk demand of about 1.300m metric tonnes, Nigeria’s local dairy production presently stands at 700,000 metric tonnes, with a supply gap of 600,000 metric tonnes un-catered for.

“People, who live from milk are struggling,” said Adama Ibrahim Diallo, the president of Burkina Faso’s milk producers and mini-processors union recently. Diallo warned that the problem is aggravating the security situation in the Sahel. “The sons of pastoralists become jihadists — not out of conviction, but because there are no jobs.” European dairy companies say they need to sell milk outside of Europe to survive.

Arla Foods — a Danish dairy cooperative with €10 billion in annual revenue — established a plant in Ivory Coast designed to handle its milk powder in 2013. In 2015, it opened more facilities in Nigeria and Senegal. Danone made an even more muscular entrance in 2013 when it bought a 49 per cent stake in Fan Milk, with plants in six West African countries. The French company took ownership in 2016.

According to the former Minister of Agriculture and Urban Development, Mr. Audu Ogbeh, Nigeria imports between US$1.2billion to $ 1.5billion worth of milk yearly.

By implication, the CBN will soon not avail foreign exchange to milk producers at both the official exchange and parallel markets if they do not explore the backward integration model and investment in ranches.

On the contrary, some experts have also raised a bone of contention on why it may not be feasible to produce milk stating that, “The reason some say that our cows are not producing much milk is that our cows roam around, they don’t have water to drink.’’

In what is painted as a move on the part of the government to reduce the on-going farmers and herder’s conflict in the country, the operators noted that adopting ranching across the nation would be disruptive to their business strategy.

According to them a better model would be to convert pastoralist community breeds to better yielders through cross-breeding, milk collection, and the introduction of smallholder farming model.

They also urged the CBN to maintain the current 5 per cent import duty on milk raw material and access to foreign exchange should be made available to all dairy companies who have implemented backward integration with proof of on-ground facilities, milk collection and usage.

The operators added that milk powder should remain a raw material or intermediate product as it is used locally to produce several products in the country, noting that the capacity to produce milk powder in the country is not available.

The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, says; “We need to consider that the manufacturers have always supported the decision to backwardly integrate, and that is why our members are exploring local sourcing of raw materials. However, stakeholders have to agree on the right step to take. The effects of such a decision need to be considered to ensure that artificial scarcity does not occur due to the inability to meet local demands.”

This decision by the Central Bank of Nigeria no doubt has its advantages especially with Nigeria signing the first phase of the African Continental Free Trade Agreement Area (AfCFTA). There, however, might be loopholes and far-reaching consequences, if the ban is not well planned and executed.

Nevertheless, with the pronouncement come enormous benefits and opportunities for Nigeria’s milk and dairy industry. If for nothing, Nigeria stands to regain its once lost glory as the manufacturing hub for Africa.