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Revisiting Nigeria’s Milk Story

Siaka MOMOH

Nigeria’s apex bank, Central Bank of Nigeria (CBN), has lifted the restrictions on the importation of milk and dairy products.

Recall that in February 2020, the CBN restricted foreign exchange allocation for milk importation exclusively to six designated companies within Nigeria. The companies included Nestle, FrieslandCampina WAPCO Nigeria, Chi Limited, TG Arla Dairy Product Limited, Promasidor Nigeria, and Integrated Dairies Limited. The CBN noted that the initiative aimed to stimulate domestic milk production.

The new circular provides an update on eligible items for foreign exchange(FX), stating that the previous restriction on FX for the importation of dairy products and its derivatives has been lifted for all entities.

This decision marks a crucial shift in Nigeria’s trade policy, allowing  entities that meet the necessary extant regulation requirements to source for FX at the Nigerian Autonomous Foreign Exchange Market (NAFEM) for transactions related to milk and dairy products.

The lifting of these restrictions is expected to have significant implications for the dairy industry, potentially leading to increased competition, improved availability of dairy products, and enhanced market access for an enlarged range of businesses.

Nigeria spends about 1.5 billion dollars importing dairy products annually, according to the CBN.

We Saw This Coming

It can be recalled that we predicted Nigeria was not ready for CBN policy on milk and its spin off products years back. This writer did a story then titled ‘Are We Ready For CBN Policy on Milk?’ For the benefit of hindsight, the story (abridged), published in Non-Oil Digest magazine (in BusinessDay – Siaka Momoh is publisher/editor of the magazine), is published below:

We are not (ready), like the Lagos Chamber of Commerce and Industry said in a press statement sent to Non-Oil Digest; and like the Manufacturers Association of Nigeria (MAN) said too. But when will we be ready? We may never be ready for a long time to come if we go by past debates on the issue. Those who are familiar with the story will agree with this writer that we have gone through this path before and we ended up not stopping importation of milk.

We will come to this shortly, but first, let us look at the Central Bank of Nigeria (CBN)   policy.

CBN milk policy

The CBN disclosed its plan to add milk and other dairy products to the list of restricted products on the foreign exchange market few days back at the end of July Monetary Policy Committee (MPC) meeting. Godwin Emefiele, CBN Governor, said that the restriction was to boost local production of dairy products and increase investment in ranches within the country. He noted that Nigeria currently spends about 1.2 billion dollars to 1.5 billion dollars annually on milk importation.

The  CBN has, in the midst of public outcry by some interest groups  against the CBN policy on milk  vigorously explained “there is neither a plan nor a decision to ban the importation of milk into the country,” an act it said it had no legal power to take. It said its plan was to conserve between $1.2 billion and $1.5 billion the country spends on the importation of milk every year. What else does this mean?  Ban of course, going by informed players’ argument in the business space.

Treading on familiar path

Back in 2012, this writer spoke to the CEO of a pacesetting milk maker. The company is involved in backward integration. It commenced the programme in 2010. He was asked what the status of the company’s dairy development programme was. His response:

  • All the milk collection centres we have built are operational. The yield that we get from those centres is on the increase. 
  • At the moment as at April we have collected the highest we have ever collected – 7000 litres per day.
  • But that is still a small drop compared to the volume of milk that we process.  We process 500 million litres per day. So, if we look at the volume, it is still very small.
  •  But it is a long yielding process – it is not a process that you start and you get the result immediately.
  • You have to be patient; you have to invest in it, which is what we are doing today.
  • We are not making profit from it yet, because we believe in the potentials of Nigeria. It is a gradual process and we believe we will get there.”
  • The breed of our cows, the weather condition, the availability of good pasture, availability of water, good roads (which are all on the low side), are the things that are making it very difficult for us to be self-sufficient in dairy milk production now…
  •  If you go to where our parent company is situated, you will find out that you have to take care of the entire value chain – from grass to glass, right from the field where the cow is treated, to how you milk the cow, to how you process the milk, and eventually how you package it as a finished product that the consumers will buy.”  

So, it is clear here the development programme of the dairy firm in question, that is backward integration programme, which government policy on milk calls for, is hampered by some challenges – breed of Nigerian cows, the weather condition, the availability of good pasture, availability of water, good roads (which are all on the low side).

Also going down memory lane, Siaka Momoh is privileged to draw from his story on the trending issue of milk in question published in BusinessDay in July 2012, to drive home  the point that we are treading on a familiar terrain. He can recall that  dairy industry stakeholders in the country then  were locked in a battle of wits over envisaged government plan to ban importation of milk into the country.

 It was believed if the push being made in some quarters to make government ban importation of powdered milk into the country fell through, several milk manufacturing plants would shut down. The likes of Promasidor, an 80 per cent dairy firm, FAN Milk, FrieslandCampinaWAMCO, producers of peak milk, Chi, etc. all would go, industry stakeholders argued then.

 According to industry sources then, local production of fresh milk in Nigeria was less than .1 per cent and the investment outlay for fresh milk production was robustly high and could not immediately be met. Moreover, the infrastructure support such as power, water, etc., and the required cows for the project were not available and affordable.

 As at the time the  July 2012  story by Siaka Momoh was being done, government pronouncement on the report submitted by the Presidential Committee on Tariff Initiatives headed by Bukola Saraki,  then governor of Kwara State, was still being expected,  yet some stakeholders in the dairy industry who package powdered milk were shocked by the speculation on an impending ban on importation of milk while those in fresh milk production believed the ban should come because such move will protect their business.

Zimbabwean farmers in  Shonga,

 Though Allan Jack, the leader of the white Zimbabwean farmers in Shonga, Kwara State, in his presentation at the Presidential Committee on Tariffs Initiatives which held in Ilorin, said “if milk is banned someone is going to bring the money to fund local production of milk”, document made available to BusinessDay proved otherwise. According to the document, “Nigerian dairy industry stakeholders are producers and marketers of dairy related products to consumers not farmers or milk producers. We have expertise in processing and marketing but not in primary dairy production.”

 The document   gave extrapolated cost for producing 1.5 billion litres of milk as $1.32 billion (N196.2 billion) for initial set capital and $2.18 billion (N323.0 billion) for running cost – for farm size of 500 hectares. Total hectares required to produce 1.5 billion litres of milk was put at 300,000.

 Other requirements given in the document include 544 Farms each housing 500 cows; water requirement per cow – 30 litres / cow per day (non-lactating); 60 litres / cow per day when lactating with 20 hectares of pasture irrigation (210 litres water per litre milk produced).

Danger ahead

 Concerned stakeholders did not see how the funds required for all that are stated above could be met then. They went on to state in the document that the following would be under threat from premature bans and penal duty rates: 500 000 direct employees; 1.5 million; indirect employees; investment last three years totalling N15 billion – new factories etc; Duties paid: N 480 million; VAT paid: N 960 million; PAYE paid: over N1.5 billion per annum; Pension Contributions: circa N1 billion per annum; Corporate Tax: Circa N 30 Billion last three years.

 Zimbabwean farmers in Shonga, Kwara State, who. According to industry sources then, were victims of credit squeeze from their bankers, were fingered as the arrowhead of the group pushing for the ban to protect their farms established in Nigeria in 2005 as reprieve from the pains they suffered from Robert Mugabe’s land seizures back in Zimbabwe.  The banks in question were Guarantee Trust Bank (GTB), old Intercontinental Bank, Unity Bank, old Fin Bank and old Bank PHB own 75 per cent equity in the Shonga Farms Holding arrangements and the State government owned 25 per to make 100 per cent of the Holding.

And currently, Lagos Chamber’s fear

For Lagos Chamber of Commerce and Industry, CBN’s action is a ban on importation of milk. In a press statement signed by Muda Yusuf its director general, “From all indications, the Nigerian economy is not ripe for the policy…”

He argued: “The commitment of the CBN to the backward integration agenda of the Federal Government is laudable. However, it is important that in seeking to achieve this objective, the sequencing and strategy must be right…”

He said we currently do not have dairy cows in the country and that the dominant milk producing system in Nigeria is the Fulani Nomadic System whose cows have a milk yield of less than two litres a day, “whereas a good dairy cow will produce an average of 28 litres of milk per day over ten months”.

He argued: “During peak lactation, a high yielding dairy cow can produce as high as 60 litres of milk per day.  The reality is that Nigerian cows have very low yield because of poor genetic composition, poor feeding practices and the laborious nomadic system of breeding.  These are fundamental issues that we need to fix before contemplating any form of import restriction.  These are challenges to be posed to the Federal Ministries of Agriculture and Water Resources at the federal and state levels as the present administration moves to the next level. These are the agencies of government that have primary responsibilities for such matters. The environment needs to be created for these investments to happen.

“The forex exclusion policy being contemplated by the CBN will create a crisis of immense proportions in the dairy industry supply chain and put investments worth billions of dollars at risk.  Indeed, the entire food and beverage sector would be adversely affected as many are dependent [in varying degrees] on the use of milk as intermediate products.   They include investors in the production of Yoghurt drinks, chocolate drinks, infant formula for children, beverages, producers of ice creams, producers of cereals consumed largely by children and many more.”

Muda Yusuf argued further: “There are over one million direct and indirect jobs that will be in jeopardy across the value chains of these industries.  These companies engage Nigerians as employees, distributors and retailers and additionally, thousands of suppliers and service providers are dependent on these businesses for their livelihood. For a country that is grappling with unemployment crisis, the consequences will be too grave.  Therefore, there are profound investments, economic, nutritional and social issues to worry about.”

Adverse implications

For the Lagos Chamber DG, such a policy move will have the following adverse implications:

  • It will boost the smuggling economy since there will be an estimated 50% short fall in the supply of dairy products to the Nigerian market.
  • The supply gaps will create scarcity and put the prices of the products beyond the reach of the average Nigerian.
  • There will be loss of revenue to the government as smugglers naturally move to fill the supply gaps in the market.
  • There is a major risk of closure/drastic scaling down of operations of existing investments in the Dairy Industry.
  • There will be a higher risk of malnourishment of citizens especially children and the low-income earners.
  • There will be heightened risk of loss of jobs in the dairy sector
  • Neighbouring countries will profit from the increased smuggling triggered by the policy, as the Nigeria ports and maritime sector workers loose revenue and jobs to the ports of the neighbouring countries.

MAN’s fear

For Segun Ajayi-Kadir, Director-General of MAN, the addition of milk to restricted items would have a negative impact on the economy that might lead to downsizing, reduce government revenues and the manufacturing sector’s contribution to GDP. He said the  CBN’s decision was taken unilaterally without consultation with operators in the dairy industry.

“It is a fact that to backward integrate is the way to grow an economy, but there is a need to be strategic and deliberate about the way to implement the measure.MAN has always been at the forefront of resource-based industrialization; and has always supported backward integration, that is the reason why many manufacturers are exploring local sourcing of raw materials. What CBN wants to achieve is almost the same but the style of approach differs and the timing,” he said.

Policy should be put on hold

Going by the argument put forward here, the general consensus is that we should put on hold the CBN policy on milk for now and set a new comfortable deadline for implementation. Lagos Chamber’s Muda Yusuf’s following recommendation fits in here:

  • Enough timeline should be given to diary companies for a sustainable transition from the current state of affairs to the desired level of backward integration in the dairy industry.
  • There should be robust incentives to attract investors to the supply chain in the dairy industry in line with the backward integration aspiration.
  • The ministries of Agriculture and Water resources should take on the challenge of driving this change process through the creation of incentives for modern animal husbandry facilities and practices.  There should be generous support from Government to facilitate the importation of cattle breed [dairy cows] suitable for milk production.

On account of the foregoing, we urge the CBN to put on hold its proposal to exclude the dairy industry investors from the Foreign Exchange Market in order to save the economy of the consequential shocks, business disruptions, investment dislocations and job losses.  

Less we forget, Fulani herdsmen and need for ranches. There is an urgent need to stop the traditional nomadic system. The Shonga business model is available for adoption.

Good line of thinking, isn’t it?  How do you see it?  We will appreciate your reactions.

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