Forex restriction: Milk imports to gulp N1.23tn
Importers of whole powdered milk may have to part with as much as N1.23tn annually to import enough product to meet Nigeria’s supply shortfall of 1.1 million tonnes of milk, investigation has shown.
The Federal Government recently added milk to the list of items restricted from access to foreign exchange at the official forex window.
This means that importers would have to source forex from the alternative foreign exchange market at a rate of N360 per dollar instead of the official exchange rate of N305 per dollar.
Nigeria’s annual milk consumption is estimated to be 1.7 million tonnes while local production is about 600,000 tonnes, according to July 2019 data from the Agriculture and Horticulture Development Board.
This leaves a supply gap of 1.1 million tonnes.
Current global price of whole milk powder used by milk producers in Nigeria is $3100/tonne.
Going by the latest demand and supply data, Nigeria needs $3,41bn worth of milk to meetthe 1.1 million tonnes shortfall.
At an exchange rate of N360/$, this would amount to N1.23tn. This is $60.5m or N21.78bn more than what would have been required without the forex restriction.
The Federal Government had earlier lamented that Nigeria spent $1.3bn annually on dairy product importation.
The Permanent Secretary, Ministry of Agriculture and Rural Development, Bello Umar, who was represented by the Director, Department of Animal Husbandry Services, Bright Wategire, had highlighted this at a dairy congress in July.
“The annual import of milk and other dairy products is estimated to be $1.3bn. The majority of the national herds are owned by smallholder and peri-urban cattle farmers,” he had said.
Major dairy producing firms in Nigeria are FrieslandCampinaWAMCO with 50 per cent share of the market; Promasidor with 35 per cent share; PZ-Nutricima with three per cent share and Chellarams with five per cent share, while the remaining seven per cent is shared by other producers.
Currently, most of Nigeria’s dairy processors import milk powder from New Zealand, Australia, South America, the European Union, India, Ukraine and Poland.
The imported products are reconstituted into liquid milk and other dairy products such as yoghurt, ice cream and confectioneries.
The Governor of the Central Bank of Nigeria, Godwin Emefiele, said the call had always gone out to dairy producers in the country to start producing milk locally as the country was spending too much on importation.
In a response to this call, multi-national firms including Frieslandfoods (Netherlands), Glanbia (Ireland), Cussons-PZ (UK) and Promasidor had either partnered or acquired some Nigerian dairy firms for re-constituting and/or packaging imported milk powder.
However, lack of national cold chain facilities, poor infrastructure and animal husbandry as well as increasing insecurity in most cattle breeding regions of Nigeria have made the task very challenging for the firms.
“The few firms that have gone into local milk production in Nigeria are struggling,” the Director General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, said in response to the restriction of milk from access to forex.
Yusuf pointed out that Nigeria needed time to breed milk making cows for such policy to be effective.
He said, “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.
“A good dairy cow will produce an average of 28 litres of milk per day over ten months. 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.”
An economic analyst, Dr Vincent Nwani, suggested investing in ranches on a public private partnership basis for a period of time before implementation of the policy.
Milk producers said the forex restriction would ultimately lead to increase in prices of milk to be eventually borne by consumers.
“Of course, it will definitely affect prices. There is a difference of about N55 or N60 per dollar between the exchange rate on the black market and the interbank market,” the General Manager, External Affairs, PZ Cussons, Mohammed Tahir, told our correspondent.
Our correspondent learnt that majority of milk producers in Nigeria preferred to buy raw milk and process for consumption.
Arla, FrieslandCampinaWAMCO and other producers have dairy development project that is targeted towards supporting the Federal Government’s initiative of improving dairy farming.
Since its inception in 2011, activities of the DDP have spanned across five local government areas of Iseyin, Ibarapa, Saki West, Atiba and Itesiwaju in Oyo State.
These are carried out in collaboration with the Federal Ministry of Agriculture and Rural Development and the Oyo State Government.
The focus had been on identification of dairy value chain actors in Oyo State; sensitisation, registration and organisation of potential dairy farmers.
Others include training of farmers and extension workers; milk collection, testing and quality control; crossbreeding; tsetse fly eradication programmes; improved and hybrid pasture cultivation demonstrations for farmers.
Tahir said, “Dairy production is like the oil business; it has upstream and downstream.
“Most people like to play in the downstream where they just buy the milk and process instead of rearing cattle to produce milk.
“Countries in Europe that produce milk produce more than they can consume and that is why they sell. They have the expertise.”
Most stakeholders believe that the forex restriction policy is good and has the capacity to boost local production and stem import.
However, they warned that the move was too sudden, adding that government needed to allow more time for people to invest.