CBN Milk Policy: Need For Backward Integration For Growth

As a nation that has a population growth rate of more than three per cent and is expected to be one of the most populous countries in the world by 2050, Nigeria, needs to begin to look inwards in ensuring that it is able to provide basic amenities for its teeming population.

According to United Nations estimates, Nigeria’s youth population is expected to grow by nearly 60 per cent over the next 15 years and the growing population will retain its youthful age structure, posing challenges to systems that must deliver basic services to growing numbers of children.

This has been the crux of recent government polices as efforts are been made to not only grow the employment figures but to also ensure that the country achieves a level of self sufficiency in areas where it has the capacity.

In recent years, the Central Bank Of Nigeria ( CBN) has taken initiatives to set the country on the path of self sufficiency as it promotes the local production of not only staple foods but other products that could be manufactured locally.

It started by excluding 41 items from the list of eligible for foreign exchange. The list comprise  of items such as staple food in the country, wood, palm products, meat, poultry, nails, and steel, toothpick, textile, plastic amongst others.

The policy which at its introduction in 2015 had generated a lot of controversy has become a reference point as it has not only generated employment bust has reduced the demand for foreign exchange for the importation of these products and created a local supply of what used to be mainly imported.

Following the outcome of the policy, the apex bank had decided to expand the scope of the policy to include other products such as milk.

With a growing population, Nigeria is a potential market for more than 1.3 million tons of milk. However, as the largest producer of livestock including cattle, sheep and goat in West Africa Nigeria has been the largest importer of processed milk in the region, spending a whopping sum of approximately $1.3 billion per annum for milk importation.

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This not unconnected to the fact that Nigerian dairy farmers use the traditional system which ends up with the animals producing traditional between 0.7 – 1.5 litres of fluid milk per day as against cows in Kenya which produce up to 30 litres per day and cows in Israel which produce between 45 and 60 litres of milk per day. During the dry season, this figure drops to about 0.5 litres.

Currently, most of Nigeria’s dairy processors import milk powder and reconstitute it into liquid milk and other dairy products such as yoghurt, ice cream and confectioneries. Others repackage imported powdered milk into small affordable sachets.

The imported dairy products (mostly milk powder) come from New Zealand, Australia, South America, the EU, India, Ukraine, Poland, and other smaller suppliers. Multi-national firms including Frieslandfoods (Netherlands), Glanbia (Ireland), Cussons-PZ (UK), Promasidor, etc; have either partnered or acquired some Nigerian dairy firms for reconstituting and/or packaging imported milk powder. According to the Central Bank of Nigeria report of 2010, the increasing consumption trends have cost the government a substantial amount of foreign exchange to import dairy products into Nigeria.

To the Permanent Secretary Federal Ministry of Agriculture and Rural Development (FMARD), Mustapha Umar, milk production in Nigeria is not commensurate with the huge cattle production in the country.

Noting that Nigerian cattle contribute a conservative estimate of 50,000 litres to daily supply, he said the consumption of aggregated and bulk milk is less than 20 per cent of local potential.

Nigeria’s milk production accounts for only 13 per-cent of West African production and 0.01 per-cent of global diary output. The daily requirement is largely met by 60 per-cent imports and 40 per-cent local production.

The permanent secretary said the rudimentary status of the Nigerian dairy value chain is a major constraint to increased milk production.

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On its part, the CBN had explained that its decision to restrain importers of milk from the interbank foreign exchange market will encourage investment in local milk production, create jobs and grow the economy.

Director, Corporate Communications, CBN, Isaac Okorafor, noting that milk importation is not banned, explained that “all we will do is to restrict sale of forex for the importation of milk from the Nigerian foreign exchange market.

“We wish to reiterate that we remain ready and able to provide the needed finance to enable investors who genuinely want to engage in milk production.”

According to him, the country has been heavily dependent on imported milk for over 60 years, stressing that the action has serious implications on national food security, especially since it is possible to breed the cows producing milk in Nigeria.

Okorafor said, “We therefore wish to once again reiterate our policy case as it relates to the planned restriction of access to the Nigerian foreign exchange market by importers of milk.

“Nigeria and the welfare of all Nigerians come first in all our policy considerations. Being an apolitical organisation, we do not wish to be dragged into politics. Our focus remains ensuring forex savings, job creation and investments in the local production of milk.”

He noted that the CBN approached some milk importers, like it did for rice, tomato and starch and asked them to take advantage of the CBN’s low-interest loans to begin local milk production. Okorafor noted that although there had been some successful attempts at producing milk locally, the vast majority of the importers still treated it with contempt.

The policy has however met with strong resistance by milk companies and some Nigerians who feel the policy is out to stifle Nigerians and cause a scarcity of an essential nutrient for the growing population.

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The Lagos Chamber of Commerce and Industries (LCCI) and the Manufacturers Association of Nigeria (MAN) had kicked against adding milk to the not eligible for forex listen.

Segun Ajayi-Kadir, Director-General of MAN, said 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 lamented that 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 industrialisation; 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 warning that the policy would have negative effects from its desired purpose and would trigger more smuggling activities into the country.

Director, Friesland Campina WAMCO Peak milk producers, Ben Langat, who is of the opinion that the backward integration ofthe diary sector is possible lamented that the major challenge in the dairy sector is poor infrastructure.

“You cannot do anything without access to roads, electricity, water and security. Once you have all these in place, the private sector will be able to play. We have the ideas and experience on how to do it.”

He said his company was ready to partner with the government to expand dairy development in Nigeria. “Our project is to mobilise pastoralist communities, because that is what makes the bulk of the cows where productivity lies, and to introduce the smallholder model of getting farmers who will produce milk from their locations,” he said.

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