CBN to ban $1.2b yearly forex for milk, other dairy products

The Central Bank of Nigeria (CBN) might have concluded plans to add milk and other dairy products to items on the foreign exchange restriction list with a view to boosting local production, and investment in ranches.

Insiders told The Guardian that CBN Governor Godwin Emefiele expressly told operators that milk and other dairy products would be restricted from access to foreign exchange both at the official and parallel markets if they refuse to invest in ranches, a move he said would quell the ongoing farmers-herders crisis.

While ranching has become a controversial issue, especially with the Federal Government’s proposed RUGA policy, the bank’s approach could intensify the struggle for land between herders and farmers. Operators might also see the CBN as foisting the policy on them without recourse to an existing business model and the socio-ethnic concerns milk and meat may incite.

Arising from two meetings the CBN held within the last one week with dairy products manufacturers on the need to backwardly integrate and start investment in ranches, operators expressed concerns about the bank’s use of monetary policies to address fiscal issues.

They noted specifically that adopting ranching in other locations would be disruptive to their business strategy, and that the successful model for Nigeria would be driven by the conversion of pastoralist community breeds to better yielders through cross-breeding, milk collection, and the introduction of smallholder farming model.

The operators instead urged the CBN to ensure that the existing five per cent import duty on milk raw materials and access to forex remains for all dairy companies involved in backward integration with proof of on-ground facilities, milk collection, and usage.

They noted that powdered milk should remain a raw material or intermediary as this is used locally to produce several products consumed in the country. The capacity to produce powdered milk is not available in Nigeria, they said.

Powdered milk is produced by drying in a tower. This is very high on energy usage and other utilities which are not available

The former Minister of Agriculture and Rural Development, Audu Ogbeh, had said that milk worth $1.2 billion was being imported into the country yearly and that the yearly national dairy output and demand were estimated at 700,000 metric tonnes and 1,300 metric tonnes, leaving a supply gap of about 600,000 metric tonnes.

He explained that an average cow in the country produces less that one litre of milk per day, compared to other climes where a cow could produce 100 liters per day and that moving cows from place to place is a major problem affecting the animals and milk production in Nigeria.

There could be implications for consumers if the bank succeeds in its resolve to restrict access to foreign exchange for dairy products without a backward integration plan.

Consumers may have to pay more for the products. Since the demand gap for milk cannot be immediately met, it would encourage smuggling. Also, companies’ investment in the industry might be at stake and the renewed struggle for land between herders and farmers could worsen.

Furthermore, operators also complained of a lack of incentives for backward integration as only the little quantity of milk needed in the country is sourced locally. Again, other operators have only expressed the intention to invest but continue to import dairy products.

Among the local producers in the country, only FrieslandCampina WAMCO, the maker of Peak Milk and Three Crowns, has been able to effectively implement its pilot Dairy Development Programme (DDP) across 90 communities in Fashola, Iseyin, Oyo State, and in Ogun and Osun States.

Specifically, farmers under the programme this year have only been able to contribute 27,045 litres of milk in one day. FrieslandCampina WAMCO noted that over 17.5m litres of raw milk has been collected since the implementation of the DDP.

The Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, disclosed that the association has always been at the forefront of resource-based industrialisation but urged caution in the implementation of the decision.

“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.

“There should be the right mix of measures and the right timing. There should be fair hearing from the stakeholders. The CBN should not carry out the action without adequately carrying manufacturers along,” he said.

Warning on the consequences of using a one-size-fits-all model to address trade issues, Muda Yusuf, Director-General of the Lagos Chamber of Commerce and Industry (LCCI) said the CBN could not use monetary policy to address fiscal issues when the business environment needs to be made conducive to operators.

According to him, “The starting point is to strengthen the capacity of domestic industries, enhance their competitiveness, and reduce their import dependence rather than using the same approach for all industries. CBN’s approach is also affecting investments in the country. Farming is not the responsibility of the companies.”

On his part, the Chief Executive Officer of Virgin Consulting UK and a consultant to a dairy multinational, Dr. Kunle Hamilton, decried the use of politics to determine economic decisions. He hinted that moves by some multinationals have actually empowered many farmers and catered to the milk demand of the country.