CBN mulls ban on forex for dairy imports to boost local production

The Central Bank of Nigeria (CBN) is said to have concluded plans to restrict foreign exchange availability for dairy imports in a bid to boost local production and investment in ranches.

Sources privy to discussions held between the CBN Governor, Godwin Emefiele and milk producers said that he told them that foreign exchange would soon be restricted for dairy imports at both the official exchange and parallel markets if they do not invest in ranches, a move he said would reduce the ongoing farmers and herders conflict in the country.

Coming out from two meetings the CBN Governor held with dairy producers in the last two weeks on the need to backwardly integrate and start building ranches, the operators expressed dismay at the CBN Governor’s stance and use of monetary policies to address fiscal issues.

The operators stated that adopting ranching across the nation would be disruptive to their business strategy, and that 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.

The operators instead urged the CBN to maintain the current 5% 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. Milk powder is produced by drying in a tower, which is high on energy usage and other utilities which are currently not available in Nigeria.

The former Minister of Agriculture and Urban Development, Audu Ogbe, had said that Nigeria imports $1.2bn worth of milk every year, adding that the country’s yearly demand stands at 1,300m metric tonnes of which local dairy production is 700,000 metric tonnes, leaving a supply gap of 600,000 metric tonnes.

The minister noted that an average cow in Nigeria produces less than one litre of milk per day compared to 50 to 100 litres per day found in other climes. He added that moving cows from place to place has a negative impact on the animal and milk production.

The impact of the CBNs proposal could result in higher prices of milk for consumers since the country’s demand cannot immediately be met by local producers. This could lead to smuggling, and put investments of companies in the sector at risk. It could also worsen the crisis between farmers and herders.

Milk producers were said to have complained of lack of incentives for backward integration as only the little quantity of milk needed in the country is sourced locally. Other operators have only expressed intention to invest but continue to import dairy products.

FrieslandCampina WAMCO, the maker of Peak and Three Crowns milk was singled out as the only dairy producer in the country that has been able to effectively set up its pilot Dairy Development Programme (DDP) across 90 communities in Fashola, Iseyin, Oyo State, and in Ogun and Osun States respectively.

Farmers under the programme have only been able to produce 27,045 litres of milk in one day. FrieslandCampina WAMCO noted that over 17.5m litres of raw milk have been collected since the implementation of the DDP.

Speaking on the CBNs plan to restrict forex for milk imports, the Director-General of the Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, said that the association has always supported 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.

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

“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.”

Weighing in on the CBNs plans, 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 said that the activities of some multinationals have actually empowered many farmers and catered to the milk demand of the country.

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