Forex restriction on dairy likely to lead to higher milk prices, says milk producers


Milk producers in the country have said that foreign exchange restriction on milk imports would ultimately lead to higher prices of milk products for 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,” said the General Manager, External Affairs, PZ Cussons, Mohammed Tahir at a dairy Congress in July.

The new policy directive by the Central Bank of Nigeria (CBN) is likely to force milk producers to spend about N1.2 trillion a year to import enough milk to close the supply shortfall of 1.1 million tonnes of milk, according to data from the Agriculture and Horticulture Development Board.

The CBN recently added milk to its list of items restricted from access from foreign exchange at the official foreign exchange window.

The new development would force importers and producers of milk to source for forex from alternative foreign exchange market at a rate of N360/$1 as against the official exchange rate of N305/$1.

According to the Agriculture and Horticulture Development Board, Nigeria consumes about 1.7 million tonnes of milk annually, while local production stands at about 600,000 tonnes, leaving a supply gap of 1.1 million tonnes.

The price of whole powdered milk in the world market used by producers in Nigeria is $3,100/tonne.

That means that Nigeria needs $3.41bn worth of milk to meet the 1.1 million tonnes shortfall.

At the alternative foreign exchange market rate of N360/$1, it means milk producers would need to spend N1.23tn, which is about $60.5 million or N21.78bn more than before the forex restriction.

The Federal Government had earlier lamented that Nigeria spent $1.3bn annually on dairy 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 noted 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% share of the market; Promasidor with 35% share; PZ-Nutricima with 3% share and Chellarams with 5% share, while the remaining 7% is shared by other producers.

Most of Nigeria’s milk producers import milk powder from New Zealand, Australia, South America, the European Union, India, Ukraine and Poland.

These products are then reconstituted into liquid milk and other dairy products such as yoghurt, ice cream and confectioneries.

The CBN Governor, 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 response to his call, major milk producers in the country including FrieslandCampina WAMCO (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, the non-availability of cold chain facilities, poor infrastructure and animal husbandry as well as rising rate of insecurity in most cattle breeding areas 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 added that the country needed time to breed milk making cows for such policy to be effective.

“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.

While most stakeholders in the dairy industry believe that the new CBN policy directive on restricting forex on dairy imports is good and has the capacity to boost local production and reduce imports, however, they feel that the move is too sudden, noting that the government should have given producers more time to invest.

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