Demand for durable items may slow further as consumers may readjust their budgets on possible higher milk prices, consumer experts say.
According to them, the proposal by the Central Bank of Nigeria (CBN) to restrict foreign exchange sales for the importation of milk and dairy-based products may lead to a rise in the retail price of milk, making consumers spend more on the product, regarded as an essential item in homes.
Eronmosele Aziba, consumer analyst, Tellimer Group, said, “What we may now see is that ripple effect of people spending more on milk and as a result of this, consumer discretionary goods or durable goods will probably suffer for it because people will just triple down to the essentials ones.”
Consumer durables are the category of products that are not purchased frequently because they are made to last for an extended period of time (typically more than three years). They are also called durable goods or durables. Examples of consumer durable goods include automobiles, books, household goods (home appliances, consumer electronics, furniture, tools, etc.), sports equipment, jewellery, medical equipment, firearms, and toys.
Milk is an essential commodity with very few alternatives, such as soya beans. If its price increases, people will still buy it. For example, an average worker who earns about N100, 000 monthly in Lagos, budgets about N60, 000-N70, 000 for food and transport. If there is an increase in the price of milk, depending on the how much of it that the family consumes, an average consumer will reduce his budget on durable products like cars, electronics, electrical, fashion items, etc, to maintain the level of milk consumption now at a higher cost.
Ayorinde Akinloye, a consumer analyst at CSL Stockbrokers, said, “The demand for consumer durable products will be affected. Consumer durables are like luxury items whose prices are elastic as well as income elastic. When their prices go up or the income available to the consumer is affected, then they consume less of them. With price of milk likely to face upward pressures, consumers ultimately will adjust their budgets to maintain milk consumption and reduce demand for income-elastic consumer durables.
“However, another key factor to consider is the proportion of the consumer’s expenditure on milk and its variants relative to his or her total budget. So, if an average consumer spends one percent of his or her budget on milk, it may not significantly impact budget apportionment. Ultimately, it may not be as bad as first imagined. The biggest impact may be felt when the ripple effect on an aggregate consumer level is considered.”
Earlier in the year, BusinessDay findings show that durable items like household electronics comprising air conditioners, dishwashers, dryers, refrigerators, washing machines, microwave ovens, etc, were suffering from low patronage due to weak purchasing power and demand from consumers in the country.
According to the International Monetary Fund (IMF), per capita income data in Nigeria rose from $1,994 in 2017 to $2,049 in 2018, below those of Ghana ($2,205), and South Africa $6,377.
But Abiola Gbemisola, consumer analyst at Chapel Hill Denham, expects that the possible increase in milk prices may not be significant as long as there is FX liquidity in the other exchange markets like Bureau De Change (BDC), Importer & Exporters (I&E) window and the parallel market
“I don’t expect the price of milk to increase significantly. Normally if the price of a commodity increases, consumers may reduce their quantity of that commodity or use part of the savings to accommodate that increase. But for mothers and kids milk is very important to them; they might just have to adjust their budget,” Gbemisola added.
