How import duty reduction on powdered milk is hurting local manufacturers

 

The recent Federal Government reduction of tariffs on imported powered milk from 10 to five percent is a disincentive for investments in the country’s dairy industry, as it hurts local milk manufacturers in the country, industry operators have said.

 

The reduction is seen encouraging the importation of powdered milk which is cheaper than the locally produced ones, making it difficult for local manufacturers to compete.

 

Data from the Nigerian Customs website show that imported milk and cream concentrate with code 0402.2100.22 now attracts five percent import duty and a Value Added Tax (VAT) of five percent as against 10 percent duty and five percent VAT recorded some months ago.

 

Key stakeholders in the dairy industry who spoke to BusinessDay on the recent tariff reduction say it could hurt investments in the sector and halt modest progres made thus far in increasing local milk production to meet up with domestic consumption.

 

“The reduction in the tariff from 10 to five percent is a killer decision for a government that is supposed to support investments in the sector. It is a clear case by the government that there is no intension to grow the country’s dairy industry,” Muhammadu Abubakar, managing director, L&Z Integrated Farms Limited told BusinessDay.

 

“This means that all the potential investments in the industry will begin to die a natural death because the market will be lacking. The decision is a disincentive for investment in the sector.

 

“It cost over N300 to produce a litre of milk in Nigeria as against imported powdered milk which is about N130 per litre even with the 10 percent duty. Now with the tariffs lowered to five percent, it is going to cost less than N100. How do local processors compete with producing a litre of milk at over N300?” Abubakar asked.

 

He noted that a lot of operators in the sector had begun making investments in the sector with the hope that the government is going to hike the tariffs on all imported dairy products, saying that they might review their decision owing to the recent reduction.

 

According to the National Bureau of Statistics (NBS), Nigeria imported a total worth of N59 billion powdered milk from January through September 2017.

 

An August 2014 report by Agusto & Co. notes that the dairy sector has emerged the second largest segment in the food and beverage industry (behind poultry) in the country, with estimated revenue of N347 billion in 2013, and compounded annual growth rate (CAGR) of 8 percent over the last three years. The sector leads the food, beverage and tobacco sector, say analysts.

Nigeria’s dairy industry comprises milk, cheese, yoghurt, ice-cream, butter and infant formula. The report by Agusto & Co. says that the milk segment remains the largest in the industry, accounting for an estimated 61 percent of the industry’s turnover.

“It was a surprise to us in the industry when the tariffs was lowered from 10 to five percent because it does not help the local dairy industry and it also runs counter to the Nigeria’s government slated efforts to support the sector and see how to create economic environment for pastoralists to settle down and create a market for their milk,” Mezuo Nwuneli, managing partner, Sahel Capital Agribusiness Managers Limited, said in a response to questions.

 

Nigeria’s national dairy output per annum is 700, 000 metric tons while the national demand is put at 1.3 million metric ton annually, leaving a gap of 600,000MT, according to the Federal Ministry of Agriculture.

 

Experts say the recent reduction policy will also worsen the farmers and herdsmen conflicts, saying that it will become difficult for pastoralists to settle down as the market to sell their milk would be lacking.

“We have to brace up for more herdsmen and farmers conflicts because the solution to the crisis involves an economic solution and the economic solution is creating market for the local milk producers which constitutes mainly the herdsmen,” Abubakar said.

 

The experts also noted that the current policy would only encourage more importation of powdered milk into the country and not the development of the sector, while calling on the government to support the industry by bridging the huge infrastructural gaps to reduce local production costs.

 

“Infrastructure in the dairy industry currently is zero and we cannot grow the industry without it. This is what the government is supposed to focus on and not cutting down tariffs,” Abubakar said, who was earlier quoted.

 

“We can only compete with the imported milk producers when the enabling environment to drive down production cost is provided. All we ask is a play level field,” he added.

 

Nigeria imports over 95 percent of finished and raw milk. FrieslandCampina WAMCO is currently sourcing little of its raw milk from herdsmen in Oyo State. Sources close to the multinational say this could be a hit on its margins.

 

IIan Bones, manager, Milky-Way Farms said, “the problem we have in the sector is not the production but the harnessing of the milk and getting it at a right quality to the processing centres.”

 

“Investors would only make an investment decision when there is a guarantee on investments which the recent reduction of tariffs does not provide,” Bones said.

 

Josephine Okojie