Nigeria's leading finance and market intelligence news report.

Only Nestle, WAMCO, Chi, 3 others can access FX for milk 

…as CBN unveils backward integration for dairy …what new rules mean for Nigerian economy  

The Central Bank of Nigeria (CBN) has wielded its big stick on milk importers with the announcement that only six milk makers in the country can process form ‘M’ to access foreign exchange in the market.

READ ALSO:  Only Nestle, WAMCO, Chi, 3 others can access FX for milk 

“For the avoidance of doubts, all established form ‘M’ for the importation of milk and its derivatives for companies other than the above for which shipment has not taken place should be cancelled immediately,” the CBN said in a circular on Tuesday.

The move, according to the apex bank, is to boost local production and create employment in the milk value chain.

The beneficiaries are Nestle Nigeria plc, FrieslandCampina WAPCO Nigeria, Chi Limited, TG Arla Dairy Product Limited, Promasidor Nigeria, and Integrated Dairies Limited.

According to the CBN, these companies have already keyed into the backward integration campaign of the bank.

Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said, “You may not know the information the CBN has. I know the CBN is particular about backward integration and supports efforts to promote it. Unless you have more information on the criteria for selecting the companies, you may not comment so well.”

He said the companies listed have the capacity to fill the huge milk supply gap in the country, stressing that the move could boost their production capacities.

Nigeria produces 700,000 metric tons (MT) of dairy products annually but demand stands at 1.3 million MT, according to the Federal Ministry of Agriculture. Africa’s most populous country spends $1.2 billion to $1.5 billion on milk importation annually, according to available data.

With the CBN’s new rules, companies such as Chellerams plc, Kneipe, Sosaco Nigeria, Jago, PZ Cussons and L&Z, among others, are not covered under this new waiver.

Analysts say these firms excluded from the CBN list may be forced to buy raw milk from the six firms with eligibility to access FX from the market.

Yinka Ademuwagun, consumer goods analyst, United Capital, said the new restriction by the CBN would create new opportunities for local farmers in the market by opening new businesses around the dairy value chain.

On the other hand, he said, the new policy would be cost-negative for companies who are yet to start the implementation of a backward integration programme as they are left with no choice than to source FX from a more expensive parallel market.

According to Ademuwagun, the new policy should not be shocking to companies as the apex bank gave them close to six months to prepare for the implementation.

The dominant milk-producing system in Nigeria is the Fulani Nomadic System whose cows have a milk yield of 1 litre a day on the average.

Other countries have done much better. The average milk yield per day from exotic/crossbred cows in India, United States, the Netherlands, Turkey, China and India is between 30 litres and 90 litres per cow per day, especially during peak lactation, statistics show.

Nigerian cows have very low yield because of poor genetic composition, poor feeding practices and the laborious nomadic system of breeding which need to be addressed, the LCCI said.

At the moment, only FrieslandCampina WAMCO has a visible backward integration project in communities in Oyo State. The company provides loans to dairy farmers who produce milk and sell to the Dutch company.

The apex bank had July last year directed Deposit Money Banks (DMBs) in the country to stop the processing of milk and its related products on ‘Bills for Collection basis’, which allowed the importer to buy on credit. It also streamlined the mode of payment for the importation of milk and its related products to be on the basis of Letters of Credit (LC) only.

“Investing in backward integration requires huge capital commitments, human expertise coupled with the right breed of animals to thrive,” an investment analyst told BusinessDay.

One of the negatively affected firms told BusinessDay that it was an unfair treatment to small players.

“Many of us cannot afford the backward integration project and we may not be able to get funding from the CBN or other sources for that. So, it is a question of big vs small,” the player, who is based in the northern part of Nigeria, said.

Arla Foods, the world’s largest producer of organic dairy products, in September last year signed a Memorandum of Understanding (MoU) with Kaduna State government to source milk locally. Kaduna State and the Federal Government will offer 1,000 nomadic dairy farmers’ permanent farmlands with access to water, while Arla Foods will be the commercial partner that will purchase, collect, process and bring the local milk to market.

According to the CBN governor, FrieslandCampina WAMCO, Neon Agro, Chi Limited and Irish Dairy have shown interest in investing in the Bobi Grazing Reserve in Mariga Local Government Area of Niger State.

Close to 700 families and 300,000 cows are already domiciled in the 31,000-hectare landmass for the kick-off of the project. Two of the companies, FrieslandCampina WAMCO and Neon Agroare, acquired 10,000 hectares (ha) each; Chi Limited and Irish Dairy are taking up 4,000 ha, bringing the total to 28,000 ha. The remaining 3,000 ha will be used by the state government.

Integrated Dairies Limited, an indigenous dairy company based in Jos, Plateau State, has engaged the Plateau State government and key stakeholders on the development of Wase Grazing Reserve, while Nestle plc has indicated interest in developing its dairy project in Abaji, FCT.

ODINAKA ANUDU & OLUFIKAYO OWOEYE

Whatsapp mobile

Comments are closed.