As stakeholders meet over FX restriction on powdered milk, dairy products, all food imports

The Central Bank of Nigeria ( CBN) is always in the news because of its role in the economy. As the apex bank, CBN’S traditional functions include the formulating and implementing monetary policy, determining interest rates and directing money supply – to achieve price stability; regulating and supervising the banking and financial systems, managing foreign reserve and ensuring the stability of financial markets.

Recently, CBN announced policy which puts a restriction on the sale of foreign exchange (FX) for the importation of milk from the Nigerian FX market saying its is aimed at promoting local production of milk in the country.

CBN said that the policy will help conserve between $1.2 billion and $1.5billion the country spends on the importation of milk every year. Since the policy announcement many interest groups have been reacting to the policy which increases to 44 the items CBN restricts from accessing FOREX at the official rate. The policy restricting access to forex for importation of powdered milk and other food products stands to create scarcity of forex for affected importers leading to an increase in prices of their basic products (utilising imported raw materials), ultimately fueling inflation.

No doubt this prompts the Convention on Business Integrity (CBI) to schedule today event tagged Regulatory Conversation 4.0 with the theme “Foreign Exchange Restrictions on Food Imports and Implications for Regulating and Growing the Nigerian Economy.”

This is part of Cbi’s mission of promoting ethical business practices, transparency and fair competition in the private and public sectors. The event which is anticipated to have in attendance about 200 participants comprising Regulatory Agencies such as the Central Bank of Nigeria, Directors –General of Ministries, Departments and Agencies of the Government, Private Sector actors such as Chief Executive Officers of Companies (Large/ Medium/small) as well as other key players in the Business community and other related stakeholders.

The debate currently raging in private sector circles is whether or not this regulatory action of the CBN is in the public interest? If so, should the public hail the CBN and encourage more of such interventions? Nigeria’s milk demand is some 1.7billion litres a year of which only about 600 million litres are locally produced and imports bridge the 1.1billion litre demand gap.

Segun Ajayi-kadir, DirectorGeneral, Manufacturers Association of Nigeria (MAN) had noted that the decision might lead to the downsizing of staff of affected manufacturing companies while also cutting down on the contribution of the manufacturing sector of the economy to the country’s gross domestic product (GDP).

“It is a fact that backward integration is the way to grow an economy, but there is a need to be strategic and deliberate about the way to implement the measure,” he said.

The expectations behind CBN action were at least that: processing companies would be induced to backwardly integrate into their local value chains; herdsmen will find more offtakers for their produce and earn more and this will result in greater peace between them and farmers ; an appreciable number of jobs will be created locally especially for Nigeria’s teeming youth population; and the federal government (CBN) will save valuable foreign exchange, which it has put at some $1.2billion annually for milk imports.

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Meanwhile, a modestlysized powdered milk factory will require guaranteed daily supplies of at least 1million litres of raw milk daily. During the rains when there is enough water for cattle, Friesland Campina for example has reportedly never managed to aggregate more than 70,000 litres a day which falls to well less than 20,000 litres a day during the dry season.

A sudden introduction of a restriction will leave players in this sector with at least two scenarios: continue to import but with forex bought at prices you are less able to plan for and pass the cost increases on to consumers or backwardly integrate, invest, but face severe shortfalls and loss of revenue and profits for an indeterminate number of years.

Stakeholders believe that those who are sincere about investing in backward integration would come across major challenges to increasing milk productivity sustainably. For instance, cows need three litres of water to produce a litre of milk (but there are severe water shortages where they are concentrated in Northern Nigeria). Also, the fodder available to our cattle is high in Lignin and inhibits conversion to milk, although we now have Napier grass thanks to the Business Innovation Facility (BIF) ran by Convention on Business Integrity for PWC Uk and DFID, which increases yield by at least two additional litres of milk per cow per day (single milking).

This is not yet available across the country and can only solve the dry season need for fodder if converted to pellets and/or silage in bags. Opportunities for growing the grass and creating value-added products from it will certainly be accelerated by this CBN policy but access to water requires major investments in infrastructure particularly in the grazing reserves where the government has allowed majority of the dams to silt up.

Another challenge to productivity comes from the breed of cattle itself which needs to be improved if the dairy sector is to record the sorts of volumes needed for reliance on local value chains.

Read Also: CBN milk ban could worsen the herder insecurity crisis

There is also artificial insemination and embryo technologies that could be employed for breed improvement to ensure that in 5-10 years milk yields could be significantly increased. However, regardless of the amounts of milk available, without improved cattle management (extension and vet services) leading to acceptable milk handling and hygiene practices amongst pastoralists, it will not be fit for uptake by the processing companies. This is another area where private sector innovation and investment can make a significant difference. At last, there may be more outlets for greater volumes of liquid milk but the problem of industry, access to powdered milk will remain a few years away.

The message is that this ban may catalyse activity at the very start of the chain and benefit herdsmen that are ready to be sedentary (whose numbers have currently not been shared publicly if known), but it will not replace the need for forex to purchase powdered milk for inclusion in powdered dairy-based beverages and baby food for the foreseeable future. Considering this, the question now is who are the real beneficiaries of the policy?