The Challenge as Nigeria Restricts Sale of Forex for Importation of Milk

The Central Bank of Nigeria (CBN) has added milk to the list of items that their importers have been restricted from accessing Forex. It was a decision that did not go down well with many. The development was so unwelcomed especially in the social media that CBN has to issue a statement to clarify and defend its decision.

“For the avoidance of doubt, milk importation is not banned. Indeed, the CBN has no such power. All we do is to restrict sale of forex for the importation of milk from the Nigerian Foreign Exchange.” A statement issued by the Director of Corporate Communications, Isaac Okoroafor, said.

But the Nigerian people did not buy the message, their reaction is that milk is an essential food item that most people can’t do without, restricting access to forex for its importation is tantamount to a ban. A decision that will only increase the chances of malnutrition in a country where poverty reigns supreme.

Although the CBN stated that the decision dated back to 3 years ago, when the policy to encourage backward integration to conserve foreign exchange and create jobs for people were formulated. The policy which has seen some 43 imported items blacklisted on the Nigerian forex was aimed at fostering local production of the imported goods. And there has been provision for soft loans by the Apex Bank to encourage that. It doesn’t matter, people are skeptical about the timing, some saying the CBN is looking for an idea that will justify RUGA.

There are also claims that Nigeria doesn’t have the capacity to produce sufficient milk that will bridge the gap emanating from the restriction. First of all, Nigeria has little of the kind of cattle that produce milk, secondly, the NLTP that will create the enabling environment for milk production has not been implemented yet. Nigeria produces about 600, 000 tonnes of milk yearly, but the consumption rate is at 1.7 million tonnes which leaves a deficit gap of 1.1 million, which importers are filling with over $500 million in forex yearly.

So the conflict of interest that has been created by this policy cannot be ignored, and the alternative to businesses affected is farfetched. A fact that the CBN acknowledged in its statement.

“While we are aware that some of our policies may hurt some business interests, we are thankful to Nigerians for the buy-in and intense interest in the policies of the CBN.”

There have been only a handful of companies who took interest in this policy, the existing ones are struggling due to infrastructural issues. So the issue doesn’t depend on soft loans alone, the enabling environment that will facilitate the success of this policy is lacking, and cannot be provided by the investors who need more than they have for milk production. They include:

• Difficulty in land acquisition.
• Climatic variations – high temperature and irregular rainfall.
• High cost of power generation.
• High cost of processing equipment.
• Limited storage facilities.
• Poor road network.
• Low cost of imported products.

It certainly appears that the CBN focused on the last on the list and decided to eliminate it without giving consideration to other hurdles on the list. A study conducted by PwC on Nigerian Dairy value chain in 2017, noted that Pastoralists account for an estimated 95% of the total dairy output, but only a small percentage (around 15%) of these small farm producer’s milk is collected by formal processors, limiting the amount of milk available for processing.

This is a result of open grazing that has, in most cases kept Pastoralists on their feet. Moving from one place to the other has minimized the collection of milk products by processors, which in turn has resulted in high importation of powder. It has also become cheaper to import powdered products from Australia, India, New Zealand, Ukraine, South America and Europe, due to infrastructural deficiencies in Nigeria.

The report also outlined some steps to be taken to achieve adequate production of milk in Nigeria. One of them is ‘breed improvement’ that has so much to do with the kind of cattle that yield milk, which are not common in Nigeria. The steps outlined by PwC, (which includes addressing the above mentioned concerns) if implemented will take about ten years to yield results. And the Nigeria’s booming population will likely widen the demand gap before then. So the government’s partnership with companies like FrieslandCampina WAMCO and Arla Foods will likely help, but not to the extent of bridging the speedily widening gap.

The culture of banning goods and services as a way to encourage local production has done more than hindered competitive market. It has become a source of sorrow and smuggling without providing the needed alternative.

The recent decision by the CBN to add milk to the list of “No Access” to the Nigerian Foreign Exchange has reasons to give Nigerians concern. The 43 other items on the list have not made convincing difference to win the people’s trust that it’s going to work out fine for everyone. And the over 100 on the list of banned products have not resulted in improved local production to the satisfaction of the needs.

Milk is a daily household food item that its scarcity may result in nutritional deficiencies. Especially, in a time of food crisis when basic meals are luxury. And being a perishable product, the concern that whatever plan the government has to develop a sustainable value chain for milk production will never be attainable without stable power supply. So the focus should have been on facilitation of amenities that will enable local production of milk, not the easy decision to remove it off the list of Nigerian Forex.