CBN’s renewed push for jobs, forex savings in milk industry
By Babajide Komolafe
I CAN’T meet my demands anymore and even those not on our bills are begging us to supply them, even from as far as China. So, we are saving Nigeria a lot of foreign exchange. So, the restriction on forex is good for the local industry because we are now being pushed to do more.”
These were the words of Mrs. Oluyemisi Iranloye, Managing Director of Psaltry International Limited (PIL), an indigenous agro-allied company. Located in Oyo State, the company specialises in production of food grade starch.
Prior to the decision of the Central Bank of Nigeria (CBN) to impose foreign exchange (forex) restrictions on 41 items in 2016 (now 43 items) PIL, according to Iranloye had few customers and plenty of backlogged inventory. Today, the company boasts of over 50 multinational clients including Nestle and Unilever. The company has saved Nigeria $7 million in foreign exchange drawdown over the two years of the policy.
Addressing finance correspondents and business editors on a facility visit to the company, Iranloye said PIL has provided employment for over 300 people comprising 200 permanent staff and 100 temporary workers and has network of about 1000 farmers and about 3000 hectares of cassava farm land under 50 kilo metre radius to the factory located in 12 villages.
The PIL story mirrors the impact of the CBN’s forex restrictions on local production, employment generation and foreign exchange savings. Though labelled as an ‘unconventional policy’ the forex restriction has led to a sharp decline in the nation’s import bill from $665.4 million in January 2015 to $160.4 million as at October 2018; indicating a cumulative fall of 75.9 percent and an implied savings of over $21 billion on food imports alone over that period. Most evident were the 97.3 percent cumulative reduction in monthly rice import bills, 99.6 percent in fish, 81.3 percent in milk, 63.7 percent in sugar, and 60.5 percent in wheat.”
Inspired by this outcome, and the need to replicate the success story of PIL in other strategic sectors of the economy, the CBN recently announced the extension of forex restriction to textile products. Last week it announced that the policy would soon be extended to importation of milk.
Nigeria’s Milk Industry
Nigerians consume 1.3 trillion metric tonnes of milk annually out of which 700,000 metric tones or 53 percent are produced locally. The balance of 600,000 metric tonnes or 47 percent is imported, with annual cost of between $1.2 billion and $1.5 billion of its external reserves.
However, the amount of dollars spent on importing 600,000 metric tonnes of milk constitutes a huge weight on the nation’s external reserves and thus a challenge to exchange rate stability, which is critical to achieving the single digit inflation rate target of the Central Bank of Nigeria (CBN). In addition to this is the fact that the volume of milk import represents huge job creation opportunities which can be explored and maximised to create jobs for the over 20 million unemployed Nigerians.
In a bid to address this exchange rate stability challenge of milk importation and explores its job creation potential, the CBN two weeks ago, announced its intention to impose forex restrictions on importation of milk, as well as provide concessionary loans to boost local production of milk.
Nigeria can produce milk
According to CBN Governor, Mr. Godwin Emefiele, “We believe milk is one of the products that can be produced in Nigeria today. We have seen the importation of milk into Nigeria before many of us were born, precisely over sixty years. West African Milk and Friesland milk, the foremost milk has been doing it for over sixty years.
“They have been importing milk into Nigeria for over sixty years. For over sixty years, Nigeria has been importing milk, the import of milk annually stands at between $1.2 to $1.5 billion. That is a very high import product into the country, given that it’s a product that we are convinced can be produced in the country.”
Continuing Emefiele said: “By the time we restrict you, if you need loan to acquire land we’ll give you. If you need a loan to grow your grass, we will give you. To produce water, we will give you loan. But that you will continue to import milk in to the country, I think we are getting to the end of road. I will repeat, we are really getting to end of the road. The era of restriction of forex for importation of milk is coming, and it will come soon and sooner than expected.”
MAN, LCCI position
However, the Lagos Chamber of Commerce and Industry (LCCI) and the Manufacturing Association of Nigeria (MAN) believed that forex restriction on milk import is badly timed, stressing that the nation does not have the wherewithal to immediately bridge the 600,0000 metric tonnes gap in milk production. “We do not have enough cows, grasses, vaccines and veterinary facility to make this policy work”, said Africanfarmer Mogaji, Chairman, Agric Sectoral Group, LCCI.
“We do not need milk added to the banned list especially now that the country is facing herders/farmers clash,” he added.
He called on the government to increase the timeline for manufacturers to make appropriate preparation especially as the country’s national dairy output was 700,000 metric tonnes and demand is 1.3 million metric tonnes.
Mogaji stressed that the 600,000 metric tonnes supply gap would lead to artificial scarcity, increase cost of milk, exert undue pressure on citizens and increase smuggling of substandard milk into the country.
Also expressing a similar view, Director-General of MAN, Mr. Segun Ajayi-Kadir, said the addition of milk to restricted items would have a negative impact on the economy that might lead to downsizing, reduce government revenues and the manufacturing sector’s contribution to Gross Domestic Product (GDP).
He lamented that CBN’s decision was taken unilaterally without consultation with operators in the dairy industry. “It is a fact that to backward integrate is the way to grow an economy, but there is a need to be strategic and deliberate about the way to implement the measure.
“MAN has always been at the forefront of resource-based industrialisation; and has always supported backward integration, that is the reason why many manufacturers are exploring local sourcing of raw materials.
“What CBN wants to achieve is almost the same but the style of approach differs and the timing,” he said.
Ajayi-Kadir warned that the policy would have negative effects from its desired purpose and would trigger more smuggling activities into the country.”
Efforts to collaborate with milk companies
Emefiele, however, rebuffed this criticism, citing the uncooperative attitude of milk companies, stressing that the approach of the apex bank would have curtailed the incidences of farmers/herders clash.
He said him, “About three and half years ago, when the policy on restriction of forex started, we considered including milk in the list of items under restriction from forex, but we conjectured that based on sentiment, some people are bound to express, that we should be very careful.
“We called in the management of the oldest milk importing in to Nigeria, WAMCO to Central Bank office in Lagos. We held at least three meetings with them.
Their managing director came with one of the ladies. And we held those meetings, we told them this would have happened but we decided not to allow it to happen, that we were trying to use the opportunity to appeal to them to do backward integration. Integrate backward and begin the process of development and produce your milk in Nigeria.
Small farming holder arrangement
“There are obviously two schemes. Either the West Africa Milk or the milk importers acquire land and begin to graze their own cows and fatten them and get the milk, and then they can also be complemented by pastoralists who own their own small holder’s cows under a small farming holder arrangement, they can also get milk from them.
“Indeed, they could also support the pastoralists, get them concentrated in one place instead of moving around. Buy them facility like water, hospitals, schools. If you are in a community and you want to enjoy the proceeds of that community, there is nothing wrong in providing certain to those communities to blossom, provided the grass even if you sell the grass to them.
“Unfortunately, after three years, nothing has happened. Three weeks ago, we had another meeting, where we said we need to take stock of what you guys are doing because we can no longer continue to spend close to $1.2 to $1.5 billion importing milk to the country, a product we can produce.
“To some extent, they should help us also to reduce the rate of herder/ farmer conflict. Perhaps, if you had started this journey three years ago with us, whereas the herders/ farmers conflict that we see today would not have been as intense as it is this time.”