The commitment of the CBN to the backward integration agenda of the Federal Government is laudable. However, it is important that in seeking to achieve this objective, the sequencing and strategy must be right. The policy will do more harm than good, both to investors and the citizens. It would trigger avoidable disruptions and dislocations in the investment environment and further undermine investors confidence. It would create huge supply gaps in the market with severe harmful consequences.
From all indications, the Nigerian economy is not ripe for the policy. For all practical purposes, it tantamount to a ban on importation of milk in whatever form as most banks would not process Form M for any product on the CBN forex exclusion list.
We currently do not have dairy cows in the country. The dominant milk producing system in Nigeria is the Fulani Nomadic System whose cows have a milk yield of less than two litres a day. Whereas a good dairy cow will produce an average of 28 litres of milk per day over ten months. During peak lactation, a high yielding dairy cow can produce as high as 60 litres of milk per day. The reality is that Nigerian cows have very low yield because of poor genetic composition, poor feeding practices and the laborious nomadic system of breeding. These are fundamental issues that we need to fix before contemplating any form of import restriction. These are challenges to be posed to the Federal Ministries of Agriculture and Water Resources at the federal and state levels as the present administration moves to the next level. These are the agencies of government that have primary responsibilities for such matters. The environment needs to be created for these investments to happen.
The forex exclusion policy being contemplated by the CBN will create a crisis of immense proportions in the dairy industry supply chain and put investments worth billions of dollars at risk. Indeed, the entire food and beverage sector would be adversely affected as many are dependent [in varying degrees] on the use of milk as intermediate products. They include investors in the production of Yoghurt drinks, chocolate drinks, infant formula for children, beverages, producers of ice creams, producers of cereals consumed largely by children and many more.
There are over one million direct and indirect jobs that will be in jeopardy across the value chains of these industries. These companies engage Nigerians as employees, distributors and retailers. Additionally, thousands of suppliers and service providers who are dependent on these businesses for their livelihood. For a country that is grappling with unemployment crisis, the consequences will be too grave. Therefore, there are profound investment, economic, nutritional and social issues to worry about.
Additionally, such a policy move will have the following adverse implications:
1. It will boost the smuggling economy since there will be an estimated 50% short fall in the supply of dairy products to the Nigerian market.
2. The supply gaps will create scarcity and put the prices of the products beyond the reach of the average Nigerian.
3. There will be loss of revenue to the government as smugglers naturally move to fill the supply gaps in the market.
4. There is a major risk of closure/drastic scaling down of operations of existing investments in the Dairy Industry.
5. There will be a higher risk of malnourishment of citizens especially children and the low-income earners.
6. There will be heightened risk of loss of jobs in the dairy sector
7. Neighbouring countries will profit from the increased smuggling triggered by the policy, as the Nigeria ports and maritime sector workers loose revenue and jobs to the ports of the neighbouring countries.
It is recommended that:
1. Enough timeline be given to diary companies for a sustainable transition from the current state of affairs to the desired level of backward integration in the dairy industry.
2. There should be robust incentives to attract investors to the supply chain in the dairy industry in line with the backward integration aspiration.
3. The ministries of Agriculture and Water resources should take on the challenge of driving this change process through the creation of incentives for modern animal husbandry facilities and practices. There should be generous support from Government to facilitate the importation of cattle breed [dairy cows] suitable for milk production.
On account of the foregoing, we urge the CBN to put on hold its proposal to exclude the dairy industry investors from the Foreign Exchange Market in order to save the economy of the consequential shocks, business disruptions, investment dislocations and job losses.
LAGOS CHAMBER OF COMMERCE AND INDUSTRY