Summary
Intra-regional dairy sector trade tensions are likely to intensify in West Africa in the coming years as the Government of Nigeria seeks to refine the use of its foreign exchange allocation system to support the development of local milk production, while Ghana and Cote d’Ivoire move ahead with tariff reductions on milk powders imports from the EU. The establishment of national platforms by EU dairy companies focused on regional markets, could see a growing formal and informal trade in reconstituted dairy products across West African borders, with a view to exploiting variations in the import tariffs levied on milk powders by different ECOWAS members.
On 12th February 2020 the Central Bank of Nigeria (CBN) ‘lifted restrictions on buying U.S. dollars to pay for milk imports for six firms’. This was in reaction to business protests over the earlier decision in July 2019 to introduce restrictions on the allocation of foreign exchange to finance milk imports in an effort to ‘boost local dairy production and conserve foreign currency reserves’ (1)
While at the time of the July 2019 announcement the Manufacturers Association of Nigeria (MAN) recognized ‘backward integration is a way to grow the economy’ it argued the Nigerian government needed to be ‘strategic and deliberate’ in the way it ‘implemented policy measures to foster such backward linkages’.
The CBN for its part maintained the Nigerian governments’ past policy of restricting foreign exchange allocations for certain inputs had been successful in stimulating the development of backward linkages in other sectors, citing the rice, tomato and starch sectors as illustrative examples. It was argued that ‘although there have been some successful attempts at producing milk locally, the vast majority of the importers still treat this national aspiration with imperial contempt’ (2).
The companies affected by the 12th February 2020 decision to open up access to foreign exchange for milk imports included: ‘FrieslandCampina WAMCO Nigeria; Chi Limited; TG Arla Dairy Products Limited; Promasidor Nigeria Limited; Nestle Nigeria Plc and Integrated Dairies Limited’. The Director of Corporate Communications Department at the CBN, Mr. Isaac Okorafor, maintained the CBN was engaging with these companies because they showed ‘sufficient willingness and ability’ to support the underlying objectives of the backward integration programmes, namely improving local milk production. The CBN hopes to support the expansion of Nigerian milk production from ‘the current figure of 500,000 metric tonnes to about 550,000 metric tonnes within the next 12 months’ (3).
Dairy sector policies in West Africa are likely to come under close scrutiny in the coming years as tariff reduction commitments on milk powders and milk products agreed under the Ghanaian and Ivorian interim EPAs concluded with the EU begin to be implemented. With variations in the timing between Ghana (4) and Cote d’Ivoire (5), these include specific commitments on tariff reductions for:
- Milk and cream, not concentrated nor containing added sugar in packages not exceeding two litres (current ECOWAS duty 20% liberalisation begins in 2026 completed by 2029)
- Milk and cream, concentrated, not containing added sugar in packages less than 2.5 kg (current ECOWAS duty 5% or 10% with liberalization beginning for some products as early as 2021) – mainly for sale through registered pharmacies.
- Whey (ECOWAS duty 5% or 20% liberalise on some products from 2024 and other from 2029)
- Fat filled milk powders (ECOWAS tariff 5% or 10% or 20% depending on the product, liberalization begins from 2021 for some products and 2024 for other products but with all being zero by 202)
If fully implemented these commitments could potentially serve to compromise the ECOWAS common external tariff in the dairy sector. This needs to be seen against the background of the expansion of investment in milk powder repackaging and reconstitution operations in West Africa since 2013 by major EU dairy companies such as Arla (see companion epamonitoring.net articles, ‘Arla Commits to Extended Dairy sector Cooperation in Nigeria’, 17 October 2019, ‘Arla’s Senegalese milk powder repackaging plant begins operations’, 23 January 2017) and Friesland Campina (see companion epamonitoring.net articles, ‘RFC Announces Factory Expansion and Investments in Local Milk Supplies in Nigeria Amid Slowdown in Growth EU Exports of SMP’, 11 February 2019).
Both Arla and Friesland Campina have committed expanding local milk procurement in their operations in West Africa and both of which continue to face serious challenges in realising their stated ambitions for enhanced local milk procurement (see companion epamonitoring.net articles, ‘EU West Africa Dairy Sector Developments’, 6 July 2017 and ‘EU dairy companies commit to help building milk-to dairy supply chains in Nigeria’, 8th May 2017, ‘FC WAMCO Dairy Development Programme Expands Amidst Continued Import Dependence, 9th July 2018).
| Comment and Analysis The 2019 reference by the Central Bank of Nigeria to importers treating Nigerian aspirations for the development of national milk production with ‘imperial contempt’, reflects the relative failure of the efforts of European owned dairy companies to develop local milk production in line with expanding domestic Nigerian dairy market demand. However, this can in large part be attributed to the intrinsic difficulties faced in developing competitive national milk production at a time of sustained low milk powder prices.The decision of the CBN to selectively open up access to foreign currency allocations to companies with active milk production development programmes, in the context of a clearly defined objective for growth in national milk production (a 10% expansion), could prove more effective than undifferentiated restrictions of foreign exchange allocations for milk product imports.The pressures to selectively allocate foreign exchange in support of national production development in sectors where a high level of import dependency exists, are only likely to increase, given the precipitous decline in oil prices (-30%) which has occurred in March 2020 in the face of impact of the COVID-19 virus on global oil demand and the production/price war which has broken out between Russia and Saudi Arabia (on behalf of OPEC) (6, 7).However, coordinated and integrated initiatives to effectively support expanded milk production for supply to commercial dairies will need to be in place, if the selective allocation of foreign exchange for dairy imports is to proof effective in boosting local production. These efforts to stimulate production may also need to include support for the development of specialist dairy herds, rather than the current focus on bringing existing pastoralists into commercial milk supply chains. However, addressing the existing constraints on Nigerian commercial milk production will be by no means a simple task (see companion epamonitoring.net article ‘Report Paints Grim Picture for Prospects for Integrated Dairy Sector Development in Nigeria’, 12 October 2017). National efforts to boost commercial milk productions however are complicated by the increasingly regionally focussed investment strategies by companies such as Arla. In recent years Arla has invested in milk powder repackaging and reconstitutions facilities in a number of West Africa countries in association with partners with no dairy sector production experience but extensive regional retail experience (in Ivory Coast, Nigeria, Senegal). The expansion of dairy production underway in these Arla operations is based in large part on the processing and repacking of imported milk powders. In Ghana however a different model is being pursued involving the establishment of a fully owned Arla subsidiary, with the national platform established then being used to increase exports of Arla branded dairy products (see companion epamonitoring.net article, ‘Arla Plans Expanded Investment in Production of Milk Powder for Export to Africa’ 1 March 2018). This focus on establishing national platforms to serve regional markets is likely to be fuelled by the differentiated reduction of import tariffs on milk powders by national governments within ECOWAS, which is now underway as a result of the implementation of agreed tariff reduction commitments by the Governments of Ghana and Cote d’Ivoire. This will inevitably compromise efforts to establish a common external tariff around the ECOWAS dairy market, if these commitments are implemented on schedule. This is likely to promote intra-regional trade tensions in the West African dairy sector, if cross border flows of dairy products manufactured on the basis of imported milk powders begin to undermine national milk production development efforts. |
Sources:
(1) Reuters, ‘Nigeria grants FX access for milk imports to six mostly foreign firms’, 13 Feb 2020
https://www.reuters.com/article/nigeria-imports-milk/nigeria-grants-fx-access-for-milk-imports-to-six-mostly-foreign-firms-idINL8N2AD7R8
(2) premiumtimesng.org, ‘CBN denies banning milk importation, insists on Forex restriction’, July 26, 2019
https://www.premiumtimesng.com/news/top-news/343278-cbn-denies-banning-milk-importation-insists-on-forex-restriction.html
(3) vanguardngr.com, ‘CBN imposes forex restriction on milk importation’, 12 February 2020
https://www.vanguardngr.com/2020/02/cbn-imposes-forex-restriction-on-milk-importation/
(4) EC, ‘Updated Ghana’s Market Access Offer for products originating in the EU’, November 2019
https://trade.ec.europa.eu/doclib/docs/2020/january/tradoc_158599.pdf
(5) EC, ‘Updated Côte d’Ivoire’s Market Access Offer for products originating in the EU’, July 2018
https://trade.ec.europa.eu/doclib/docs/2020/january/tradoc_158598.pdf
(6) The Economist, ‘Scorched earth: No one is likely to win the oil price war’, 142h March 2020
https://www.economist.com/finance-and-economics/2020/03/12/no-one-is-likely-to-win-the-oil-price-war
(7) The Economist, ‘The big squeeze: The low price of oil will test governments in the Middle East and Africa’, 12th March 2020
https://www.economist.com/middle-east-and-africa/2020/03/12/the-low-price-of-oil-will-test-governments-in-the-middle-east-and-africa