Summary
There is a need for greater coordination between EU dairy cooperatives in their efforts to promote the development of milk-to-dairy supply chains in Nigeria. This includes in regard to the establishment of code of conduct on responsible trade and investment engagement in the Nigerian dairy sector. However the Nigerian government will also need to make sustained efforts to address infrastructural and logistical constraints on the development of competitive milk supply chains. Arla continues to grapple with the challenge of reconciling its commitment to not undermining the position of local farmers and its commercial interests linked to its core profit maximisation obligations to its farmer owners.
Over the past year two EU multinational dairy cooperative, Friesland Campina and Arla have made commitments to supporting the development of milk-to-dairy supply chains in Nigeria. While Friesland Campina initially signed a Memorandum of Understanding (MoU) with the Nigerian Federal Governments’ Ministry of Agriculture and Rural Development to improve dairy farming in 2011, this commitment was renewed in June 2016, with a focus on ‘creating a sustainable value chain that contributes to food security, provides jobs and prosperity’. FrieslandCampina WAMCO (FC WAMCO) has agreed to ‘invest N3 billion in its small holder dairy farmer programme in Nigeria’ and support the operations of the governments’ dairy development company Milcopal, in Kaduna (1).
This seeks to build on earlier efforts aimed at providing training to dairy farmers, supporting networks of milk suppliers, and improving the quality of raw milk. This forms part of the joint private-public partnership between FrieslandCampina WAMCO and the Federal Government in support of the Dairy Development Programme (DDP) aimed at developing milk-to-dairy supply chains in Nigeria (1). This has created a situation where ‘Friesland Campina is the only dairy manufacturer sourcing part of its raw milk requirement locally’ (2).
In September 2016 the commitment of Friesland Campina to local dairy sector development was reaffirmed in a meeting between the companies’ global CEO, Roelof Joosten and the President of the Federal Republic of Nigeria Muhannadu Buhari. President Buhari lamented the waste of local milk production ‘as there was no means of preserving and processing the product’ and urged Friesland Campina to educate farmers on the importance of milk quality.
According to Press reports FC WAMCO provides support in the form of: on the ground knowledge transfer, including through farmer exchange programmes; consultancy services on feeding, breeding, hygiene, disease control and milk payments; support to local knowledge centres, involving demonstrations, research and innovation transfer activities; support to the organisation of local milk collection networks and on-farm infrastructure development (2).
As part of efforts to operationalize this renewed commitment, at the end of March 2017 FC WAMCO signed a MoU with Sahel Capital Partners and Advisory Services Limited, which is a specialist consultancy firm dealing with agriculture and nutrition issues in Africa. The aim is to help scale up FC WAMCO’s activities in Oyo State (3).
Hot on the heels of FC WAMCO’s renewed commitment to supporting the development of milk-to-dairy supply chains in Nigeria, in August 2016 the pan-European dairy cooperative Arla entered into a similar agreement with the Nigerian Government to ‘help strengthen and expand the country’s dairy industry’. Arla’s executive vice-President Finn Hansen noted how ‘the Nigerian dairy market is expected to reach 450 consumers by 2050’, with this presenting a ‘huge market opportunity’ for Arla. He noted how ‘more and more Africa consumers demand types of dairy products that cannot always be produced locally in adequate volumes’, with Arla being able to ‘offer good nutrition through our powdered milk products’. He reiterated Arla’s on-going commitment to ensuring ‘our business does not have any negative effects on local farmers’. Arla is reportedly in talks with local farmers and universities over ‘partnerships that will see it invest and provide the know-how and insights to help improve local dairy production in Nigeria’ (4).
According to press reports, ‘under the agreement the Ministry of Agriculture in Nigeria pledged to provide infrastructure including rural roads, earth filled embankment dams, and boreholes in grazing reserves’, plots of land specifically set aside by the government for dairy cattle farming (4).
Meanwhile in April 2017 Arla reiterate its commitment to ‘comply with UN Guiding Principles for Business and Human Rights’, through the conduct of ‘human right assessments to investigate the potential impact of the company’s activities when considering entering into a new market, with products, production or partnerships’ (5). In an ACP context, in 2016 Arla conducted such a human rights assessment for its potential operations in the Democratic Republic of the Congo (DRC) (a similar human rights assessment for its planned operations in Nigeria was published by Arla in November 2015 (6))
However Arla continues to grapple with the challenge of reconciling its commitment to not undermining the position of local farmers and its commercial interests linked to its core obligations to its farmer owners, namely to maximise the price paid per litre of milk. The tension this generates is illustrated by recent comments by the Head of Arla’s Business Unit Asia, Jesper Colding, who in a report from early April 2017 spoke of the imperative Arla faces in finding ‘the right partners in each market…partners who know the market, who have a route to market, and a distribution capacity in the market’. According to Colding finding the right partners is seen as critical to ‘really leverage what we can export from Europe’, which is attractive to the growing middle income consumer base in developing country markets, which favours safe, health food choices (5).
World dairy market prices (US $ per tonne)
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 (projected) | % change 2013-16 | |
| Cheese | 4,319 | 3,823 | 4,381 | 4,474 | 3,336 | 3,092 | 3,456 | -29.4% |
| Butter | 4,485 | 3,318 | 4,015 | 3,753 | 3,183 | 3,138 | 3,814 | -21.8% |
| SMP | 3,660 | 3,163 | 4,399 | 3,753 | 2,165 | 2,004 | 2,382 | -54.4% |
| WMP | 3 878 | 3,234 | 4,698 | 3,768 | 2,474 | 2,463 | 2,808 | -47.6% |
| Whey | 1 292 | 1,269 | 1,375 | 1,312 | 877 | 868 | 999 | -36.8% |
Source: EC, ‘EU Agricultural Outlook: Prospects for EU agricultural markets and income 2016-2026, Tables’, December 2016
https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2016/2016-tables.pdf
While the collapse of dairy prices since 2013 has contributed to increased volatility in the international dairy trade, specifically in terms of recent trends in EU dairy exports to Nigeria, the collapse of the oil price, which impacted on the value of the Nigerian Naira against the US $, has seriously constrained Nigeria’s ability to import (7).
Thus we find that while in volume terms EU exports of whey, cheese and fat filled milk powder grew strongly between 2011 and 2015 (+44.6%, + 124.2% and +236.3% respectively) exports of milk powders peaked in 2014, before falling back sharply in the following two years (-40%). Except for butter and liquid milk (where volumes more than tripled between 2011 and 2016), all EU dairy export categories fell in 2016, in the face of continued foreign exchange difficulties in Nigeria.
EU Dairy exports to Nigeria
| 2003 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | % 11-15 | % 11-16 | ||
| Fat filled powders (190190) | 29,451 | 60,472 | 51,088 | 57,410 | 71,189, | 87,439 | 66,187 | +44.6% | +9.5% | |
| Milk powder (0402) | 80,565 | 98,861 | 78,364 | 87,533 | 91,180 | 72,854 | 54,606 | -26.3% | -44.8% | |
| Butter (0405) | 2,701 | 1,832 | 1,019 | 543 | 928 | 461 | 1,015 | -74.8% | -44.6% | |
| Cheese (0406) | 227 | 418 | 425 | 483 | 508 | 937 | 781 | +124.2% | +86.8% | |
| Whey (0404) | 716 | 1,197 | 2,083 | 2,888 | 3,624 | 4,026 | 3,431 | +236.3% | +186.6% | |
| Liquid Milk (0401) | 1,435 | 2,843 | 3,035 | 3,477 | 3,661 | 3,531 | 4,514 | +146.1% | +214.6% |
Source: EC, Market Access Data Base
| Comments and Analysis The precipitous and sustained decline in international dairy prices which occurred from 2013 onwards, transformed the economics of local milk sourcing in Nigeria. The sustained decline of milk powder prices of around 50% between 2013 and the end of 2016, served to make it substantially more expensive to produce dairy products on the basis of locally sourced milk, rather than imported milk powders (9). The tentative recovery of global dairy prices, could potentially create a new context for the development of local milk-to-dairy supply chains in Nigeria. However over-hanging stocks of EU milk powders make the current price recovery rather vulnerable.The imperative Arla faces to find ‘the right partners in each market’, saw partnerships established in both Nigeria and Senegal with food distribution companies with no production interests in the dairy sector. In the initial draft human rights impact assessment report this was not seen as posing any challenges for Arla’s ‘don’t cause harm to local farmers’ policy. It was argued that while Arla is ‘not directly involved in the local raw milk production value chain’, it is equally not competing with locally produced milk, since it’s consumer ready milk powder sachets were aimed at a population group which did not traditionally consume fresh milk. It was maintained ‘imported powdered milk and local produced raw milk represent two separated value chains that will not meet at the market geographically, product wise and consumer wise’.However under criticism from Danish NGOs, Arla modified this position in the final November 2015 version these human rights impact assessment reports, acknowledging concerns expressed during stakeholder consultations ‘regarding the potential negative impact of Arla’s future business model….Since Arla’s business model in its first stage will be based primarily on imports and repacking of imported milk powder’. It was maintained that Arla’s increasing sales of powdered milk in both Senegal and Nigeria ‘is related to the underdevelopment of the local milk sector’ and that a larger role for Arla in the market ‘might contribute to further lessening the government’s incentive to invest in the sector due to the easy availability of imported milk powder which can be bought at lower prices and which can meet the urgent local demands’ (6). It was equally acknowledged that Arla’s engagement ‘might indirectly be related to the lack of private investment in the development of the sector (i.e. local sourcing), due to lower prices and the irregular availability of local fresh milk’. This it was held ‘might incentivise processers to use imported powdered milk, instead of sourcing locally, in the production of other dairy products’ (6). Against this background it was acknowledged that ‘Arla might therefore become an integrated part of the complex systemic factors, which is linked to the continuous underdevelopment of the dairy sector by amplifying the current difficulties’. This it was maintained could potentially create ‘linkage to adverse human rights impact on the dairy farmers involved who are dependent on income and nutritional value from raw milk production and sales’(6). Against this background Arla identified a number of ways in which it could address potential adverse impacts. These include amongst others: * Building capacity of local farmers through transfer of technology, breeding support, management training and the development of business models suitable to African production conditions; * Supporting business driven cooperatives; * Sourcing locally to stimulate local dairy production; * Building the market for dairy products, including for fresh milk; * Investing in more local collection centres with better equipment for processing; * Supporting government dairy sector programmes through public-private partnerships; * Investing in local dairy value chains to stimulate innovative dairy business models; * Promoting multi-stakeholder dialogues to inform framework conditions for a balanced dairy sector development, including through promoting a Code of Conduct for Responsible Corporate Trade and Investment in African Dairy Sector Development (6). It is this November 2015 analysis which informed Arla’s August 2016 decision to conclude a memorandum of understanding with the Nigerian government on the promotion of local dairy sector development (6). Since Friesland Campina is the only dairy processor which sources milk locally in Nigeria and both Friesland Campina and Arla have now concluded MoU’s focussed on promoting the development of local milk-to-dairy supply chains in Nigeria, there would appear to be a need for greater collaboration between these two EU multinational dairy cooperatives in their efforts to support local dairy sector development in Nigeria. This could deal not only with operational programmes linked to the development of milk production and more efficient milk-to-dairy supply chains, but could also take up Arla’s November 2015 call for the establishment of a Code of Conduct for Responsible Corporate Trade and Investment in African Dairy Sector Development. Arla and Friesland Campina could usefully work together to promote both the development and practical application of such a Code across the dairy sector in Nigeria. This could help prevent global dairy market price volatility undermining public-private sector partnerships, aimed at promoting the development of local milk-to-dairy supply chains in Nigeria. In addition companies such as Arla could use their R&D capacity to develop low cost dairy processing facilities to reach out to areas of untapped milk production. This needs to be seen in the context of the launch in 2014 of Arla’s low cost mobile milk powder repackaging plant, which could operate to EU health standards, and which were specifically designed for deployment under Africa conditions (8). |
Sources:
(1) Securitymonitoring.com, ‘We will invest N3 billion into Nigeria’s dairy growth – WAMCO’, 14 June 2016
http://securitymonitorng.com/2016/06/14/we-will-invest-n3-billion-into-nigerias-dairy-growth-wamco-as-fg-frieslandcampina-wamco-renew-mou-on-dairy-development-programme/
(2) Dairyreporter.com, ‘Nigerian president meets Friesland Campina CEO’, 5 September 2016
http://www.dairyreporter.com/Markets/Nigerian-president-meets-with-FrieslandCampina-CEO
(3) Dairyreporter.com, ‘FrieslandCampina WAMCO signs Nigeria Dairy Development Programme MOU’, 27 March 2017
http://www.dairyreporter.com/Manufacturers/FrieslandCampina-WAMCO-signs-Nigeria-Dairy-Development-Programme-MOU
(4) Dairyreporter.com, ‘Arla Foods signs Memorandum of Understanding with Nigeria to boost dairy sector’, 19 August 2016
http://www.dairyreporter.com/Markets/Arla-Foods-signs-Memorandum-of-Understanding-with-Nigeria
(5) Dairyreporter.com, ‘Arla looks to responsible growth in Asia’, 6 April 2017
http://www.dairyreporter.com/Manufacturers/Arla-looks-to-responsible-growth-in-Asia
(6) Arla, ‘Human Rights Assessment in Nigeria’, November 2015
https://www.arla.com/globalassets/arla-global/company—overview/responsibility/human-rights/arla-human-rights-assessment-in-nigeria-november-2015_1.pdf
(7) xe.com, US$/Nigerian Naira Chart
http://www.xe.com/currencycharts/?from=USD&to=NGN&view=5Y
(8) Arla, ‘Mobile milk powder packaging facility for Africa’, 30 July 2013
http://www.mynewsdesk.com/arla-foods/pressreleases/mobile-milk-powder-packaging-facility-for-africa-890880
(9) Agritrade, ‘Expanding Dutch corporate involvement in local milk procurement in Nigeria’, 15 April 2013
http://agritrade.cta.int/en/%20Agriculture/Commodities/Dairy/Expanding-Dutch-corporate-involvement-in-local-milk-procurement-in-Nigeria
| Key words: Dairy, Arla, Friesland Campina, Nigeria Area for Posting: Dairy, Corporate, West Africa |