Summary
European dairy companies continue to expand their operations in West Africa, with the region being seen as one with tremendous market potential. While some companies are seeking to support local dairy sector development as part of their market expansion strategies, this is by no means universal. Since 2014 low global bulk dairy commodity prices have compounded the existing challenges faced in developing local milk-to-dairy supply chains in West Africa. This suggests a need for a sector wide approach to dairy sector development involving a commitment by all EU dairy companies to responsible patterns of trade and investment, designed to support the gradual growth in local milk-to-dairy supply chains.
Reports from FrieslandCampina WAMCO – Nigeria (FC WAMCO) show an expansion of turnover in 2016 despite difficult operating conditions. According to the latest annual report, FC WAMCO has been able to hold its ‘position in the market by improving distribution’. This has reportedly created 1,400 jobs in the distribution chain and has provided ‘a source of sustained income for 2,000 farmers…through the company’s development of the Nigerian dairy sector’. Since 2010 FC WAMCO has been supporting a Dairy Development Programme in Nigeria with the immediate aim of improving ‘the quality of raw milk obtained from local suppliers’. This programme has included ‘extensive training of the Fulani milk producers at the herd level on how to hygienically handle and deliver raw milk to collection centres’ (1). The broader aim of this programme is to assist the transition towards settled farming amongst the pastoralist Fulani cattle herding community (2).
This uses a Dairy Zone model of development, which clusters farmers around master farms which provide infrastructure and capacity building support, complemented by measures to improve access to finance, feed and extension services. It is maintained that ‘settled farming will enhance the milk quantity and quality due to the availability of better feed (roughage) and water, increased access to infrastructure and services’. This will then translate into both higher milk quality and higher income for farmers. This Dairy Development Programme needs to be seen in a context where in the cattle sector ‘95% of all farmers in Nigeria are nomadic’ (2).
In terms of the future FC WAMCO see’s ‘foreign exchange constraints (and) low consumer purchasing power’ negatively impacting on sales and profitability in Nigeria (2).
Meanwhile the Danish based pan-European dairy cooperative Arla continues to assert its commitment to sustainably developing its international trade and investments relations. It acknowledges that as the company expands its operations overseas, so it has a greater impact on the local societies in which it operates. It is against this background that Arla has committed to ‘comply with UN Guiding Principles for Business and Human Rights’ (3). With this in mind Arla conducts human rights assessments ‘to investigate the potential impact of the company’s activities when considering entering into new markets, with product, production or partnerships’ (3). In Africa in 2016 this included the conduct of a human right impact assessment of potential developments in trade and investment relation with the Democratic Republic of the Congo. To date however this report has not been made public (4).
Previous Arla impact assessments have highlighted the serious consequences which current patterns of EU dairy exports can have on prospects for local milk-to-dairy supply chain development. The human rights impact assessment reports on planned investments in Nigeria and Senegal acknowledged concerns expressed during stakeholder consultations over:
- ‘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’;
- the impact a larger role for Arla in the market might have in terms of ‘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’;
- the danger Arla’s investment model ‘mightincentivise processers to use imported powdered milk, instead of sourcing locally, in the production of other dairy products’ (5).
It was felt these factors could lead to a situation where Arla ‘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 held could then potentially create ‘linkage to adverse human rights impact on the dairy farmers involved that are dependent on income and nutritional value from raw milk production and sales’ (5).
It was against this background that Arla called for the promotion of multi-stakeholder dialogues locally and internationally 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 (5) (for more details see companion article, ‘Arla’s Senegalese milk powder repackaging plant begins operations’, 23 January 2017).
This needs to be seen in a context where Arla’s operations in sub-Saharan Africa are of growing importance achieving a 15.8% growth in revenue in 2016. This compares to a revenue growth in its European operations of 1.3% (but a huge 31.2% revenue growth in its China and Southeast Asia operations). Operations outside of Arla’s Europe division now account for around 1/3 of Arla’s revenues (6).
For 2017 Arla see’s strong growth in its operation in sub-Saharan Africa, particularly in Nigeria where high population growth is projected. Arla’s Chief Financial Officer maintains that in Nigeria ‘there’s a lot of things…that will help our business and we’re certainly committed to doing it the right way’ (6).
For its part, press reports indicate that Danone has added ‘three new production lines to Fan Milk’s factory in Accra Ghana’, creating 200 new jobs. This forms part of a wider $25 million investment programme. The new lines will focus on the production of new dairy related products for the Ghanaian market, including FanMaxx, a drinkable yoghurt, fortified with calcium and vitamins. Its four month shelf life is seen as ideal for African market conditions. Danone believes there is considerable potential for expanding demand for dairy products in Africa through exploring new product categories such as drinkable yoghurts (7).
Fan Milk operates not only in Ghana but also Cote D’Ivoire, Burkina Faso, Togo, Benin and Nigeria, and also has operation in 34 other African countries (7).
Press reports indicate ‘Africa accounts for over 5 percent of Danone’s revenue’, with ‘sales from West Africa …. growing near an annual 20%’ and this growth expected to continue until 2020 (8). Danone estimates West Africa generates around €1.4 billion in sales for Danone (9).
| Comment and Analysis FrieslandCampina’s efforts to support the Dairy Development Programme in Nigeria have in recent years been handicapped by the fall in global dairy commodity prices, which has transformed the economics of reconstituting imported milk powders back into dairy products. Between January 2014 and January 2015 global dairy prices for SMP, WMP, butter and cheese fell 50.4%, 51.9%, 22.8% and 24.5% respectively, with these declines being sustained into 2016, with some improvements in milk powder prices from exceptionally low levels since February 2016 (10). This has compounded the existing difficulties faced in promoting the cost effective development of local milk-to-dairy supply chains in countries like Nigeria, which already faced serious challenges prior to the collapse of global dairy prices. As early as 2012 (when world market prices even at their lowest will still above 2017 levels) FC WAMCO had acknowledged it was cheaper to import raw materials than to purchase raw milk locally, with landed costs between N70 to 80 a litre, compared to local procurement costs of N90 per litre – 100 Naira. The collapse of global dairy commodity prices in 2014 greatly exacerbated this situation. It should come as no surprise therefore that the Netherlands, where FrieslandCampina’s domestic milk production is concentrated, should account for such a high % of EU whole milk powder exports to sub-Saharan Africa, accounting in 2016 for fully 46.7% of total EU exports of whole milk powder to the 10 main export markets in sub-Saharan Africa (10). The Netherlands is also a leading EU exporter of fat-filled milk powders to West Africa, with E exports having increased 29% since 2013. It is against this background that FrieslandCampina WAMCO’s operations remain heavily dependent on imports of milk powders (for more details see companion article ‘Growth in EU dairy exports overhangs ACP dairy sector development’, 16 February 2017). In the case of Arla while recognising that its model of dairy sector development based on imported powders could have a potential negative impact on local dairy sector development, the company continues to struggle to move beyond this model, recent efforts to engage in the development of local milk-to diary supply chains in Nigeria notwithstanding (see companion article ‘EU dairy companies commit to help building milk-to dairy supply chains in Nigeria’, 8 May 2017). The efforts of Arla and FrieslandCampina contrast somewhat with the pattern of Danone’s expansion in Africa, which in Ghana and neighbouring West African markets (with the exception of Senegal) appears to be remain based exclusively on reconstituting imported milk powders. While Danone’s strategy includes a strong focus on the development of innovative dairy products suited to local market requirements, this is currently unlikely to have any positive impact on the development of local milk-to-dairy supply chains. This has not always been the case. In the mid-1990s Danone’s joint venture arrangements in South Africa saw the introduction of new dairy products for middle class urban consumers which significantly expanded the demand for locally produced fresh milk, providing a boost to milk production in the province where the joint venture was based. Unfortunately while Fan Milk produces and distributes a wide range of dairy based products, with Danone investing in expanding this product range, production is likely to remain largely based on imported raw materials with few links to local milk production, unless a conscious effort is made to move beyond this model of dairy sector development in sub-Saharan Africa. |
Sources
1) Dairyreporter.com, ‘FrieslandCampina WAMCO reports increased profits’, 30 May 2017 http://www.dairyreporter.com/Manufacturers/FrieslandCampina-WAMCO-reports-increased-profits
(2) FrieslandCampina, ‘Dairy development in Nigeria’
https://www.frieslandcampina.com.ng/sustainability/dairy-development/
(3) Dairyreporter.com, ‘Arla looks to responsible growth in Asia’, 3 May 2017
http://www.dairyreporter.com/Manufacturers/Arla-looks-to-responsible-growth-in-Asia
(4) Dairyreporter.com, ‘Arla-looks-to-responsible-growth-in-Asia’, 3 May 2017
http://www.dairyreporter.com/Manufacturers/Arla-looks-to-responsible-growth-in-Asia
(5) Arla, ‘Assessment of human rights in Senegal’
http://www.mynewsdesk.com/arla-foods/documents/assessment-of-human-rights-in-senegal-48352
(6) Dairyreporter.com, ‘Arla profits grow despite revenue decline’, 22 February 2017
http://www.dairyreporter.com/Manufacturers/Arla-profits-grow-despite-revenue-decline
(7) Dairyreporter.com, ‘Danone-and-Abraaj-Group-expand-Fan-Milk-capacity-in-Ghana’, 24 May 2017
http://www.dairyreporter.com/Manufacturers/Danone-and-Abraaj-Group-expand-Fan-Milk-capacity-in-Ghana
(8) Reuters Africa, ‘Danone expands Fan Milk production capacity in Ghana’, 23 May 2017
http://af.reuters.com/article/ghanaNews/idAFL8N1IP5AF
(9) Danone, ‘Danone invests $25m to expand Ghanaian subsidiary Fan Milk’, 23 May 2017
http://www.foodbev.com/news/danone-to-invest-25m-in-ghanaian-subsidiary-fan-milk/
(10) EC Milk Market Observatory, ‘EU Dairy Exports to Third countries’, 12 May 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/milk/pdf/eu-extra-trade_en.pdf
(11) Milk Market Observatory, ‘EU/US/Oceania Quotations of SMP/ EU/US/Oceania Quotations of WMP’, 29 May 2017
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/milk/pdf/world-dairy-commodity-prices_en.pdf
Annex
EU Milk Powder Exports to West Africa (tonnes)
| Skimmed Milk Powder* | 2013 | 2014 | 2015 | 2016 |
| Nigeria | 27,284 | 34,281 | 22,673 | 22,924 |
| Ghana | 6,987 | 6,349 | 11,479 | 8,680 |
| – SUB-TOTAL | 34,271 | 40,630 | 34,152 | 31,604 |
| Whole Milk Powder* | ||||
| Nigeria | 38,467 | 35,958 | 27,757 | 17,161 |
| Ivory Coast | 6,234 | 5,585 | 7,621 | 7,221 |
| Senegal | 4,669 | 4,682 | 5,335 | 6,500 |
| Mali | 4,116 | 4,097 | 3,385 | 5,218 |
| Guinea | 3,300 | 3,438 | 5,154 | 5,193 |
| Mauritania | – | 2,679 | 3,879 | 4,475 |
| – SUB-TOTAL | 56,786 | 56,439 | 53,131 | 45,768 |
| Fat filled Milk Powders° (190190) | ||||
| Nigeria | 57,410 | 71,189, | 87,439 | 66,187 |
| Senegal | 37,128 | 43,247 | 40,837 | 55,238 |
| Mauritania | 19,353 | 26,534 | 28,233 | 29,670 |
| Mali | 12,962 | 17,375 | 19,568 | 20,899 |
| Ghana | 12,587 | 7,597 | 10,352 | 12,123 |
| Togo | 8,429 | 8,267 | 11,156 | 10,564 |
| Ivory Coast | 7,259 | 8,725 | 10,206 | 10,441 |
| Guinea | 5,030 | 5,283 | 7,174, | 8,326 |
| Niger | 3,596 | 5,568 | 4,402 | 4,871 |
| Burkina Faso | 4,245 | 4,937 | 5,186 | 4,834 |
| Gambia | 3,636 | 3,330 | 2,692 | 2,460 |
| Cape Verde | 1,739 | 1,324 | 1,455 | 1,683 |
| Liberia | 882 | 1,322 | 1,459 | 1,645 |
| Benin | 4,464 | 3,467 | 1,256 | 1,614 |
| Guinea Bissau | 1,076 | 682 | 1,381 | 1,356 |
| Sierra Leone | 1,174 | 2,064 | 1,596 | 1,356 |
| – SUB-TOTAL | 180,970 | 209,589 | 234,392 | 232,862 |
| Whey* | ||||
| Nigeria | 2,548 | 2,276 | 3,906 | 3,413 |
| Ghana | 4,034 | 2,344 | 3,719 | 4,275 |
| Ivory Coast | – | – | 2,170 | – |
| – SUB-TOTAL | 6,582 | 4,620 | 9,735 | 7,688 |
* Milk Market Observatory
° EC Market Access Data Base
| Key words: Dairy, Nigeria, Ghana Area for Posting: Dairy, West African EPA, |