The PwC report paints a pessimistic picture of the future prospects for the development of Nigerian milk production, given the serious constraints on the development of commercial milk production. There is a need to recognise that if multinational dairy companies are to effectively expand local milk sourcing this will need to be part of a sector wide approach involving all dairy industry players. If not all players are on board the differential use of milk powders in the production of dairy products will create competitive pressures which individual corporate efforts to expand local milk sourcing. This may well require the targeted use of trade policy tools to ensure discipline in support of any sector wide approach. However this could fall foul of EPA provisions prohibiting the use of such tools, should Nigeria sign on to the west Africa-EU EPA.
A report from PwC on ‘Transforming Nigeria’s Agricultural Value Chain’ has highlighted the importance now being attached to developing Nigeria’s agricultural sector in the face of low oil prices. It notes how overall in Nigeria agricultural yields are low and how agricultural supply chains are plagued by ‘poor infrastructure, low investment and unfavourable government policies’ (1).
Specifically with reference to the dairy sector it notes how Nigeria has the lowest per capita milk production in the world, with extremely low yield levels, only 33% of the average across Africa and less than 7.7% of those achieved in Asia. Despite its very low per capita consumption Nigeria only produces 35% of the milk it consumes (2).
It notes how both milk production and the links between producers and processors in Nigeria need to be improved, within a context where a ‘lack of infrastructure and lack of advanced technology means many products are sub-standard’. The report notes there is a geographical split between pastoral milk producing parts of northern Nigeria and the location of the bulk of modern dairy sector demand on the coast.
The report highlights how dairy production in Nigeria takes place under three distinct types of production system:
- those of settled Fulani pastoralists, largely using indigenous cattle breeds, with herds of from 20 to 100 head alongside arable production;
- those of non-settled Fulani nomads using indigenous cattle breeds, with poor cattle quality;
- large scale dairy farming, with herds of more than 50 cattle consisting of a mixture of local, imported and cross-breeds of cattle, with access to mechanized milking and processing facilities and animal feed.
The report notes that in Nigeria ‘pastoralists account for an estimated 95% of the total dairy output, but only a small percentage of these small farm producers’ milk (around 15%) is collected by formal processors, limiting the amount of milk available for processing’ (1). This leads to large scale imports of milk powder.
This milk powder is reportedly sourced mainly from ‘New Zealand, Australia, South America, the EU, India and Ukraine’ (1). In all the report maintains ‘imported milk accounts for 75% of milk processing inputs’ (2). This is reflected in the current structure of Nigerian dairy sector demand with the main commercial dairy products on sale being ‘powdered, evaporated and condensed milk packaged in metal cans, and sachets of different weights’ (2).
The report notes how multinational dairy companies are partnered with or have acquired Nigerian dairy companies to ‘reconstitute or repackage imported milk powder’ (1). This use of imported milk powders it is held ‘does not encourage backward integration within the value chain’.
The report notes how some international dairy companies such as Arla and Friesland Campina WAMCO have already committed to work with the Nigerian government in its dairy sector development programmes through formal Memorandums of Understanding (see companion articles, ‘EU dairy companies commit to help building milk-to dairy supply chains in Nigeria’, 8 May 2017 and ‘EU West Africa Dairy Sector Developments’, 6 July 2017). The report suggests dairy processors should be further encouraged to source milk locally. However it remains unclear how this can be successfully achieved under pastoralist production systems. So far efforts to improve milk yields in Fulani pastoral systems by the introduction of grazing reserves have proved unsuccessful, with Fulani pastoralists generating milk yields under 11% of the average of other pastoral systems (2).
According to the PwC report the efforts of international dairy companies to expand local sourcing by supporting the establishment of milk collection centres have met with only limited success. Some corporate initiatives aimed at expanding local sourcing were able in 2016 to secure only ‘3% of milk domestically, as a result of low yield’ and hence inadequate milk supplies from pastoralists.
In pointing the way forward the report recommends:
- the introduction over the long term (10+ years) of breed improvements, such as Friesians, Jerseys and Brown Swiss, to enhance milk yields, since currently these breeds represent less than 1% of the Nigeria cattle population (1);
- the scaling up of dairy sector services (1);
- a greater focus on milk quality, through enhanced training on animal hygiene and hygienic handling of milk (1);
- increased support to strengthen producer organisations via the formation of producer groups and cooperatives, so as to facilitate improved delivery of raw milk to milk processors (1);
- investment in equipment such as homogenizers, filters, pasteurisers and blenders (1);
- investment in storage facilities across the country to facilitate the distribution of dairy products (1);
- improved transportation infrastructure to better integrate milk producing regions with centres of modern dairy consumption (2).
|Comment and Analysis
The PwC report reiterates many of the well-known challenges faced in trying to develop a locally integrated dairy sector in Nigeria. It terms of the reports’ recommendations many of them are technical solutions which beg the question: how can these technical solutions be delivered in ways which effectively create better functioning milk-to dairy supply chains in the context of the financial constraints now facing the Nigerian state?
One thing that is clear is individual corporate initiatives implemented in isolation from a sector wide approach, which looks systematically at how to sequence the various technical solution in ways which deal with the commercial pressures generated by current market realities, will be largely doomed to failure.
Vitally important to this is the sequencing of technical interventions with trade policy initiatives which gradually overcome the current bias towards dairy production based on imported milk powders. This is a real dilemma in a context of low global milk powder prices and the ongoing overhang of milk powders held in storage in the EU.
The question arises: can policy initiative be designed which enable the import of milk powders to take place within a framework which systematically nurtures investments in long term local milk production within increasingly efficient milk-to-dairy supply chains? Experiences elsewhere in Africa and Asia could offer some lessons in this regard. What is clear is that any such initiative will need to involve the active use of trade policy tools, the deployment of which could be brought into question under the EU-West Africa EPA.
If dairy sector development is to be promoted in Nigeria which is integrated with expanded local milk production, then once viable schemes are in place, flexibility will be required in the interpretation and application of EPA commitments on the abolition of the use of quantitative restrictions in trade between West Africa and the EU. Without such flexibility it is likely to be difficult for the Nigerian government to reconcile its existing use of trade policy tools in support of agro-food sector development programmes with the commitments entered into by signing on to the West Africa-EU EPA.
In terms of infrastructure development while it is felt the planned construction of the north-south rail link could ease transportation constraints on the distribution of dairy products; this could simply lead to an opening up of northern areas currently served by informal milk distribution networks to intense competition from commercial dairy producers in the south, who use imported raw materials. This could further undermine local milk production as informal milk distribution networks get squeezed out by more commercialised dairy operations. The changing face of the Nigeria retail sector, with the rise of retail malls, over time is likely to accelerate this trend, changing the structure of Nigerian demand for dairy products as urbanisation proceeds apace.
(1) Dairyreporter.com, ‘Report looks at dairy issues in Nigeria’, 3 August 2017
(2) PWC, ‘Transforming Nigeria’s Agricultural Value Chains’, July 2017