Summary
The large scale growth of EU fat filled milk powder exports to West Africa has resumed after a minor setback in 2016. The expansion of EU exports of fat filled milk powders since 2008 cannot be divorced from changes in EU policies on purchases of skimmed milk powders into intervention and public sector support to private storage schemes. This has stimulated product innovation which has expanded outlets for fat filled milk powders, particularly in West Africa. Equally this trade cannot be divorced from the corporate strategies of EU dairy companies which since 2013 have been investing in West Africa to develop outlets for their expanded milk production in the post-milk quota abolition period. There is a need for greater monitoring of this trade in fat filled milk powders given the impact it can have African efforts to promote the development of local milk-to-dairy supply chains.
In the face of the 2008/09 EU dairy market price crisis the EC decided to lift the 109,000 tonnes ceiling on total purchases of SMP into intervention and introduced a system of support for private storage. This was one of a number of policy intervention aimed at easing the dairy market price crisis in the EU. This saw a renewed expansion of EU stocks of skimmed milk powder which went from 0 at the beginning of 2009 to 259 658 tonnes by the end of the year (1). While in subsequent years these stocks of SMP were subsequently eliminated in part through the greater use of EU schemes which provided assistance to private storage, from 2015 public intervention stocks began to grow again. By the end of 2017 public intervention stocks of milk powder had reached a total of 378 051 tonnes, a level of intervention stocks not seen since 1991 (1).
| The Situation of EU Skimmed Milk Powder Intervention Stock Programmes
On 29th January the EU Council set limits on the buying in of skimmed milk powder into stocks at fixed prices at zero tonnes. In the face of public stock holdings which have reached nearly 377,000 tonnes (8), this measures is intended to restore the role of public stock holdings as purely a safety net measure and not have it used as market price support measure. The current level of stocks is seen as ‘risking severe pressure on the market with a negative impact on dairy prices’ (7). While this means skimmed milk powder will no longer be bought in at an automatic price, the EC will continue to buy in skimmed milk powder through a tendering procedure, deciding on a case by case basis how much to buy in and at what price. The period for public intervention buying runs from 1st March to September 30th each year (7). |
The diversion of growing volumes of milk into milk powder production challenged EU dairy companies to find new outlets for milk powders taken into private storage and public intervention. This saw companies investing in the development of new bespoke milk powder products suitable for the exploitation of specific market opportunities beyond the EU’s borders. In terms of trade with ACP countries, most notably in West Africa, this has focused on the production and export of fat filled milk powders.
| What Are Fat Filled Milk Powders
FFMPs are a mix between dairy proteins and vegetable fat (often palm oil) with around 25% protein content. The EU is the major global producer of FFMP accounting for almost two thirds of global production with much of the remainder being produced in Malaysia, to which the EU has greatly expanded its SMP exports in recent years. |
After a slight hiccup in 2016 the expansion of EU exports of fat filled milk powders to West Africa resumed its on-going expansion in 2017. EU export volumes grew 32.7% in 2017, taking the share of West African markets of total EU fat filled milk powder exports to 31%. This expansion in EU exports to West Africa was far stronger than the overall expansion of EU fat filled milk powders exports which increased only a 12.6% (2).
Overall since the EU milk price crisis and the expansion of EU public intervention buying and support to private storage schemes, exports of fat filled milk powders to West Africa increased 275.5% (from 82,256 tonnes to 308,834 tonnes).
The main markets targeted in West Africa were Nigeria (28.6% of EU exports of fat filled milk powders to West Africa); Senegal (23.2%); Mauritania (11.9%); Mali (9.1%), Ivory Coast (6.5%), Ghana (4.2%) and Guinea (3.8%), all of which took more than 10,000 tonnes of EU fat filled milk powder export in 2017. This mean that in 2017 West African markets took 31% of total EU fat filled milk powder exports (2).
The volumes involved in the trade in fat filled milk powders to West Africa has come to overshadow the EU export trade in skimmed milk powder and whole milk powder to the West African region. Whereas between 2008 and 2017 EU skimmed milk powder (SMP) and whole milk powder (WMP) exports to West Africa grew 134.5% and 26.3% respectively, over the same period EU exports of fat filled milk powder increased 275.5%. Whereas in 2008 EU exports of SMP and WMP combined were equivalent to 64.8% of the volume of fat filled milk powder exports, by 2017 they represented only 28% of the volume of fat filled milk powder exports (42,917 tonnes SMP and 44,177 tonnes of WMP compared to 308,834 tonnes of FFMP) (2). Fat filled milk powders exports have thus come to dominate the EU milk powder trade into West Africa
EU Fat Filled Milk Powder exports to West Africa (2008-2017) tonnes
| Annual exports tonnes | % change |
| West Africa | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2016-2017 | 2008-2017 |
| Nigeria | 34,742 | 41,388 | 42,792 | 60,472 | 51,088 | 57,410 | 71,189, | 87,439 | 66,009 | 88,420 | +34.0% | +154.5% |
| Senegal | 13,710 | 5,149 | 16,876 | 25,395 | 34,616 | 37,128 | 43,247 | 40,837 | 55,235 | 71,499 | +29.4% | +421.5% |
| Mauritania | 7,459 | 8,123 | 9,233 | 13,456 | 18,697 | 19,353 | 26,534 | 28,233 | 29,670 | 36,682 | +23.6% | +391.8% |
| Mali | 3,610 | 7,481 | 7,234 | 8,717 | 10,618 | 12,962 | 17,375 | 19,568 | 20,899 | 28,236 | +35.1% | +682.2% |
| Ivory Coa. | 3,528 | 3,952 | 4,065 | 4,405 | 4,758 | 7,259 | 8,725 | 10,206 | 10,441 | 19,931 | +90.9% | +464.9% |
| Ghana | 4,370 | 5,580 | 7,922 | 8,053 | 9,858 | 12,587 | 7,597 | 10,352 | 12,102 | 12,828 | + 6.0% | +193.5% |
| Guinea | 1,557 | 2,187 | 3,517 | 1,748 | 4,345 | 5,030 | 5,283 | 7,174 | 8,343 | 11,710 | +40.4% | 168.0% |
| Togo | 2,964 | 2,348 | 3,512 | 4,757 | 7,167 | 8,429 | 8,267 | 11,156 | 10,564, | 9,990 | – 5.4% | +237.0% |
| Niger | 2,834 | 4,026 | 17,287 | 5,944 | 7,900 | 3,596 | 5,568 | 4,402 | 4,871 | 9,100 | +86.8% | +121.1% |
| Bur. Faso | 1,524 | 1,531 | 1,938 | 3,289 | 2,785 | 4,245 | 4,937 | 5,186 | 4,834 | 6,184 | +27.9% | +305.8% |
| Gambia | 1,643 | 2,000 | 1,777 | 2,835 | 3,168 | 3,636 | 3,330 | 2,692 | 2,460 | 5,106 | +107.6% | 210.8% |
| Benin | 2,101 | 855 | 1,216 | 1,574 | 1,395 | 4,464 | 3,467 | 1,256 | 1,614 | 3,201 | +98.4% | +52.4% |
| Liberia | 858 | 587 | 770 | 2,303 | 2,139 | 882 | 1,322 | 1,459 | 1,645 | 1,858 | +12.9% | +116.6% |
| Cape Ver. | 1,751 | 1,110 | 848 | 880 | 1,888 | 1,739 | 1,324 | 1,455 | 1,679 | 1,630 | -2.9% | -6.9% |
| Guin. Biss | 1,100 | 508 | 2,361 | 1,397 | 1,548 | 1,076 | 682 | 1,381 | 1,356 | 1,523 | +12.3% | +38.5% |
| Sier. Leo. | 505 | 3,459 | 3,189 | 662 | 3,346 | 1,174 | 2,064 | 1,596 | 1,008 | 936 | -7.1% | +85.3% |
| Sub-Total | 82,256 | 90,284 | 116,615 | 145,887 | 165,316 | 178,970 | 209,911 | 234,392 | 232,730 | 308,834 | +32.7% | +275.5% |
| Total EU | 392,426 | 388,548 | 466,345 | 558,387 | 609,109 | 618,885 | 780,514 | 852,311 | 895,698 | 1,008,625 | +12.6% | +157.0% |
| % share | 21% | 23% | 25% | 26% | 27% | 29% | 27% | 28% | 26% | 31% |
Source: EC Market Access Data Base
With the exception of Southern Africa where the low base level of exports inflates the % growth in no other Africa regions has the consistent growth in EU fat filled milk powder exports been comparable to the trend in West Africa. Nevertheless when EU exports of fat filled milk powders to other sub-Saharan African regions are taken into account sub-Saharan African markets were taking fully 40% of EU fat filled milk powder exports in 2017, up from 37.5% in 2016 and only 32.7% in 2008.
Growth Rates in fat filled Milk Powder Exports by African Regions
| Region | Short Term Growth 2016-2017 | Long Term Growth 2008-2017 |
| West African | +32.7% | +275.5% |
| Eastern Africa | -21.6% | +68% |
| Central Africa | +29.5% | +112.3% |
| Southern Africa | -32.6% | +320% |
| Total EU Exports | +12.6% | +157.0% |
Extracted from the EU Market Access Data Base
The importance of the West African market to the EU export trade in fat filled milk powders cannot be divorced from:
- the structure of milk consumption in West Africa, which is dominated by the use of reconstituted milk powders; and
- the patterns of recent EU dairy sector investment, stimulated by pending EU dairy sector reforms.
In this latter regard since 2013 the pan-EU farmer owned dairy company Arla has investing in both by the development of mobile self-contained repacking facilities and subsidiaries and joint ventures across West Africa. These container based mobile self-sufficient repacking facilities are solar powered and can each process 5,000 tonnes of specific blends of milk powder into consumer ready packages which can be reconstituted into liquid milk at the household level. The sachets produced in this type of facility if fully utilised is equivalent to 55,000,000 litres of milk per annum.
The first joint venture in which this technology was deployed was established in Cote d’Ivoire in September 2013 (3), with similar joint venture arrangements being established in Senegal (see epamonitoring.net companion article ‘Arla’s Senegalese milk powder repackaging plant begins operations’, 23 January 2017) and Nigeria in 2015, and most recently, in August 2017 the establishment of an Arla subsidiary in Ghana (see epamonitoring.net companion article ‘Arla Plans Expanded Investment in Production of Milk Powder for Export to Africa’, 1 March 2018).
These joint ventures serve to maximise Arla’s profits from bulk milk powder exports, since Arla shares in the final sale price of the higher value consumer ready milk powder sachets. These consumer ready sachets directly compete with local fresh milk supplies in winning the loyalty of new dairy consumers. Indeed, the taste attributes of these milk powder sachets are such that in urban areas they are increasingly preferred to locally produced fresh or processed liquid milk.
Arla is but one of the EU dairy companies expanding their trading and investment operations in West Africa (6) (for more details see epamonitoring.net companion article ‘EU West Africa Dairy Sector Developments’, 6 July 2017). In October 2013 Danone began the process of acquiring Fan Milk International (FMI) a dairy and fruit juice distribution company with a major distribution network across six West African countries and a reported 85% and 89% respectively of the Nigerian and Ghanaian markets (4).
In September 2014 Friesland Campina acquired Olam International’s dairy business in Côte d’Ivoire, to complement its existing operation in Nigeria (5). While since 2010 Friesland Campina had been supporting a Dairy Development Programme in Nigeria aimed at improving ‘the quality of raw milk obtained from local suppliers’, this programme has achieved disappointing results with the main job creation effects being in the distribution chains (+1,400 jobs) with only limited volumes of milk being sourced from the 2,000 cattle farmers in the programme (see companion epamonitoring.net article ‘Report Paints Grim Picture for Prospects for Integrated Dairy Sector Development in Nigeria’, 12 October 2017).
Underpinning these corporate investments is the expanding trade in fat filled milk powders. This is giving rise to a pattern of dairy sector development in West Africa which is largely disconnected from local milk production. It replicates the pattern established in the poultry sector of meeting expanding African demand through imports from the EU rather than investment in the expansion of domestic production capacities which are integrated with local income and employment generating agricultural production activities.
| Comment and Analysis
While the expansion of EU fat filled milk powder exports helps in meeting rising consumer demand for milk in West Africa, it makes it difficult to develop modern local milk production linked to the expansion of local dairy processing to serve rapidly growing urban dairy markets. In Ghana efforts are underway to stimulate the development of modern feed based dairy farming around major urban centres. This aims to both double milk yields at such modern dairy farming enterprises and expand the overall number of such farms. It is against the background of these efforts that expanding exports of EU fat filled milk powders to West Africa needs to be seen. Since 2008 EU exports of fat filled milk powders to Ghana have almost tripled (from 4,370 tonnes to 18,828 tonnes). Had the milk consumption served by these increased EU exports been met from increased yields and an expansion of modern medium sized dairy enterprises, this would have given rise to some 318 new dairy enterprises with an average herd size of 100 head. This would also have stimulated local feed production and preparation. In this context replacing milk powder repackaging activities with local milk production could increase incomes and create substantial new employment opportunities, not only on 318 new commercial cattle farms which could be established but also along associated supply and distribution chains. This stands in sharp contrast to the 8 jobs created by Arla’s recent investment in Ghana. However this illustration of the foregone potential for employment and income creation through local integrated dairy sector development should not ignore the enormous challenges faced in Ghana and across West Africa in promoting commercially viable milk-to-dairy supply chains. Concerted efforts are needed to address these challenges with no easy solutions in sight. What is clear however is that with EU policies contributing to a sustained depression of global milk powder prices and stimulating corporate research and innovation which is giving rise to the mainstreaming of new innovative milk powder formulas, the task facing West African governments in stimulating the development of commercially viable milk-to-dairy supply chains is being made much more difficult. Potentially of greater concern is the expansion of fat filled milk powder exports to eastern Africa, which doubled between 2008 and 2016 (before declining in 2017). In certain countries of Eastern Africa a large small scale dairy sector exists whose commercial viability could be undermined by any sustained expansion of EU fat filled milk powder exports linked to the global corporate growth strategies of major EU dairy companies such as Danone. There would appear to be a need for closer monitoring of the EU trade in fat filled milk powders, a product not currently covered by the routine reporting of the EU Milk Market Observatory. This would appear to be oversight which should be rectified immediately, given the importance of this EU trade into sub-Saharan Africa. |
Sources:
(1) EC MMO, ‘Intervention Stocks form Skimmed Milk Powder’ 16 March 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/milk/pdf/eu-historical-stocks-series.pdf
(2) EC Market Access Data Base
http://madb.europa.eu/madb/statistical_form.htm
(3) Agritrade, ‘Arla launches turnkey milk powder packaging facility in Côte d’Ivoire’, 26 October 2013
http://agritrade.cta.int/Agriculture/Commodities/Dairy/Arla-launches-turnkey-milk-powder-packaging-facility-in-Cote-d-Ivoire
(4) Agritrade, ‘Danone looking to expand in West Africa’, 18 January 2014
http://agritrade.cta.int/Agriculture/Commodities/Dairy/Danone-looking-to-expand-in-West-Africa
(5) Agritrade, ‘FrieslandCampina to take over Ivorian dairy business’, 6 November 2014
http://agritrade.cta.int/Agriculture/Commodities/Dairy/FrieslandCampina-to-take-over-Ivorian-dairy-business
(6) Agritrade, ‘The evolving EU–Africa dairy trade: EU corporate responses to milk production quota abolition’, 4 September 2014
http://agritrade.cta.int/Agriculture/Commodities/Dairy/The-evolving-EU-Africa-dairy-trade-EU-corporate-responses-to-milk-production-quota-abolition
(7) Dairyreporter.com, ‘European Council modifies Skimmed Milk Powder Intervention rules to help the market’, 29 January 2018
https://www.dairyreporter.com/Article/2018/01/29/European-Council-modifies-Skimmed-Milk-Powder-intervention-rules-to-help-the-market
(8) EC MMO, ‘MILK – MARKET MEASURES’, 23 March 2018
https://ec.europa.eu/agriculture/sites/agriculture/files/market-observatory/milk/pdf/eu-stocks-butter-smp_en.pdf