The Nigerian economy is struggling. Foreign exchange is scarce. The Naira exchanges at about N414 to $1 at the official window and between N535 to N545 to $1 at the parallel market. The prices of staple foods in the market continue to accelerate upwards like a rocket in the sky. The economy needs urgent catalytic actions to reduce the cost and increase the standard of living of Nigerian citizens who daily bear the brunt of miserable economic indices.

One product that adds to the weight of demand on foreign exchange in the Country is milk. The Central Bank of Nigeria (CBN) estimated that $1.5bn was spent importing milk in 2020 to cover the production shortfall of over one billion litres of milk in the Country. The actual milk import bill might be way higher. Many importers of milk are unable to access foreign exchange from the official window because of the restriction in place by the CBN on access to foreign exchange for importation of milk. Waivers were granted to only six dairy companies operating in the Country to access foreign exchange from the official window to import milk. According to data obtained from the Nigeria Customs Service, in the second quarter of 2021 alone, over 40 companies were involved in directly importing milk into Nigeria. Most of those companies would have sourced their foreign exchange from the parallel market and as a consequence, some of those transactions may not get captured on the CBN transaction list.

Nigeria needs to achieve self-sufficiency in milk production and needs this to happen fast. Apart from the pressure on the currency, the loss of the health and nutritional value of milk on the populace must not be ignored. As a result of high exchange rate and inflation, a 160g tin of evaporated milk now sells for between N300 and N500 for the popular brands in the open market. Milk is therefore fast becoming an unaffordable luxury for many Nigerian homes. The population, especially the infant population is thus getting deprived of the value that milk offers with its rich protein and vitamin content.

There are many obstacles on the way to self-sufficiency in milk production in Nigeria. However, some of those obstacles could be eliminated through the implementation of environment-enabling public policies. Public policies, formulated and implemented by the government, are enablers of greater and more constructive private sector participation in economic growth and development. They are crucial in achieving sustainable economic development. According to Stanford University’s Centre on Democracy, Development and the Rule of Law (CDDRL); the performance of the private sector and its role as either a catalyst or an obstacle to economic growth is closely linked to how well or otherwise government policies are conceived, designed and implemented.

How Policies can Stimulate Backward Integration in the Dairy Sector 

Public Policies enable activities to take place within stipulated boundaries, and implementing the right policies can have catalytic effects on investments in an economic sector. For instance, in July 2019, the CBN included milk and dairy products on its list of items not eligible for foreign exchange. In justifying the policy, the CBN stated thus:

“Our focus remains ensuring forex savings, job creation and investments in the local production of milk. For over 60 years, Nigerian children and indeed adults have been made to be heavily dependent on milk imports. The national food security implications of this can easily be imagined, particularly, when it is technically and commercially possible to breed the cows that produce milk in Nigeria.”

Since the policy came into effect, there have been increased activities by players in the milk processing space to source milk locally. Some indigenous dairy companies have empowered and supported smallholder farmers through outgrower schemes from whom they buy milk for processing. Also, some indigenous dairy companies have built milk collection centres in strategic locations to facilitate local milk sourcing for their companies. In the same vein, some multinational companies in the dairy space have invested in local milk sourcing, empowering and supporting smallholder farming households to produce milk for collection. The increasing investment in backward integration has been spurred by the high exchange rate, especially in the parallel market where some of these companies have had to source their foreign exchange from.

This policy intervention by the CBN has had positive effects on investments; though slow and minimal, compared to the rate and proportion of investment required in the dairy sector. But progress, no matter how little, is good and needs to be encouraged and accelerated. For this reason, the recent fiscal policy measures rolled out by the Federal Government of Nigeria through the Federal Ministry of Finance is a welcome development.

In the new fiscal policy measures which went into effect on the 6th of September, 2021, the Federal Government, among other measures, adopted the ECOWAS Common External Tariff (CET) on dairy products which imposes a ten-percent tariff on imported dairy products, as against five percent obtainable previously. The Government also approved zero tariff on machinery and equipment for agriculture and manufacturing. The thrust of this policy is to encourage local production activities and discourage importation. This is very vital for the achievement of self-sufficiency in milk and dairy products.

The government would do well to go a step further to enact and operationalize a national dairy policy (currently undergoing formative action at the Federal Ministry of Agriculture and Rural Development) to provide an all-encompassing regulatory framework for the dairy sector. A progressive initiative such as investing a percentage of the tariff on imported dairy products in local dairy development needs to be adopted and effected quickly to deal with infrastructure issues within the sector. With this, the adopted fiscal policy measures can have catalytic effects on local milk production, collection, processing and distribution.