The Nigerian Dairy Industry and its Diverse Investment Offerings

12 October 2022 / By codaran

It will be recalled that following the huge successes recorded in the rice, cotton, cassava and tomato value chains under the Anchor Borrowers' Programme (ABP), the Central Bank of Nigeria (CBN) had announced an impending investment in milk production due to the high cost of importing dairy products amounting to $1.5 billion and had called on investors to take advantage of low-interest loans in exploring the abundant potentials of the industry” Ruqqyyah Mohammed, CBN Update Vol. 2, February 2020.

An endeavour which attracts such huge spending in imports as highlighted by the above quote from the Central Bank of Nigeria (CBN), must be a very lucrative one. This clearly supports the evidence on ground that the Nigerian Dairy Industry is a vast ‘goldmine’ harbouring various money-making opportunities for investors across its value chain. For instance, in 2020, New Zealand alone earned over N65bn exporting milk products to Nigeria. Other countries such as Germany, Ireland, and the Netherlands also earned billions of Naira selling milk products to Nigerian companies in a year that economic activities declined worldwide as a result of the devastating effects of enforced lockdowns due to the COVID-19 pandemic.

Source: Nigeria Customs Service (NCS)

The reality, glaring as daylight is that with targeted investments and reforms in the industry, the huge foreign exchange leaving the coffers of Nigeria to those countries to purchase dairy products can be earned by individuals and corporations operating here. This is because Nigeria is a large market, and many investors understand this. The demand for milk and milk products in Nigeria is huge and far outweighs the supply from the local industry at the moment.

Nevertheless, the local industry does have the capacity to meet local demand with tons more to export. Anytime the dairy industry is mentioned, the conversation usually gets centered around the production side of the value chain and understandably so. Milk production in Nigeria is mostly done from cattle, and issues surrounding cattle rearing and pasture sourcing have continued to dominate national discourse. This is because of the negative security dimensions of the farmers-herders clashes which currently threaten the peace in many parts of the Country.  

Beyond the vast opportunities in production, it is important that local investors and policymakers take a closer look at the various investment offerings and potentials within the other largely under-tapped areas of the dairy value chain. After a cow is milked, the product is collected and aggregated in commercial quantity and transported to local markets for sale or taken for further processing into the various derivatives. But low investment in the area of milk aggregation has led to huge wastages and losses to the industry.

Due to the domination of the local industry by subsistent farming households, a significant quantity of milk collected is either consumed by producing families or traded locally within producing communities (FAO, 2016). The volumes that make it to formal channels through corporate commercial dairy farms and private milk collection cooperative schemes (FAO, 2016), are unfortunately grossly inadequate to serve the needs of the market. So, there is an opportunity there for investors to set up commercial aggregation systems using modern milk collection techniques to harness the vast milk production potential that currently exists in Nigeria’s dairy industry. Capital investment in automated milk extractors to replace the labour-intensive hand milking practice that is popular among the smallholder farmers and the investment in milk collection infrastructure are necessary on large scale.

Furthermore, with aggregation comes the need for storage. Raw milk gets sour very quickly and storing large quantities in the right temperatures in cold stores or blast freezers which keep the milk in the right state pending processing, requires investment. This is another area that holds huge investment potential in Nigeria. The logistics of transporting milk from milk parlours or collection centres to processing facilities through cooling vans hold huge opportunities too. Even more, opportunities exist in the training of farmers and extension services, needed across the dairy value chain.

But make no mistake, the dairy industry is rife with challenges and any investor conversant with the business environment in Nigeria knows this deeply. There are systemic failures in infrastructure like bad roads, especially in rural communities, lack of electricity, and lack of healthy water sources. There is also the “elephant in the room” – insecurity. Moving around by road between states in Nigeria is becoming a real threat to individuals and businesses owing to armed robbery attacks and kidnappings recurring on highways at an alarming rate. Some rural communities, especially in northern Nigeria are barely accessible because of the activities of bandits and terrorist groups. Other economic factors such as local currency depreciation, high inflation rate and port inefficiencies make importation and maintenance of dairy business equipment less attractive.

The government at all levels need to step up efforts to provide comprehensive ecosystem solutions and create an enabling environment for investors in the sector to reap sufficient returns on their investments. By adopting ecosystem solutions, the government should be deliberate about implementing end-to-end reforms and interventions across the dairy value chain. The deliberate government interventions in the Indian Dairy Industry over time have seen India grow into the ‘Milk Capital of the World.” There are many lessons for Nigeria’s policymakers to learn from the Indian Dairy Industry Model.

The Commercial Dairy Ranchers Association of Nigeria (CODARAN) is well-positioned as an industry association to recommend and support the government on initiatives aimed at the transformation of the Nigerian Dairy Industry and to support dairy businesses to grow. Our goal is to see a steady reduction in the importation of dairy products to Nigeria and more individuals and organisations building successful businesses in the sector; until Nigeria ultimately achieves self-sufficiency in dairy products while earning foreign exchange in exports.

References FAO. 2016: Review of the Livestock/Meat and Milk Value Chains and Policy Influencing Them in Nigeria

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