CBN’s waiver on milk imports to ease pressure on food inflation

Tellimer’s equity research analyst, Nkemdilim Nwadialor, has said that the Central Bank of Nigeria’s waiver on milk imports would ease pressure on food inflation.

The firm’s equity research analysts, Nwadiolor, revealed this in a note on implication of CBN waiver on milk imports.

Recall that the CBN recently exempted six companies from the restrictions to import milk, its derivatives and dairy products.

The companies which are Chi Ltd, FrieslandCampina WAMCO Nigeria, Integrated Dairies, Nestle Nigeria, Promasidor Nigeria and TG Arla Dairy Products manufacture milk for consumers.

The CBN remarked that the six companies had showed willingness to participate in its backward integration programme aimed at scaling up capacity to improve local milk production.

The waiver follows the Bank decision in July 2019 to restrict access to FX for milk imports, on the pretext that it would result in FX savings and that Nigeria could considerably ramp up its milk production within 12 months.

Tellimer’s analyst is of the view that the latest measure is expected to increase local milk production by about 50,000 metric tonnes within the next 12 months.

Nwadiolor added that it will ease pressure on the prices of domestic dairy products, which have been rising.

“Over the past few months, milk and dairy products have been key drivers behind the acceleration of food price inflation, which came in at 14.7% in December, against an 11.9% core inflation figure”, Nwadiolor added.

She said Nigeria boasts about 19.5 million cattle, of which 85% are owned and managed by nomadic herdsmen, leaving 15% to medium- and large-scale farmers.

“The country’s milk production is estimated at 600,000 metric tonnes, accounting for 13% of West Africa’s total production, as compared with demand, which is estimated at 1.3 million metric tonnes.

“This is a sizeable shortfall; hence imports cost about US$1.2 billion-1.5 billion annually”, she held.

In her note, she held that the ability of local cattle to produce milk is undermined by the long distances they travel for grazing.

She took this position having observed that this as being the characteristic of Nigeria’s nomadic herders- and the inadequate supply of feed and water, among other factors.

She said all of these result in lower returns, creating a disincentive for local milk manufacturers and reducing the activity’s commercial viability.

More recently, the conflict between herders and farmers over encroachment on land used for crop farming has deterred local producers from pursuing backward integration, Tellimer’s research analysts added.

Positive for the six firms

Tellimer’s analysts note held that for the individual companies, the waiver is a positive one.

“The recent policies around the FX ban on milk importation, the border closure and the newly implemented higher VAT rates have all exerted upward pressure on inflation.

“This has in turn resulting in the erosion of consumer purchasing power and earnings taking a hit”, Nwadiolor highlighted.

She said: “apart from these six players, there are other participants looking to boost local production of milk and other dairy products”.

They include L&Z Integrated Farms, a Kano-based dairy farming firm with capacity of 24,000 litres of milk daily which is about 8.7 metric tonnes per year.

“However, we believe the sector still requires sizeable capital expenditure and that the government can encourage this by complementing the efforts of the CBN through improving access to pasture and water, and improving critical infrastructure.

“These include feeder roads, milk collection centres, cargo trains, etc. to encourage investment.

“More importantly, the government needs to establish a framework to resolve the long-standing herder-farmer conflict to enable local producers to increase production and create an incentive for the backward integration objective”, She added.

CBN’s waiver on milk imports to ease pressure on food inflation

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