The policy is likely to prove ineffective unless accompanied by steps to improve domestic agriculture.
Six companies are exempt because, the central bank says, because they are supportive of the policy of “backward integration” to raise Nigerian milk output.
The restrictions are “misguided”, argues Ebenezer Seun, private wealth executive at Barino Investments in Lagos. “The government is restricting imports to incentivise backward integration when the local capacity is very low and the infrastructure behind it has not been developed yet.”
That development can’t be achieved quickly, and in the meantime, there will be an effective oligopoly of milk products, which will mean higher prices and worsening infant malnutrition, Seun says.
Increased prices for rice after foreign currency for imports was banned in 2015 prove the point, Seun says.
- “Limiting imported food supply cannot magically make local supply increase in a situation of ineffectual policy and a harsh operating environment.”
- The new restrictions will give authorized milk importers the opportunity to increase prices, while unauthorized importers will source more expensive currency on the parallel market, increasing final consumer prices, Seun says.
This policy can be effective if other factors like the ease of doing business and infrastructure deficiencies are taken into consideration, says Moses Ojo, chief economist at PanAfrican Capital Holdings in Lagos. He expects that a significant increase in the local production of dairy products will contribute to a decline in inflation in the medium term.
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Nigeria targets raising its milk production by 10% to 550,000 tonnes in the next 12 months.
The main problem in doing so, Ojo says, is the low yield of Nigerian cows, linked to genetic composition and feeding practices. The target can be met if those issues are addressed, he says.
Conflicts between farmers and herders in northern and central Nigeria limit productivity. Limiting foreign reserves for milk imports does not address that fundamental issue, Ojo says.
- One source of the conflict is the effect of global warming on northern grazing reserves, which has resulted in desertification and pushed pastoralists southwards.
- “A sustainable solution has to be provided for the scourge of desertification,” Ojo says. This, he argues, should include efforts to persuade herders to embrace ranching rather than the current nomadic system of cattle rearing.
Seun at Barino Investments says that effective land rights and identity systems are part of the solution.
- “If livestock were tagged properly and ownership can be easily tracked, instances of cattle rustling would easily be reduced.”
- Identity systems might also prevent blind reprisal attacks based on ethnicity, he says. Perpetrators could be identified and prosecuted, so ending a recurring cycle of violence based on vague ideas about the identities of attackers.
- Defined land rights would allow collective purchase of land for ranches, providing a path out of the nomadic system, he says.
Bottom Line: Limiting currency for milk imports will do little to raise domestic production unless accompanied by reforms to raise cattle yields through ranch-based farming.
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