OPS Kick Against CBN Lifting of Ban on Dairy Products

• Warns it could result in decline of local production within the country.

The organised private sector |(OPS) has kicked against the lifting of the foreign exchange restrictions the Central Bank of Nigeria, (CBN) placed on the importation of milk and dairy products, warning that it could result in the decline of local production within the country.

Speaking on this development, the National President, Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, (NACCIMA) Dele Oye, expressed concerns regarding the potential ramifications of the suspension of the restriction, especially against the backdrop of the naira’s current depreciation and the inconsistencies observed in Customs duty payment.

Oye said, “The depreciation of the naira has already placed a significant burden on importers, with the increased cost of foreign exchange reflecting on the final prices of goods and services. The recent policy shift, while potentially increasing competition and broadening market access, could also exacerbate this burden, leading to higher retail prices for milk and dairy products, ultimately affecting the end consumers.

“In addition, inconsistent Customs duty payments have been a significant challenge for businesses in Nigeria. This inconsistency not only hampers the ease of doing business but also creates an unpredictable trading environment. A policy change of this magnitude requires a concomitant strengthening of customs regulations to ensure that all stakeholders are on a level playing field.

“We recommend a phased approach that would allow domestic producers to adjust to the new competitive landscape while preserving the value of the Naira. This approach should be coupled with a robust support system for local dairy farmers to boost domestic production, thereby reducing over-reliance on imports in the long term. Additionally, harmonising customs duty payments to eliminate disparities and foster transparency will be critical to ensuring the success of this policy.”

Oye opined that the ban lift would restrict local production as the local producers would be unable to compete with the foreign producers because of the instability in the current fiscal regime, describing that a more sustainable approach would have been better.

According to him,  “The Central Bank of Nigeria did not do stakeholders meetings with the local producers to find out what the issues are. Even if they want to import, why didn’t they empower the local ones?

“While we recognise the merits of liberalising the dairy importation process, we strongly advocate for measures that safeguard the stability of our national currency and promote fair trade practices. We are keen to engage with the Central Bank of Nigeria and other stakeholders in crafting a sustainable path forward that benefits the Nigerian economy and its populace.”

In the same vein, the Chief Economist of SPM Professionals, Paul Alaje, explained that the development meant that operators within the sector would have access to official windows, a situation that might boost supply, “but this would also kill local producers.”

Alaje said, “Naira is always susceptible to devaluation, in recent history, for 38 years, naira has continued to suffer a lot of blows from devaluation. If the market is open without building a local supply side, we would see a huge shortage, and we are also destabilising our local producers.

“What this means is that it will induce local unemployment and hurt pricing in the medium term. On the other hand, we need to check over the years economic history and the consumption pattern, when we open up the market without developing local producers, if we do not enhance their output to grow, what we have seen over the years is that manufacturers would close their shops.

He pointed out that the CBN is seeking to allow forces of demand and supply to adjudicate prices, hoping that in the long run, the country would be okay.

The Chief Economist of SPM Professionals stated “However, the answer non-classical economic school provides is that when exactly is the long run? I can tell you that it depends; it does not exist in the real sense.”

A professor of Economics and Public Policy at the University of Uyo, Akwa Ibom State, Akpan Ekpo, while acknowledging Alaje remarks, however noted that while the ban might yield short-term benefits, it might not be advisable in the long run.

According to Ekpo “The ban lift will affect domestic production of dairy products, so those who produce locally will no longer have the incentive to produce. The best approach would have been to encourage local production rather than lifting the ban for imports to come in.”

On his part, an economist at Nigerian Economic Summit Group, (NESG) Dr Ikenna Nwaosu, said the government needed a holistic plan to address the issue.

Nwaosu  emphasized that “The government should emulate the holistic approach taken in the construction industry by convening a meeting with investors in locally made production to ascertain their projected timelines for meeting national demands.

“By gathering this information, the government can develop a phased plan for lifting import bans, ensuring a smooth transition that allows businesses to plan effectively. If local producers estimate they can meet national production levels within five years, the government can consider lifting the ban, thereby supporting local production while ensuring a steady supply chain.

“The government must have concrete proof from the local manufacturers that they can meet the national demand in five years.”

Segun Ajayi-kadir, mni Director General, Manufacturers Association of Nigeria (MAN) noted that the decision might lead to the downsizing of staff of affected manufacturing companies while also cutting down on the contribution of the manufacturing sector of the economy to the country’s gross domestic product (GDP).

“It is a fact that backward integration is the way to grow an economy, but there is a need to be strategic and deliberate about the way to implement the measure,” he said.

The Managing Director, Cowry Asset Management Limited, Johnson Chukwu, explained that the restriction removal was a temporary measure to address the food shortage in the country, adding “The ban lift is not so much of a tool to fight inflation but just to fill the gap in the supply situation of the country.”

Recall that the Central Bank of Nigeria recently lifted restrictions on the importation of milk and dairy products as seen in a recent circular, Ref number ted/fem/pub/fpc/001/010, dated March 12, 2024, addressed to the banks.

“Please be informed that the Central Bank of Nigeria, through its circular, Ref noted/fem/pub/fpc/001/010 dated March 12, 2024, has provided an update on eligible items for foreign exchange (non-valid for FX).

“In light of the foregoing, please note that the restriction of FX for the importation of dairy products and its derivatives, to all entities except selected companies has been lifted. Also, note that any entity that meets the necessary extant regulation requirements is allowed to source for FX at the Nigerian Autonomous Foreign Exchange Market for transactions related to milk and dairy products,” the circular read.

In February 2020, the CBN restricted foreign exchange allocation for milk importation exclusively to six designated companies within Nigeria.

The companies listed by CBN included Nestle, FrieslandCampina WAPCO Nigeria, Chi Limited, TG Arla Dairy Product Limited, Promasidor Nigeria, Nestle Nigeria, and Integrated Dairies Limited. The CBN hinted that the initiative aimed to stimulate domestic milk production.

The new circular provides an update on eligible items for foreign exchange, stating that the previous restriction on FX for the importation of dairy products and its derivatives has been lifted for all entities, except selected companies.

This decision marks a critical shift in Nigeria’s trade policy, allowing any entity that meets the necessary extant regulation requirements to source for FX at the Nigerian Autonomous Foreign Exchange Market for transactions related to milk and dairy products.

The lifting of these restrictions, according to the apex bank is expected to have significant implications for the dairy industry, potentially leading to increased competition, improved availability of dairy products, and enhanced market access for a broader range of businesses.

Nigeria spends about $1.5bn importing dairy products annually, according to a report by the CBN.