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Analysis: Despite forex restriction on milk importation, Nigeria’s apex bank still fund dairy imports
PUBLIC outcry and criticism greeted the supposed ban of the importation of dairies in Nigeria by the Central Bank of Nigeria in July, and the apex bank speedily debunked the news clarifying it did not stop the importation of milk in the country but only restricted the sale of forex for its importation from the Nigerian foreign exchange market.
The bank claimed that the ban on forex is another strategy towards the actualisation of national food security while ensuring forex savings, job creation and investments in the local production of milk.
Noteworthy, Nigeria relies on imports for most of what its estimated 198 million population consumes.
Currently, data from the Food and Agriculture Organisation revealed that cattle milk production in the country amounts to 585 000 tonnes of milk per year, which covers 40 per cent of the milk population demand while 60 per cent of the milk consumed is imported to satisfy the demand of about 1.3 billion tonnes of milk required annually.
According to the CBN governor, Godwin Emefiele, Nigeria spends up to $1.2 billion to $1.5 billion annually on the importation of milk alone —the amount calculable based on the amount of forex the apex bank offers milk importers.
Although, the CBN has clarified that it has no power to declare an absolute ban on milk imports, the current denial of forex to importers by the apex bank has not only caused the price of this commodity to rise in the market but have also facilitated the continuous importation of milk.
How CBN still sponsors milk Importation
On the directive of the CBN, the Deposit Money Banks running the interface between importers and the Nigeria Stock Exchange do not furnish the dealers with forex required for importation of dairy products. This means that the cost of milk imports would for dealers increase, unlike what is obtainable in the past when they can approach the DMB’s for forex.
Consequently, this service which was initially the sole preserve of the CBN could now be rendered by Bureau d’ Change agencies.
One dollar is traded at the price of N306 by the CBN. While BDC who is funded by the CBN sells at N360 per dollar– parallel market price.
At this market price, importers hence would have no other option but to consequently hike the price of milk or dairy products in the market to cover their cost.
Therefore, although the CBN set out to ban the forex, it indirectly is still enabling the importation of milk by making forex available to milk importers through BDC at a higher cost.
The only difference is the channel of forex accessibility for milk importers which would lead to obvious increase in the market price of milk.
Whose side is the ban on?
In 2016, the Federal Government of Nigeria approved the Fiscal Policy approved the implementation of the Supplementary Protection Measures and the Economic Commission of West African States (ECOWAS), Common External Tariff.
One major attribute of this move was to initiate a reduction of import duty tariff on milk imports initially at 10 per cent to five per cent.
Although the demand for dairy products is expected to rise considering Nigeria’s population growth, particularly among children and young people according to Euromonitor International, an independent global market research company that provides strategic research services for the consumer markets.
However, Nigeria having a huge human resources of over 190 million persons of which almost half the entire population–46 per cent are currently under the age of 15, overtook India in 2018 to become the poverty capital of the world with 87 million– having over 23 million children–living below the poverty line of $1 and 90 cents per day.
With the low tariff and the restriction of forex on the importation of milk, importers who are able to source forex for their business through the BDC would still be able to import milk at a low tariff rate and sell at a high market price in Nigeria.
This implies that low-income earners or those below the poverty line- over 91 million persons– would be saddled with the burden of paying higher to purchase milk.