Federal Government’s decision to reduce tariffs on imported powdered milk from 10 to five percent is a disincentive for investments in the country’s dairy industry. The decision has made imported milk products cheaper, making it more difficult for local manufacturers to compete, experts say.
Data from the Nigerian Customs website shows that imported milk and cream concentrate with code 0402.2100.22 now attracts five percent import duty and a Value Added Tax (VAT) of five percent as against 10 percent duty and five percent VAT recorded some months ago.
Key stakeholders in the dairy industry who spoke with BusinessDay on the recent tariff reduction say it could halt investments in the sector and progress made thus far in increasing local milk production to meet up with domestic consumption.
“The reduction in the tariff from 10 to five percent is a killer decision for a government that is supposed to support investments in the sector. It is a clear indication that the government has no intention to grow the country’s dairy industry,” Muhammadu Abubakar, managing director, L &Z Integrated Farms Limited told BusinessDay.
“This means that all the potential investments in the industry will begin to die a natural death because it will be more difficult to compete now. The decision is a disincentive for investment in the sector.”
Abubakar explained that it costs an average of N300 to produce a litre of milk in Nigeria as against imported powdered milk which is about N130 per litre even with the 10 percent duty.
“Now with the tariffs lowered to five percent it is going to cost less than N100. How do local processors compete with producing a litre of milk at over N300?” he asked.
He said the government decision has sent a conflicting signal to the dairy industry as a lot of operators had begun making investments in the sector, thinking that the government is going to hike the tariffs on all imported dairy products, but instead the government has reduced the tariffs.
Data from the National Bureau of Statistics (NBS) show N59 billion worth of powdered milk were imported into the country from January through September 2017.
An August 2014 report by Agusto & Co. notes that the dairy sector was the second largest segment in the food and beverage industry (behind poultry) in the country, with estimated revenue of N347 billion in 2013, and compounded annual growth rate (CAGR) of eight percent over the last three years. The sector leads the food, beverage and tobacco sector, say analysts.
Nigeria’s dairy industry comprises milk, cheese, yoghurt, ice-cream, butter and infant formula. The report by Agusto & Co. says that the milk segment remains the largest in the industry, accounting for an estimated 61 percent of the industry’s turnover.
“It was a surprise to us in the industry when the tariffs were lowered from 10 to five percent because it does not help the local dairy industry and it also runs counter to the government’s stated efforts to support the sector and create economic environment for pastoralists to settle down and create a market for their milk,” Mezuo Nwuneli, managing partner, Sahel Capital Agribusiness Managers Limited, said in a response to questions.
Nigeria’s national dairy output per annum is 700, 000 metric tons while the national demand is put at 1.3 million metric tons annually, leaving a gap of 600,000MT, according to the Federal Ministry of Agriculture.
Players in the industry say that the tariff reduction could also intensify the clashes between farmers and herdsmen in the country, saying that it will become difficult for pastoralists to settle down as the market to sell their milk would become less attractive.
“We have to brace up for more herdsmen and farmers conflicts because the solution to the crisis involves an economic solution and the economic solution is creating market for the local milk producers which constitutes mainly the herdsmen,” Abubakar said.
What industry players expected was that the government would support the sector to bridge the infrastructural gaps in the sector that has led to a cost of production.
“Infrastructure in the dairy industry currently is zero and we cannot grow the industry without it. This is what the government is supposed to focus on and not cutting down tariffs,” Abubakar said.
Meanwhile, the Senate has condemned the reduction of import duty on powdered milk by the Federal Government from 10 to five percent.
The Senate therefore mandated its committees on Agriculture; Finance; and Customs, Excise and Tariff to investigate the ministries, departments and agencies involved in the downward review.
Lawmakers took the resolution on Wednesday following a motion moved by Sabo Mohammed (APC, Jigawa State).
Sabo, who spoke on the motion, titled ‘Urgent Need to Halt the Implementation of a New Import Duty Tariff on Powdered Milk Imported into the Country,’ wondered how the economic diversification efforts by the government could succeed if its policies were not favourable to the agricultural sector.
The Senate unanimously granted prayers of the motion to “call on the Federal Government to suspend the new tariff policy and mandate the Senate Committees on Agriculture, Finance, and Customs to invite the MDAs and all relevant stakeholders in the industry to investigate and provide a lasting solution to this important issue.”
Seconding the motion, Adamu Aliero pointed out that the motion was to protect the local industries and farmers.
He said, “Perhaps, Nigeria is the only country where this kind of recklessness is allowed. What you can produce, you stop producing it and start importing it. You lay off thousands, perhaps millions of workers, deprive yourself of foreign exchange that you should have earned by promoting what you can produce locally and export the excess.”
Also, Senate spokesperson, Aliyu Sabi Abdullahi, alleged that the current administration had committed errors through its policies.
He said: “I recall that in this chamber we were worried and concerned about the flip-flop in the policies by the Federal Government. A situation where we are setting performance targets; where we are saying we want to reduce importation and be consuming what we produce and produce what we consume, I think it is counter-productive for us to now encourage massive importation of powdered milk.
“Apart from the fact that it will affect the efforts being made to develop the dairy sector, there is also the issue of the health implications because some of these powdered milk are stored for a long period and expired by the time they are brought here.
“Let us use this opportunity to look at the issue of policy summersault. I think we have had so many policy summersaults – too much to make progress in this country.”
In his remarks, Senate President Bukola Saraki, expressed concern over the policy summersault of the present administration.
“The summersault of some of these policies and their inconsistence need to be addressed. The key issue is that we must ensure that we create an enabling environment for the agricultural sector to succeed, particularly now that we are looking at the issue of the clashes between herdsmen.
“When I was chairman of a technical committee on this, we tried to increase it (the tariff) then from 10 per cent to 15 per cent. So, it comes as a shock that instead of going up, we are going down.
“I remember that then as chairman of the committee, all these foreign importers were lobbying us to suspend it. So, I know that this downward review of the tariff was due to lobbying. There is no other thing. It does not make sense. Some people would have gone to (Ministry of) Finance and the Customs and lobby this nonsense. I don’t know why we do things like this.”
“We can only compete with the imported milk producers when the enabling environment to drive down production cost is provided. All we ask is a level playing field.”
Nigeria imports over 95 percent of finished and raw milk. FrieslandCampina WAMCO is currently sourcing a little of its raw milk from herdsmen in Oyo State. Sources close to the multinational say this could be a hit on its margins.
IIan Bones, manager, Milky-Way Farms said “the problem we have in the sector is not the production but the harnessing of the milk and getting it at a right quality to the processing centres.”
“Investors would only make an investment decision when there is a guarantee on investments which the recent reduction of tariffs does not provide,” Bones said.
Josephine Okojie & OWEDE AGBAJILEKE, Abuja
