FX Restriction On Food Import May Raise Inflation Rate In Q4 2019

Proshare - Facebook Proshare - Twitter Proshare - Linked In Proshare - WhatsApp

Tuesday, September 24, 2019 / 06.00AM / Teslim Shitta-Bey, Managing Editor/Header Image Credit: EcoGraphics

Falling inflation rate (currently at 11.02% in August 2019) may see a reversal in coming months as the Central Bank of Nigeria's (CBN's) restriction on foreign exchange (FX) for food imports begins to bite. Proshare's analysis suggests that the critical problem in the domestic food value chain is not importation but an urgent need to redesign the government's policy framework for building the domestic agricultural value chain in line with best global practices. The report notes that if the government insists on the FX restriction on food imports domestic food inflation will rise steadily over the next few months thereby reversing its recent Y-o-Y downward trend.

The report looks at the restriction on the use of official foreign exchange sources for the import of milk products and notes that the monetary authorities will need to shift focus from saving an estimated $1.2bn per annum on milk import to building a cattle value chain that generates more income in both domestic and foreign revenues. The problem is that value chain growth and diversification is a fiscal and not monetary responsibility.

The report lists the major beneficiaries of the measure and identifies those that may likely suffer from the measures, some economic agents actually gain with one hand and lose with the other.


Proshare Nigeria Pvt. Ltd.


Cattle, Not Milk

Furthermore, the report observes that cattle rather than milk production chains offer larger business propositions and could provide more jobs for youths in areas ranging from the planting of Napier grass to the production of glues, oleo used in margarine, bone China, fertilizer from cow dung and gelatin used in ice creams and canned meat products (see illustration 1 below) 

Proshare Nigeria Pvt. Ltd.

A full cattle processing production system would genuinely diversify animal husbandry in the country while equally supporting other industries that would in turn employ more labour (Nigeria's unemployment rate was 23.01%, Q3 2018). The Central Bank of Nigeria's argument that the restriction of milk importers access to banking sources of foreign exchange was to conserve foreign exchange and encourage local milk production is difficult to sustain. The numbers do not add up.


Proshare Nigeria Pvt. Ltd.


Low Milk Consumption

Nigeria is a low milk consumption economy with the country consuming an annual per capita litre of milk of 1o litres compared to the African average of 28 litres, and the global average of 40 litres per person. Nigeria's domestic production of milk is 34% of its total domestic demand, suggesting that the country has to import 66% of its annual milk intake of 1.7m litres. The demand and supply gap are significant but not overwhelming when juxtaposed against the average consumption levels on the continent and in the world. However, through a multi-year milk acceleration tariff plan (MATP), the government can encourage importers to increase domestic production capacity over a period of three years without causing a major disruption of the present milk supply chain.


Furthermore, analysts have noted that Nigerians prefer to consume evaporated milk rather than 'fresh' milk, meaning that for producers of milk to sell the required minimum volumes to achieve breakeven sales quantity, the milk needs to be evaporated/pasteurized. The local value chain as presently configured cannot accommodate the varied quality of milk produced by a motley number of pastoralist producers selling to two or three large milk companies (see Chart 1 below on comparative consumption milk in Nigeria, Africa and Asia and illustration 2 on Nigeria's domestic milk value chain).


Chart 1 Average Milk Consumption in Nigeria 2016 (litres/capita)

Proshare Nigeria Pvt. Ltd.

Source: PwC, Proshare research 

Proshare Nigeria Pvt. Ltd.

CBN's Milk Worries

The CBN's concerns about domestic milk production appear valid, but only within the broader context of a cattle production value chain rather than a domestic dairy production template. The importance of the CBN's desire to see more organized and strategically designed cattle production by far outstrips its concerns over milk production. The foreign exchange savings argument for the restriction to the official foreign exchange market by local milk manufacturers is less powerful than the argument that Nigeria can within a short period propel itself to the position of Africa's largest producer of sundry cattle products. The large value chain from cattle can serve as a major foreign exchange earner and employ a vast number of youths. The problem, however, is that the matter is less an issue of monetary policy than of fiscal and budgetary management.


Proshare Nigeria Pvt. Ltd.


Strategy Not Politics

Proshare's report observes that the search for food sustainability may need to start in less obvious directions. The animal husbandry business is going through a strategic shift as global vegan diets become ascendant. One of the reasons for this development is that cattle and other farm animals take up 80% of land and contribute only 18% of human protein intake. A lot more protein can be obtained from less use of land by resorting to veggie diets. If the conversion from meat to vegetables persists, the price of beef will fall and cattle herders will, going forward, need to rethink the economics of their business.

The domestic Nigerian meat market will become just as wretched as the global beef bazaar if the fiscal authorities do not reconsider the present and reimagine the future of a potential cow economy.


Download Full FX Restriction on Food Import Gamble: Working From A New Play Book PDF Report Here


Proshare Nigeria Pvt. Ltd.

Proshare Reports/Articles On FX and Forex Utilisation

1.      FX Unification in Nigeria: Simple Thoughts, Tougher Mission - Sep 23, 2019

2.     Stabilization Mechanism: Sticking Half Way through the Line - Aug 24, 2018

3.     Remittances: A Smoothening Agent - May 17, 2018

4.     The Nigeria and China Currency Swap: How Much Room? - May 04, 2018

5.     The Street's Response to the CBN - The Tale of Contradictions - Mar 01, 2017

6.     The Nigerian Forex Situation - Aug 04, 2016

7.     What Banks Used 36.82% of FX allotted for between Jan 2013 to May 2015 - Jan 18, 2016

8.     Manufacturing Sector spent $7.47b (8.61%) of FX between Jan 2013 - May 2015 - Jan 18, 2016

9.     Forex: $1.42m was spent on health related service btw Jan 2013 to May 2015 - Jan 18, 2016

10.  Top 10 Sub-Sectors with Highest FX Utilisation between Jan 2014 and May 2015 - Jan 18, 2016

11.   How Much FX was spent on Telecoms/Technology Related Items (2013 - H1 2015) - Jan 17, 2016

12.  FX Utilisation in Nigeria - Jan 2013 to May 2015: Exclusive Details – Jan 12, 2016



Proshare Nigeria Pvt. Ltd.


Related News On FX Restrictions On 41 Items

13.  Emefiele Lists Gains of FX Restriction on 41 Items; Outlines Projections for 2018 - Nov 12, 2017

14.  CBN Orders BDCs to Honour Letter of Credit Established Prior to Jun 23rd for 41 Items Ban for FOREX - Oct 23, 2015

15.   CBN's 41 'Not Valid for FOREX' Items & Their Sectoral Impacts - Jul 22, 2015

16.   CBN Limits BDCs cash Purchase to $5,000; Stop Wire Transfer of Funds - Jul 02, 2015

17.  CBN Warns Authorized Dealers Against Funding Items Classified as "Not Valid for Forex" -  Jul 01, 2015

18.  CBN Includes Furnitures in Imported Goods and Services Classified as Invalid for Nigerian Forex Market - Jun 24, 2015 


Related News On IEFX Window

19.  Large FX Inflow At IEFX Window Through FPIs In The Fixed Income Market - Mar 06, 2019

20. The IFEX Window Now a Major Indicator of Value? - Sep 07, 2017

21.  Foreign Investors Boost Foreign Exchange Supply - Sep 06, 2017

22. Further Liberalization of the Inter-Bank Foreign Exchange (FX) Market -Jun 06, 2017

23. The New 'Investors and Exporters Window' Framework - Another Step to Improving Liquidity - Apr 24, 2017

24. CBN Announces the Establishment of Investors' & Exporters' FX Window - Apr 21, 2017


Related News On CBN's Managed Float Exchange Rate System

25. The Nigerian OTC FX Futures Market…A Panacea for the FX Needs of Corporates in Nigeria - Jun 20, 2016

26. The Floating Exchange Rate and You - FDC - Jun 21, 2016

27. The Nigerian Spot FX Two-Way Quote Market Goes Live Post Revised CBN Guidelines Release -  Jun 20, 2016

28. Nigeria's new FX policy - Implication & Impact @Friday - Jun 18, 2016

29. BREAKING: Window for FXPMD has been Thrown Open to every Deposit Money Bank - Jun 18, 2016

30. New FX Policy: The CBN Segregates Banks… Who's in, Who's out? - Jun 18, 2016

31.  Wisdom Nuggets - Rescuing and Defending the Naira - Jun 17, 2016

32. Impact of a Unified Exchange Rate and Assessment of Playing Field - Jun 17, 2016

33. Flexible Exchange Rate: The Bitter Pill - Jun 17, 2016

34. Guidelines for Primary Dealership in Foreign Exchange Products - Jun 16, 2016

35. How the CBN Naira-Settled OTC FX Futures Market Will Work - Jun 16, 2016

36. Exchange-rate flexibility beyond expectation - Jun 16, 2016

37. The new fully Floated FX Market - In a Nutshell - Jun 16, 2016

38. Implications for Markets as the CBN finally floats the Naira - Jun 16, 2016

39. The Nigerian Managed Float Exchange Rate System - Jun 15, 2016

40. Revised Guidelines for the Operation of the Nigerian Inter-Bank Foreign Exchange Market - Jun 15, 2016

41.  At last Nigeria to adopt flexible exchange rate - May 25, 2016



Related News FX Restrictions on Food Imports

42. Regulatory Conversations 4.0: Forex Restrictions on Food Imports and Implications For The Economy - Sep 13, 2019

43. FX Restrictions on Food Imports: Experts, Economists Share Their Perspective - Aug 27, 2019

44. CBN To Expand List Of FX Restrictions On Imported Items -Aug 20, 2019

45. Letter To Financial Times Editor: Muhammadu Buhari Sparks Dismay Over Policy Shift On Food Imports - Aug 19, 2019

46. 10 Reasons President Buhari Should Reconsider His Directive To Stop Allocating FX For Food Imports - Aug 15, 2019

47. President Buhari Directs CBN To Stop Providing Forex For Food Importation To Nigeria - Aug 14, 2019


Related News FX Restrictions on Textile Materials

48. Import Substitution - CBN Bans FX Sale To Textile Importers - Mar 06, 2019

49. CBN Places Access to FX for All Forms of Textile Materials on the FX Restriction List - Mar 05, 2019

Proshare Nigeria Pvt. Ltd.


50. Who Manages the Forex Market? - Mar 04, 2019

51.  Nigeria's Central Bank Adds Fertilizer To Its List of Imports Items Classified as Not Valid For FX - Dec 11, 2018

52. CBN Introduces Special Intervention Of FOREX Cash Sales To BDC Operators Effective Dec 06, 2018 - Nov 30, 2018

53. Naira Succumbing To Speculative Pressures - N370 To A Dollar - Nov 30, 2018

54. Cessation Procedure For the Nigerian Foreign Exchange Fixing (NiFEX) - Apr 27, 2018

55. Floating Exchange Rate Can Cause Big Trouble - Nov 09, 2017

56. Repatriation of Oil and Non-Oil Export Proceeds - Oct 30, 2017

57.  Agric, Airline, Oil and Raw Material Sectors Get $285.7m Forex Funding - Oct 27, 2017

58. Nigeria's Foreign Exchange Dilemma - Sep 07, 2017

59. Foreign Investors Boost Foreign Exchange Supply - Sep 06, 2017

60. Unutilized FX Returned to the CBN for the SMIS Wholesale and Retail Interventions - Jul 05, 2017

61.  Further Liberalization of the Inter-Bank Foreign Exchange (FX) Market - Jun 06, 2017

62. New Code of Conduct to Clean up Foreign Exchange Market's Dirty Reputation is Released - May 26, 2017

63. CBN Lists 36 Items Valid For FX in the Nigerian Foreign Exchange Markets - May 18, 2017

64. CBN Announces the Establishment of Investors' & Exporters' FX Window - Apr 21, 2017

65. Foreign Exchange Payment for Small-scale Importation - Apr 21, 2017

66. CBN's New FX Policy Shows A Change Of Heart? - Feb'17 Economic Update - Mar 09, 2017

67. Nigeria reacts positively to a forex crisis of confidence and liquidity - Feb 27, 2017

68. FT - Lenders Plan Not To Renew Deals with CBN - Dec 15, 2016

69. Externalisation of Differentials on OTC FX Futures Contracts for Foreign Portfolio Investors - Jun 24, 2016

70. Nigeria Banks Absorb Effective Devaluation - Jun 24, 2016

71.  Managing Exchange Rate, Interest Rate, Capital Flows and Reserves - May 13, 2016

72. School Fees and Medicals Remain Eligible for FOREX Allocation - Feb 22, 2016

73. How crazy can the Nigerian FX market go - Ecobank provides an indication - Feb 20, 2016



Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Related News