Towards Boosting Local Substitution; Import Substitution Remains FG's Primary Focus Area

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Friday, February 14, 2020 / 10:35 AM / By FBNQuest Research / Header Image Credit: Agro News Nigeria

                                                                                

Import substitution has remained one of the FGN's primary focus areas, with specific segments of the agriculture sector serving as potential catalysts. Local milk production was recently placed on the front burner through a CBN circular focused on encouraging backward integration to boost domestic milk production.

 

The national accounts for Q3 2019 show that livestock farming grew by 0.4% y/y in Q3 compared with growth of 4% and 7% recorded in Q2 and Q1 respectively. Livestock accounts for just 6% of agriculture GDP.

                                                                                                              

Nigeria consumes an average 1.7 million metric tonnes (mmt) of milk annually. According to the CBN, US$1.5bn is spent annually on milk importation to bridge the supply gap, which is estimated at 1.1 mmt.

 

Based on the most recent data available in the public domain, the country's cattle population is estimated at 20 million. However, only 2.3 million cattle are utilized for dairy production. The daily average milk production is 1.5 litres per cow. The rate diminishes in the dry season to about 0.5 litre.

 

Enhancing cross-breeding capacity, improving access to pasture and water, and setting up milk collection centers are some strategies that could be adopted to increase production.

 

Last year the CBN directed banks to halt the processing of milk and its related products on a bills for collection basis. This restricted access to fx for milk imports has resulted in an increase in the price of the product across supermarkets.

 

Over the past few months, we have noticed that milk and dairy products have featured as drivers for the acceleration in food price inflation.

 

Earlier this week, the CBN exempted six companies from this fx restriction on milk and dairy products importation. We understand that the exempt companies were selected mainly because they have made investments in local milk production and have keyed into the CBN's backward integration/import substitution program.

 

There are visible efforts being made to boost local production of milk and other dairy products. One example is L&Z Integrated Farms, a Kano-based dairy farming firm with an installed processing capacity of 24,000 litres of milk per day.

 

However, the sector still requires increased investment. Such should reduce the country's food import bill considerably, ease pressure on fx and push Nigeria closer to its self-sufficiency goals.

 

As with most sectors, Nigeria's structural deficit is a roadblock for expansion of the local milk industry.

 

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