CBN and Milk: We Need Evolution, not Revolution

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The recent announcement that the apex bank will restrict foreign exchange on milk and its products in its bid to drive importers to produce milk locally has not received favorable comments from stakeholders and consumers in the dairy industry. Even with the clarification that it does not intend to ban importation of milk, the bashing of the CBN appears ceaseless.

The bank has responded angrily, accusing major importers of treating its directive on local production with “imperial contempt”. Milk companies have not shown keen interest in the CBN’s 9% interest loan and10,000 hectare grazing land gift in our grazing reserves. Refusing them access to forex seems to be a new strategy of the bank in forcing compliance.

True. We have the land, the money and the cows. What the CBN cannot understand is the lack of interest in producing the milk locally. To the impartial observer, the reasons, which I want to highlight here, are clear and many. What the CBN needs to do is to understand the business of milk production in Nigeria and align its strategy with the realities on ground.

1. Bad Economics

The first thing to know is that even in Europe, the milk business is not a profitable one. I took some time to read through publications of the European Milk Board and what is clear is that milk production over the past three decades cannot be done without one form of subsidy or another. What operates now is direct payment scheme in which farmers are compensated for the gap between their production cost and prevailing market price.

In Germany, for example, the market price caters for only 78% the cost of production. A kilogram of milk is produced at 44.48 cents and sold at 34.56 cents during the first quarter of 2019. The difference of 9.77 cents is paid to the farmer for every kilogram of milk he produces. In France, the difference is 15 cents. This translates in Naira terms to N39/kg of Milk in Germany and N60 of same in France. With an average of 20 liters (or 4 kg) of milk per cow daily, it means that each dairy cow is subsidized with N156 and N240 daily in Germany and France respectively. Yes, each milking cow, each day!

That is what is happening in the home countries of these major milk companies. How is the arithmetic in Nigeria?

I have endured the torture of calculating what the situation is in Nigeria, of which I and other investors in dairy business are quite aware of. In arriving at a figure, I have used the 10 liter milk/day statistic that the CBN governor was citing – obviously, the quantity one can get from a Frisian crossbreed in the country. From the cost of the cow to the infrastructure, its feeding requirement (which must include green fodder, dry fodder, mineral mixture, concentrate and water), overheads and inter-gestation expenses, those 10 liters ( or 2 kg dry weight) which Oga for CBN is referring to requires N3,451.00 to produce or N345.10 per liter or N1,725.5/kg.

Now, a liter of fresh milk is bought by processors in Nigeria at the average cost of N200 (or N1,000/kg dry milk), giving a N725/kg difference between cost of production and price. For now, let us assume that Mr. Fowler of FIRS will not come knocking at the gate of the farm for VAT and Emefiele will write off his 9% interest on the loan used to establish the farm. If the two will be computed, the difference will from Oyo head north to Sambisa.

Nigerians will wonder why there will be so much difference between cost of production and price of up to N725/kg of milk. That is the price we pay for all the difference in production between Nigeria and Germany or France. Here, the dairy farmer will even be lucky to keep the cows or himself safe. Land, rustlers, ethnic cleansers, kidnappers, blackouts, poor roads, unstable market, etc.

If farmers in Europe receive direct payments “to keep them alive”, as their leader complained, they should count themselves lucky. In Nigeria, nobody, not even the CBN governor, will contemplate in his wildest dream of subsidizing 2 kilogram of milk or a cow at N1,451.00 daily. That will be an abomination worse than Ruga. The amount of decibels from wailing noise will be enough to cause an earthquake that will destroy the country altogether.

It is for this prohibitive cost of production that all past dairy businesses failed. WAMCO abandoned its farm at VOM decades ago and relocated to Lagos where it deals in dry milk it imports from Europe. I have seen so many dairy farms collapse. I could list them here, if space had permitted. In preparing this article, I looked for FAO records on dairy farms in Nigeria. The map the organization produced for the world, shows blank for Nigeria: no statistics, it said, of course, because the number of farms are not significant enough to be noticed. It is for the same reason that dairy farms have to resort to imported dry milk to sustain their processing plants and market.

It is for the same reason that our major milk processing companies like FrislandCampina-WAMCO Plc, the producers of your favorite Peak Milk, are not forthcoming in collecting any loan from CBN and establishing dairy farms in the country. I do not think their decline signifies “imperial impunity” as expressed by Isaac Okorafor, the Director Communications of the Bank, in a clarification he made on the policy of restricting forex to the importers. It is just bad economics.

Here, I will seriously caution the CBN to be very wary of any Nigerian that is jumping at its offer. It is either he is completely ignorant of how engulfing is the ditch or he wants to grab money plus 10,000 hectares of land and later disappear, leaving the country high and dry like those N50 billion loans to Association of Nigerian Farmers during Jonathan and the many, recent rice loans into which the EFCC is presently investigating. I am saying this without blinking an eye. It is the truth. The CBN governor should think twice before throwing away his money.

Yet, we have a way out if the authorities are interested.

2. Alternative

We do have cows, as the CBN governor said. Sure. Though they are low yielding – between 1-4 liters of milk/day – they are many, 20 million. They have served us, with the pastoralists subsidizing the product and beef for us by sacrificing everything modern, roaming the bush without any right to land but with access to free, wild grass and water which may sometimes take kilometers to find. Of course, our local cows do not serve the 1.7 million tonnes of milk that we need yearly; nevertheless, our symbiosis with the pastoralist affords us a third of that, 600,000 tonnes, according to a recent report by Professional Services Company. The deficit of 1.2 million tonnes is costing us $480m dollars annually, which neither Emefiele nor we Nigerians are celebrating.

a) The first step is optimizing the milk we locally produce from our local cows and channel it through formal processors. That may cause an increase the cost of fresh milk but it will reduce our dependence on imports, as more attention will be paid to milk by both pastoralists and processors, resulting in increase the tonnage we produce. Doing this will require the CBN to assist local processors with subsidized infrastructure critical for milk collection.

Collection Centres, milk tanks and trucks, lactometers, reagents, etc. will be needed along with intensive training of pastoralists on hygiene, without which the high bacterial load of the milk will render it unfit for processing. Given the difficulties in the takeoff, the idea of interest on the loan needs to be dropped entirely though measures by the Bank of Industry or any disbursement channel used must be taken to ensure that the money is used for the purpose and the beneficiaries are genuine investors in the industry.

Measures must also be taken to improve yield per cow by subsidizing – yes, you heard me well, subsidizing – for pastoralists local dairy feeds and concentrates that will double the amount of milk the cows can give daily. Without concentrates, you get nothing. I have seen 100% Frisian giving not more than 2 liters of milk/day during the dry season when starved of concentrates.

b) The second step is evolutionary. It requires that we improve the genetic content of our local cows through cross breeding with pure dairy cows. The 50% crosses, as we find on our farms, can yield up to 12 liters per day with moderate management. Substantial yields can still be obtained with crosses from more resilient foreign breeds that can endure lesser levels of management that the pastoralists can afford.

However, this will require land, water and few other facilities that the cows would settle on without long distance movement. Happily, many northern states have had these lands earmarked fifty years ago for this purpose under our First and Second National Plan, which did not last more than a decade and a half. Encroachments into these reserves have been made by farmers, which is tolerable. A bigger threat is the grabbing of these reserves by politicians and some generals who do not need them, something a determined government can reverse in public interest. In any case, there is still substantial land to start with in the cattle zone of the country.

Milk produced in the second step will require processing into powder and other forms for use beyond the immediate environment and off-season especially during the dry season when yield will drop significantly. This can easily be done by the Dangotes and multinationals like FrislandCampina-Wamco. Dangote has one such facility lying waste for over a decade in Kano and has two years ago offered to patronize milk produced by our association – CODARAN, Commercial Dairy Ranchers Association of Nigeria – if need be.

It is at this level of our local production that such big companies participate big time. Friesland is making some collection effort in Oyo State, adding the little ingredient it gets to the Peak Milk that we drink. But the magnitude is way too small of national requirement. They should be encouraged to do more along this line rather than threaten them with forex poverty if they do not establish unsustainable dairy farms in the country.

A second way of improving the quality of our local cows is for government to go the Rwandan way. It can establish breeding centres of its own where suitable beef and dairy cross-breeds produced there can be exchanged for local ones, say one cross breed to two local cows, as in Rwanda. With 20 million cows, this may take some few decades. Rwanda still has 40% local cow content remaining after 12 years of starting the program. One dare not take this suggestion far, before someone shout, “Chai! Over our dead body!”

3. Animal Breeding is not Photosynthesis.

Lastly, the CBN should realize that it cannot do to animal breeding what it did to rice, cassava and tomatoes. All that plants need is photosynthesis and they produce harvest for you in just two to five months. Photosynthesis takes just 7 seconds to produce sugar, phosphates and amino acids after the plant is exposed to carbon dioxide and light. So your policy can be immediate and can take effect within a year.

To produce milk, our cows need more than that. They have to be bred. On my farm, in the past six years, only one out of seven local cows had the capacity to produce cross-breeds that can give 10 liters of milk/day. So years are wasted in selection alone. Then full production of cross breeds starts after the lag phase and for each cross bred cow, one will need a 9.3 months gestation and another 2 years of full growth before the heifer yields a calf and become ready for milking. The difficulty of doing this on a large scale can best be imagined.

Setting up the farm alone comes with a lot of engineering and agronomic processes of their own. You can raise buildings quickly but pastures take years to establish. And the CBN Governor is talking of 10,000 hectares for each company. Even in mechanized Europe turning this size of land into pasture will be a big challenge for any company.

All these put together call for caution in implementing the “restriction” policy. It cannot be immediate like in rice. It must not be. Hapiya, biko.

4. Conclusion

The NLTP seems to contain components of the second proposal. Interested state governments in the cattle zone can adopt its strategy. The CBN can better key into the project rather than resort to measures that will cause inflation in price of milk, which in turn will intensify the malnutrition currently seen particularly among children in some parts of the country. The problem with the NLTP is the lack of public confidence that it will take off and followed through. A year is gone with nothing done. It is becoming like another promise.

I am particularly impressed with the concern of the CBN governor who, despite the prevailing hate narrative against anything cow, was bold enough to contemplate measures that, in his estimation, will improve our local breeds and encourage local production. His fervor is both patriotic and revolutionary. However, he should know that animal breeding and milk production are tedious natural processes and that nature follows evolution, not revolution.

Dr. Aliyu U. Tilde

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