According to US Department of Agriculture (USDA) exporters’ guides on Nigeria and Ghana, published in November 2012, the Nigerian dairy sector currently meets less than 50% of domestic demand (600,000 tonnes, compared to demand of 1,300,000 tonnes). In neighbouring Ghana, the dairy sector has a ‘near total dependence on bulk milk imports (primarily powdered milk and processed milk products)’, with local milk production scarcely entering formal marketing channels.
In both countries, domestic milk production is seen as ‘grossly insufficient’ to meet current demand. Consumer demand for value-added dairy products (butter, cheese, ice cream, yoghurt and other milk beverages) is rising rapidly on the back of ‘growing population, increasing urbanisation, and rising per capita income’. According to USDA, in both Nigeria and Ghana outdated technologies, rising input costs and underlying competitiveness challenges mean that the local dairy sector is poorly placed to meet rising consumer demand.
In Nigeria, the guide notes that 75% of local dairy products and dairy-related processed food products ‘rely almost entirely on imported powdered milk’ (some US$300 million annually), with an even higher dependence on imports in Ghana (which however has a lower total value of around US$100 million). In both instances, imports from the EU (Netherlands and Denmark) dominate the market for both intermediate and final products. This is linked in part to the EU’s freight rate advantage over other global suppliers for this region, and in part to the high level of consumer confidence in the safety of European dairy products.
According to USDA, Ghana is ‘a key access point for entry into the West African region market’, largely as a product of specific government policies to position Ghana as the gateway to West Africa. In this context it should be noted that, according to figures from the trade statistics website Indexmundi.com, around one-eighth of total Ghanaian milk-powder imports are re-exported, with this fluctuating between a low of 7.5% (2010) and a high of 29.1% (2009) (3, 5). While Nigerian imports of dairy products in value terms declined between 2006 and 2010, imports of dairy products into Ghana rose on a variable overall trend (see Indexmundi tables).
Since 2008, however, re-exports of milk powder from Nigeria have increased significantly, from 2.5% of imports in 2006 to 12.2% in 2010. By 2010, Nigerian re-exports of milk powder were 10 times higher than Ghanaian milk powder re-exports. This has seen calls from the West African regional farmers’ organisation ROPPA for increased tariff production for milk products.
While efforts continue to develop commercial dairy production in Nigeria, a noticeable trend since 2008 is the rise of re-exports of milk powder to other West African countries. EU milk powder exports are not only serving dairy processing companies in coastal West Africa, but increasingly finding their way on to inland markets, where they directly compete with local milk producers. This raises questions as to the tariff treatment of these re-exports under the ECOWAS trade liberalisation scheme, since they are not eligible for duty-free treatment.
With calls in Nigeria for a review of dairy tariffs in order to promote increased local milk production, in the longer term Ghana may offer a more attractive gateway to the wider West African market, given the virtual absence of commercialised domestic milk production. While smallholder milk production in West Africa faces both efficiency and quality challenges, it should be noted that in East Africa thousands of smallholder farmers are involved in commercial milk production.
Whether imports of milk powder for re-export take place via Nigeria, Ghana or any other West African country, the scope for increased competition with local milk producers is set to remain, given the continuation of elevated levels of EU skimmed-milk powder exports up to at least 2022 (see Agritrade article ‘Dairy quota abolition on track but EU farmers concerned’, forthcoming).
Processing costs in West Africa are high, in part linked to unreliable energy supplies and large variations in seasonal supplies. This, coupled with the tax policies and other value chain inefficiencies, make the regional dairy products relatively uncompetitive. Such an environment poses hard choices for national and regional policy makers regarding the relative priority to be accorded to promoting local value-added dairy processing, as opposed to promoting local milk production and enhanced regional trade in milk and dairy products.