CBN’s Forex Restriction on Milk Importers: Milking the industry players?

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Earlier, the Central Bank of Nigeria (CBN) published a circular, notifying all authorized foreign exchange (forex) dealers to grant only six companies (Nestle Nigeria Plc, Friesland Campina WAPCO Nigeria, Chi Ltd, TG Arla Dairy Product Ltd, Promasidor Nigeria Ltd, and Integrated Diaries Ltd.) access the CBN’s Form ‘M’ (a mandatory statutory document to be completed by all goods importers) for importation of Milk and its derivatives. Thus, barring other players from accessing forex for milk importations.

This was not surprising as the CBN had muted the plan in Jul-19, after directing Deposit Money Banks (DMBs) to stop the processing of milk and its related products on ‘Bills for Collection basis’, which allowed the importer to buy on credit. Thus, providing the industry players some ample time to prepare for backward integration. Accordingly, the six companies are the companies that have keyed-in into the CBN’s backward integration program to enhance their capacity and improve local milk production.

In our view, we believe the recent regulation will spur new opportunities for local farmers by opening new businesses around the dairy value chain. Additionally, for companies yet to start the implementation of a backward integration program, the new regulation will pressure their cost margins over the medium to long term, as this leaves them with no choice but to source FX from the less liquid parallel market.