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Merit Ibe
Olatunde Afolabi is the general manager Nigeria, Ornua Dairy Products Nigeria Ltd, a subsidiary of Ornua Cooperative Ltd. in Dublin.
He has a finance background and is a fellow of the institute of Chattered Accountants of Nigeria, member of the Chattered Institute of Taxation of Nigeria and member of several other finance and accounting bodies.
Afolabi spoke recently on how government’s policies are affecting the dairy business and the challenges of doing business in Nigeria.
Background
Ornua Nigeria is basically into dairy products, which range from milk to cheese to butter and Irish cream. As a business, it was incorporated in 2015, ever since then, we have been in business, which has not been very easy. The business is into manufacturing, distribution, sales marketing, brand management of Kerrygold in Nigeria. We are part of a company that has its presence in over 173 companies all over the world.
Dairy
We are into milk basically because it is our area of core competence. We are part of the business that has a cooperative of farmers in Ireland. There is a generational transfer of farms from one generation to the other, everyone had like 60 or more herds of cows and keeps passing them on. With the good weather that helps to produce quality milk and with the cooperative of farmers in the Ireland, we pull milk from the cooperative, process and then sell all over the world. We are also into cheese, butter and other products. The company, Ornua is into diary and happy to produce other things that come from dairy.
Competitive edge
The unique selling point for the new milk product in the market now, Kerrygold Avantage, is the taste, the pay off is tradition of great taste. The reason is that if you know the Kerrygold butter, cheese, whether salted or unsalted, you will realise the quality is exceptional and the taste unique. It is the same tradition of great taste that we have brought onto the milk. Taste is the unique thing about us. The quality is exceptional and the taste is great. Taste is one unique thing about us, apart from the taste, it has low cholesterol, value brand, more affordable, than the full cream milk, for those who say milk is too expensive, you can have the filled milk brand.
Government policies
We have challenges, when it comes to government’s policies and customs’ duties, but I must say that duty for milk powder has been five percent and that is okay. We walk with that. It is the same for everyone on the same line of business. It is easy accessing customs online, there is a lot of improvement when we look at what customs is doing to make the processes better. The claims, assessment, pre-arrival assessment records (PAR) and every other thing is easy to get online.
The challenge is more on clearing. When you are able to pay your customs duty and the inspection done by the customs in a short time, getting your goods out of the port is usually a huge problem. Some times, you spend 10 to 15 days as a result of congestion, bad roads, logistics here and there. Fixed roads will do us better.
Other government policies that affect milk powder is the backward integration. We are happy to look into that as a business but the challenge for us is that we cannot get in milk powder into the country, through bills of collection, you can only use letter of credit (LC), which is also good.
The challenge is that today milk in Nigeria is one source of protein for everyone and family, not just children.
For the growing population, by 2013, one out of every five African will be a Nigerian, and by 2015 we would have grown our population from 200 million to 400 million; with the statistics, there is going to be a demand on us; as a government, individuals, private sector to take care of the growing population, one of which is the nutritional diet. I must tell you that diary products or milk is one of the major ways of providing protein for the children. When government policies do not encourage production, importation or making milk available, it could be a challenge.
VAT
The Value Added Tax (VAT) increase generally is quite challenging, especially for those businesses that pay VAT and charges. What govt is trying to do is to increase the base of tax payers and increase the rate, so as to meet up with the gap we have in financing the budget. The essence of VAT increase is to get revenue for government. It could cause inflation, prices are likely to go up for the common man. It may mean paying more for the same thing.
Though disposable income might not have increased, the Federal Government has increased wages. With the minimum increase, no positive impact still.
But for us as a business, it has a positive impact because one of the items exempted from VAT is milk. The implication is that we will not charge VAT. Meaning dairy will be more affordable because the price will likely go down. It is a positive one, in that the five percent or the 7.5 percent no more hold for us, as such, cost of production is brought down, which will affect sales positively, which will automatically be passed down to the consumer. Other products exempted from VAT are bread, cereal, fish, flour, roots, meat and poultry products, salt, natural water and table water.
With the exemption and no increase in duties, this makes it a lot better for us and the consumer.
The area we have a major challenge apart from government regulations and policies is the port area.
The port’s facilities are inadequate for our level of importation. Infrastructure at the port need to be optimised.
The port is congested. It needs to be decongested. Scanners are not enough. We should have multiple scanners so that when containers are brought in, they can be easily scanned without necessarily opening and haven to do manual checks on all the consignments. With a global scanner that can scan the containers, one is free. It will reduce the time between the arrival of the consignment and the clearing from the port.
Also, infrastructure like roads to the ports are bad. A lot of trucks fall into ditches, which increase the cost of bringing in consignments from the port.
Customs has done well by going digital. You do a lot online. To open form M, pre-arrival assessment report (PAR) are done online. Infrastructure is a big challenge in our ports.
Border closure
Some of our customers who buy and sell to neighbouring countries are affected with the border closure.
The company has the certification to sell to ECOWAS countries, and we go through the sea, due to the bulk of stuff and number of containers. It is more effective through the sea than land for us.
The impact of the closure is minimal on the business because I don’t believe we have reached out to the 200 million Nigerians.
