East Africa dairy sector at stake as Europe floods market with cheap powder milk
Tuesday May 01 2018
East Africa is becoming a frontier market for milk exports from Europe, a development that is posing a threat to the region’s farmers and processors.
Milk exports from the European Union member states account for a significant proportion of the value of agricultural output, which is about 15 per cent.
The EU’s leading milk producers are Germany (19 per cent), France (16 per cent), Poland (7.9 per cent), Netherlands (7.8 per cent) and Italy (7.4 per cent), which together with the United Kingdom (9 per cent), account for almost 70 per cent of the bloc’s production.
Across the EU, there are just over 5,000 processors of dairy products for the EU market and exports to other regions.
The EU exports account for a large chunk of the West African market, especially for milk powders. The bloc is now looking to East Africa, especially Tanzania and Kenya, for the surplus milk powder generated by a sharp increase in milk production amid flat consumption growth.
European dairy processors like Nestlé, Lactalis, Danone, FrieslandCampina, Arla Foods and Sodiaal have a presence in Africa. Nestle and Danone in particular have a presence in East Africa.
And like West Africa, where the cheap EU milk distorts the markets and impacts the region’s producers and processors, there are now concerns in Kenya that the local producers could suffer the same fate.
Nixon Sigey, Kenya Dairy Processors Association chairman fears that the dumping of cheap imports will kill the sector, “because we cannot compete with the EU, where the cost of production is very low.”
According to analysts, the EU is exploiting the erratic production of milk in East Africa caused by unpredictable weather patterns to flood the region’s market with milk powder.
Kenya has been imposing 60 per cent duty on powder milk in order to protect the sector.
However, last year, the government temporarily suspended the duty to allow for importation of powder milk after production dropped by 17.5 per cent in the first five months to 215.9 million litres, from 261.9 million litres over the same period in 2016, due to a prolonged drought.
Analysts say that the EU is taking advantage of the low production in East Africa and the fact that the informal market accounts for 80 per cent of the milk trade even as per capita consumption is expected to grow.
While milk production in Kenya stands at 5.5 billion litres annually, in Tanzania it stands at two billion litres and in Uganda 2.2 billion litres.
Tanzania has one of the lowest per capita milk consumption rates at 47 litres per annum compared with 120 litres per annum in Kenya and 54 litres in Uganda.
The region’s consumption is much lower compared with the 200 litres per annum recommended by the World Health Organisation.
For the EU, finding new markets for milk and milk products is a matter of urgency considering that milk production has increased sharply since the end of milk production quotas imposed in 2015 to prevent overproduction.
“EU dairy firms have been exporting their surplus without limit and at very low prices. In fact, what they did was buy milk from European producers at prices below their production costs, which is tantamount to dumping,” said a report by Oxfam and SOS Faim.
While Kenya’s decision to impose punitive duties on imports has helped to build a vibrant dairy sector, the country is becoming a key market for the EU, with data from the European Commission showing that Nairobi is among the top five export destinations in Africa, after Nigeria, Ghana and South Africa.
Between January and November 2017, EU processors exported 3,837 tonnes of skimmed milk powder (SMP) to Kenya. Nigeria was the biggest market in sub-Saharan Africa at 23,677 tonnes followed by Ghana at 9,475 tonnes.
In Tanzania, the EU exported 6,525 tonnes. Tanzania is a net importer of dairy products, with South Africa having a tight grip on the market supplying cheese, butter, long life UHT milk and ghee.
While Kenyan processors have tried to penetrate the Tanzania market, they have largely failed due to a $0.1 per litre tariff imposed on milk and milk products in spite of the East Africa Common Market.
The tariff has impacted Kenya’s exports to Tanzania, which plunged from $6.3 million in 2014 to $1.3 million in 2016.
But Mr Sigey said that negotiations are ongoing with Tanzania “and we hope to reach an agreement on the tariff soon.”
While trade rivalry between Kenya and Tanzania is making it impossible for regional processors to access the wider EAC market, there are fears a deluge from the EU will have a devastating impact on the sector, particularly on farmers’ earnings.
“Farmers are relatively happy with the current milk prices but the cost of production is still high,” said Gideon Birgen, Kenya Dairy Farmers Association chief executive.
He added that opening the local market to imports would not only have devastating impacts on efforts to expand the industry but would destroy the livelihoods of 1.5 million small scale farmers who depend on dairy farming.