Dairy leads Nigeria food sector with #347bn revenue

The dairy sector has emerged the second largest segment
in the food and beverage industry in Nigeria with estimated
revenue of N347 billion in 2013 and an estimated
compounded annual growth rate (CAGR) of 8 per cent over
the last three years.
A report by Agusto & Co. revealed that the milk segment is
the largest in the industry and accounts for an estimated 61
per cent of the industry's turnover.
The Nigerian dairy industry consists of six major market
segments: Milk, Yoghurt, Cheese, Ice Cream, Butter and
Infant Formula.
The report showed that the dairy industry has consistently
exhibited oligopolistic characteristics with only a few
dominant firms.
"FrieslandCampina remains the market leader with an
estimated 30 per cent share of the Industry's revenue;
almost double that of its closest competitor. Other
dominant firms include Promassidor Nigeria Limited, Nestlé
Nigeria Plc and PZ Nutricima. Operator's in the Industry
have extensive distribution channels, strong foreign
partnerships and enjoy strong product demand", the report
added.
Agusto & Co however noted that the industry is susceptible
to the volatility in the price of raw milk powder, adverse
movements in exchange rates, poor infrastructure and
inconsistencies in government policies.
The report further revealed there is a wide gap between the
harvested milk (local supply) in Nigeria and demand, which
has resulted in a substantial importation of milk.
The report added: In 2013, demand for milk was estimated
at 1.7 million tonnes, about 1.2 million tonnes in excess of
domestic supply, which was estimated at 591,470 tonnes.
Imported milk powder accounts for over 75 per cent of the
Industry's input. The short shelf-life of milk and the
absence of the required infrastructure to operate cold
supply chain make it difficult to distribute fresh milk in
commercial quantities, thus, limiting the development of
local dairy farming.
"Contrary to international practice, Nigerian dairy
processors either import and repackage milk powders for
sale or reconstitute imported milk powders into liquid milk
and other forms of dairy products such as yoghurt and ice
cream. We expect the Industry to remain dependent on
imported milk powder in the medium to long term as
domestic milk production capacity continues to remain
lower than demand, "it stated.
The report noted that in 2013, the record high price of raw
milk powder significantly affected the Industry's operating
costs and consequently profits."
The rating agency also found that increased capital
expenditure and demand for dairy products translated into
growth in production volumes and turnover. It said the
Industry recorded a marginal decline of 1.3 per cent and 1.7
per cent in gross profit and operating profit margins
respectively during the year.
"Operating profit margin however remained high at 15.3 per
cent in the same year. In addition, profitability of core
assets remained high at 30 per cent as at year end. The
Industry has recorded significant positive operating cash
flow in the last three years and we expect this to continue in
the short to medium term", the agency added.
It however stated that the dependence on imported raw milk
powders will continue to expose industry operators to
volatility in global milk prices and considerable exchange
rate risks - particularly in an era of declining reserves and a
strong chance of devaluation.
"Continuous growth in the demand for dairy products
should increase operator's ability to pass off an increasing
share of costs to consumers. Overall, the Industry's
financial condition is expected to remain positive,
supported by good profitability, low leverage and good
operating cash flow. We thus believe the outlook for the
Nigerian dairy industry is positive, "the rating agency
explained.