Problems
Policies
Prospects
When asked to comment on their countries' dairy imports, African government officials are often concerned about the declining degree of self-sufficiency in milk and the methods by which this trend can be arrested. The discussion often leads to the question of government action and whether dairy policy in Africa has failed or succeeded. Both the data and the methods currently applied are often believed to be inadequate to design policies that stand a chance of successful implementation. These problems have been considered in this report and it is hoped that the cross-country analysis and the specific case studies will throw light on the policy question and related problems of dairy imports into sub-Saharan Africa.
Dairy imports make up about half the total milk consumption in West and central Africa and almost 30% in sub-Saharan Africa as a whole. Dairy food aid accounts for approximately half of all dairy imports into East Africa and for just under a quarter in sub-Saharan Africa as a whole. There is, however, a great deal of variation among countries in their dairy imports, both commercial and food aid, and also in their respective economic situations against which the importance of these imports can be measured.
Most of the mainly coastal and tsetse-infested countries of West and central Africa, where dairy imports form a major part of a low milk consumption per person, are comparatively well off economically and meet at least 90% of the theoretical calorie requirements of their people. A number of other countries, however, depend on dairy imports, particularly dairy food aid, for a large percentage of their milk consumption, and many of these have a relatively poor overall economic performance. In most countries of either group, dairy imports increased throughout the 1970s and early 1980s, often at annual growth rates of 10% or more.
Since the products imported are mainly skim milk powder and/or condensed milk, dairy imports into sub-Saharan Africa may be classified as basic foodstuffs rather than luxury products. This factor and the increasing proportion of imported basic dairy products in total dairy consumption have given rise to considerable government concern about the rate of self-sufficiency in dairy products.
The objective of self-sufficiency in basic dairy foodstuffs may well be desirable politically, but it is not always or automatically an economically sensible policy. Pursuing the objective may lead to heavy economic losses and bad use of scarce resources, unless the country has a comparative advantage in milk production.
Comparative advantage may be measured in terms of the ratio between the costs of domestic production and border-equivalent prices, both the method and the necessary data being accessible to any African government wishing to use them when designing its dairy policy25. The Malian and Nigerian examples showed, however, that one overall measurement is not sufficient. Differences in production systems, transport costs and consumer incomes and preferences often lead to segregated internal markets, so that the calculation of comparative advantage needs to be adjusted accordingly.
25 See p. 15 in Chapter 4 for theoretical reasoning behind the calculation and pp. 37-38 in Chapter 7 for a practical example.
Market segregation may lead to a situation where dairy imports do not compete directly with domestic milk production, as in Mali, or only compete in some regions, as in the south of Nigeria. The desirable policy should again be based on the assessment of comparative advantage, but it would differentiate, for instance, between coastal areas, where the comparatively cheaper imports meet virtually all dairy demand, and the better production potential in other parts of the country, which should be stimulated by a regional dairy development programme. And although the overall self-sufficiency rate would still not measure up to all the ambitious policy statements, the government could claim the credit for providing all consumers with the cheapest milk available, without disregarding producers' interests.
Both theory and the Malian experience have shown that the use of dairy food aid can pose particular problems. First, if dairy food aid is to be used solely for the benefit of underprivileged consumers, it should be targeted towards specific consumer groups or areas to avoid disincentive effects on local milk production. If, nevertheless, dairy food aid does compete with domestic milk supply, then its retail price should be set at the border-equivalent price or at the undistorted import price level. Second, if dairy food aid is used to stimulate domestic dairy development, it should be sold at the undistorted retail price for commercial imports or at the respective border equivalent price, so that the revenues can be used for any type of dairy project.
Although it has not been possible to analyse in detail the reasons behind the declining self-sufficiency in dairy products for countries other than Mali and Nigeria, a cross-country outline of the factors which had caused dairy imports to increase between 1972-74 (av.) and 1980-82 (av.) has been given. First, the actual growth of commercial dairy imports during the period was compared with a theoretical figure derived from changes in population, incomes and domestic milk production, and any deviation or residual between the actual and derived growth was then interpreted as the influence of other factors. Using this approach it was found that domestic prices and policy stimulated dairy imports in 19 of 32 sub-Saharan African countries, and by more than 10% per annum over a decade in almost one third of the 32 countries.
Second, an attempt was made to explain the increase in dairy imports and the changing self-sufficiency rates in terms of the changing ratios between international and domestic prices. But although international prices have decreased more or increased less than domestic prices, no statistically significant relationship could be established for most products and countries for which the relevant data are available.
Dairy import policies entail the use of different policy instruments, and these have been described together with the underlying objectives in some detail. Two important conclusions emerge. First, as the different policy objectives contradict each other so do the instruments employed to pursue them. Governments should therefore endeavour to identify at least internally the trade-offs between competing objectives. Second, the impact of dairy policy depends on various policy instruments, including some not primarily directed at the dairy sector but nevertheless affecting it. Any policy analysis must therefore go beyond the narrow scope of the specific policy instruments.
The heterogeneity of individual countries' dairy policies was an obvious problem during the analysis, such that it was possible to analyse only the effects of individual policy instruments in a cross-country study, leaving the more detailed analysis of multi-instrument situations to specific country studies. And since the setting of the exchange rate supposedly influences dairy imports in many sub-Saharan African countries, the deviations between official and real exchange rates during 1972-82 were included in a regression analysis of the volume of dairy imports per person on domestic milk production per person and real dairy import prices.
The results (see Table 6) support the hypothesis that depressed international dairy prices, coupled with overvalued exchange rates, have had greater effect on increased dairy imports than specific dairy (import) policies. This conclusion certainly holds for Nigeria and for a number of other sub-Saharan African countries, including some of the largest importers of dairy products.
The Nigerian example is also interesting in terms of the implementation of dairy import policy. The stated objectives and the instruments of the country's policy are consistent, but no significant effects could be shown to result from this conjunction. This arose from an imbalance in the relative weight of different policy measures, for import tariffs of up to 40% obviously could not counterbalance the effects of low international prices and of exchange rate overvaluation.
The impact of the Nigerian dairy import policy on domestic milk production could not be established within the scope of this study, but it is hard to believe that the high proportion of dairy imports (almost 50%) in consumption did not hamper domestic milk production. The lack of empirical evidence may reflect the particularly poor quality of milk production data for Nigeria and some market segregation due to consumer preferences and transport problems, but more analysis is needed to clarify the situation.
The Malian dairy policy differs from that in Nigeria because of the complexity of its objectives and the instruments applied. Whereas Nigeria has followed a consistent - though ineffective - policy of trade control and revenue generation, Mali has pursued conflicting targets, mostly inexplicit, but reflected in actual policies. The overall result is little different from total non-intervention, except that the administrative and welfare costs of such a policy probably exceed its benefits. And while the total costs and benefits of the Malian dairy policy could not be precisely quantified, it is obvious that, in spite of government claims to the contrary, consumer benefits have been rather small.
In Mali, milk is produced in the nomadic pastoral system in the north, where livestock and their products form the backbone of subsistence, and in the mixed crop-livestock system which prevails in the south. Almost certainly, dairy imports have had no effect on milk production in the pastoral system, and only minimal or indirect effects on producers in the south. This apparently strong market segregation is explained by the inadequate infrastructure and distribution systems and by the consumers' preference for fresh milk as opposed to reconstituted liquid milk, indicated by different consumer prices for the two types of milk in Bamako.
Mali has sought to promote local milk production through the use of food aid, but although theoretically sound, the scheme has not met its goals because of three major defects. First, instead of setting the sale prices of dairy food-aid products at their border-equivalent retail prices to stimulate local milk production, the Malian Government has been subsidising consumers. Even if the disincentive effect of lower consumer prices on production was minimal due to market segregation, the revenues to be used for the benefit of producers were reduced.
Second, the revenues from the processing and sale of food aid should have been spent in acquiring the critical means of dairy development, rather than diverting a substantial part of the funds to other purposes and using the rest unproductively. Third, although the overall objective of dairy development through dairy food aid is to replace gradually the aid deliveries by domestic milk supply, ULB's price and collection policies have only recently been directed towards this end.
Policies and problems common to many countries throughout sub-Saharan Africa were identified and analysed. And while there are no ready-made solutions which can be transferred from one country to another, the cross-country analysis shows that the methodology is similar for many countries, and that policies and their effects need not be a 'black box' to policy makers and analysts. Although inadequate, the available data can be used for some analyses which do not require complicated econometric models, but which nevertheless provide some very useful insight.
In many sub-Saharan African countries, five conclusions apply, namely that:
· General exchange rate policy may well override sector-specific policies.· Sector-specific policies are often impeded by contradictory incentives to consumers and producers, arising from conflicting trade, food and agricultural policies.
· Dairy imports may increase without necessarily hampering domestic milk production, since the markets for imports and local produce may be different.
· If food aid is used for dairy development, such policy must have not only a consistent design but also well controlled implementation, for there are serious inherent dangers.
· Dairy development or self-sufficiency in milk must never be the sole objective: there is always a point beyond which the costs of further stimulating domestic production are too great. Despite their relatively low rates of self-sufficiency, many African countries may be closer to that point than their official speeches suggest.
The study has pinpointed several worthwhile fields of further research, of which tackling the problem of improving the quality and quantity of available data would seem the most important. The highest priority undoubtedly must be given to milk production data, to furnish the necessary information on the location of the different production systems, the key distinctions between them, the constraints or limitations and whether these are of a technical or economic nature. An important part of that assessment is to establish the cost structure in the different production systems, for price differences in major cost items may themselves be a criterion distinguishing between the systems and also lead to an assessment of the economic constraints within them.
Generating such data is not a major drain on resources, as was shown by a study of the economics of supplying fresh milk to Bamako, which took two man-months of field work and two additional months of data analysis and interpretation. The potential usefulness of the information to policy makers is substantial, since it would enable them to design economically sound policies and to target their activities accordingly. Much fruitless effort and considerable financial and welfare losses can thus be avoided.
Further research is also indicated with regard to market segregation, particularly in West and central Africa where dairy imports are prominent in total consumption. It should address such aspects as the differences between consumer groups in their preferences for specific products and related services, and in their buying power; the location of these groups and the specific distribution systems serving them; and the uses of different dairy products, e.g. in cooking or for direct consumption by children or adults.
Such information may be obtained from dairy consumption data which can be acquired selectively and with relatively little effort. The result of the analysis would be a differentiated pattern of consumer preferences, expressed in the prices of different dairy products. Using this information, governments would then be able to design a policy for domestic milk production and dairy imports that can meet a differentiated demand.
The third area where a limited amount of data gathering and analysis would substantially improve the basis for decision making at the national level involves trade and distribution systems for dairy products. Again, the resources needed are relatively modest, although several areas of investigation may be named, including:
· Border prices for different dairy products, both in nominal and real terms, and their development over time.· Existing distribution channels for imports and domestic supply.
· The costs and possibly the cost-effectiveness of these distribution channels, as well as a comparison of cost structures.
· Constraints limiting the collection of locally produced milk and the distribution and marketing of both dairy imports and fresh milk.
This type of basic information is essential to any government wishing to design a dairy policy with a reasonable chance of successful implementation. The relatively low costs involved are more than justified, since it enables policy makers to save resources by tackling specific problems rather than working by trial and error. If national institutions and, above all, national governments take up the challenge, then their dairy policies will be more successful and will be designed for the benefit of the country as a whole.
