46. Domestic milk producers have no access to the urban markets wherein the purchasing power of the nation is concentrated. This means the loss of potential urban transmitted price signals to local producers which otherwise could have indicated the urban demand for increased domestic milk production. Would a ban on milk imports open up the urban markets to locally produced milk?
47. There are two major economic links between the urban and the rural markets - one micro and the other macro. The micro link is the consumer's allocation of his disposable income between imported products and products which are locally produced in rural areas. The macro link is the administrative decision by government to reallocate foreign exchange spent on dairy imports to the development of local production.
48. Let us assume that the Government has decided to ban milk imports and in the alternate invest, annually, an equivalent of the 1983 value of aggregate dairy imports on the development of domestic milk production. This means an incremental investment of N 188.6 million annually. In real terms, with 1974-75 as base year, the annual investment amounts to N 39.2 million, a figure equivalent to ten times the total actual investment in the whole dairy subsector in the 1970-75 plan period or eight times the total actual investment between 1975 and 1977 (see Nwoko, 1986). With a ban on dairy imports, the private sector milk recombining plants will either wind up or buy their whole milk from local producers. In the long-run they might in addition establish dairy farms in various parts of the country. So the incremental annual investment on local milk production might be higher than the actual government investment. The overall effect of banning dairy imports, a drastic policy measure, is not easily predictable. But there is bound to be organised private and public sector search for local substitutes.
49. A ban on dairy imports might be so drastic a measure that the government might be unwilling to adopt such a policy instrument. The government might alternatively consider reducing the foreign exchange allocation to dairy imports. The immediate effect of such a policy would be a fall in the quantity of dairy imports and a drastic rise in the prices of imported dairy products. There is bound to be a domestic price level for dairy produce beyond which a consumer would say, "This is too high, I have to do away with imported milk". This depends on the price elasticity of demand. The question is, would the consumer do away with milk entirely or would he go in search of locally produced milk? That is, would the consumer redirect his expenditure from imported milk to locally produced milk? This again depends on the upbringing and economic status of the consumer. The very high income earner would probably continue to buy imported milk at high domestic prices. Those who were brought up with milk, like the Hausas and Fulanis in the northern states, may divert to purchasing locally produced milk. The responses of the middle and low income earners who were not brought up on milk are not easily predictable.
50. With the rise in the domestic price of imported milk, would the high milk price stimulate the establishment of ranches in the southern states? The major problem in the expansion of ranches in the rainforest southern states is animal trypanosomiasis which is caused by the tsetse fly. This rules out the use of high milk yielding exotic cattle breeds in the south. But N'dama cattle are trypanotolerant and N'dama dairy ranches might spring up in the southern rainforest, tsetse fly zone.
51. Earlier we showed what the likely effects of domestic milk production, duty external reserves and per caput income are on the demand for imported dairy products. We also discussed what the likely implications (e.g. in terms of the magnitude of the investment required to develop domestic milk production) of a ban on dairy imports as a government policy instrument were. Let us now turn to what effect dairy imports and per caput income plus other variables have on domestic milk production. A preliminary investigative explanatory equation for domestic milk production shows the following relationships for the period 1960 to 1983.
|
log Qt |
= |
log 5.991 |
-.027 log Mt |
-.374 log Yt |
+.004 log T |
-.183W |
... (eq. 1) |
|
|
|
|
(.097) |
(.455) |
(.166) |
(.084) |
|
R2 =.43
where
Qt = Estimated domestic milk production
Mt = Aggregate milk import
Yt = Per capita income in real values
T = Time trend and
W = War factor (zero-one variable)
52. This result shows that domestic milk production is highly inelastic with respect to each of the independent variables. Although the magnitude is low, one should note that aggregate milk import has a depressing effect on domestic milk production. Increase in per capita income also has a depressing effect on domestic milk production, an effect with a larger magnitude than that of milk imports. This partially confirms our earlier view that the markets for domestically produced and imported milk are segregated.
