Nigeria currently imports a huge chunk of its dairy products from abroad, estimated at $1.5 billion, as local supply remains paltry. Arla Foods, makers of Dano milk, is driving local supply with its dairy farm in Kaduna. Peder Pedersen, the managing director of Arla Foods, Nigeria, in this exclusive interview with BusinessDay’s Wasiu Alli, highlighted some of the company’s strides to improve milk supply as it marks a decade of physical presence in Africa’s most populous nation. Excerpts:
Can you take us back to when Arla first entered Nigeria? What was the vision then?
Arla got its feet on the ground in 2015, but had actually already been here with two other distributors for 30 years previously. However, in 2015, Arla decided to get more involved with the local business. We decided to build our own factory under a joint venture with Tolaram group in the Lekki Free Zone to get closer to the business. The main reason was to contribute to job creation and also to be able to drive the business forward.
What would you describe as the defining moments that shaped the company’s growth and acceptance in the market?
Dano was already a very strong household brand, perceived as premium in quality especially in Lagos. But when the factory was finished out there, and went live, that was a defining moment for us. After you, as a company, put your seed in the African soil and actually try to grow something and you see it come to reality. Not only sitting abroad, but taking some responsibility and driving the business locally, I think that is a defining moment. And as you know, we are celebrating our 10th anniversary on the 23rd of September which is a big milestone for us.
During those periods, were there any challenges, and how were you able to break even?
Of course, there are challenges. I would say currency was a big challenge for everyone. Also as someone told me, this is Africa, and when it doesn’t rain, it’s a problem, when it rains, it’s also a problem. So, you need to be agile and learn to operate and work in this environment. That’s why I think it’s crucial for any business, when you come here, you need to find strong local partners. I think that is very important. This is a different part of the world, and you need to understand the local culture and the strengths of the local culture to be able to operate.
Tell us about Arla’s investment in local manufacturing and the journey of setting up the factory. Can you give an estimate of the worth of the investment?
Our investment in 2015 was about $18 million at that time, which is a long time ago. And of course, since then, we have expanded out there a couple of times. We have a top notchfacility, which can handle 60,000 tons a year. We also do some exports. We can actually export to the markets around us from Nigeria, which is a strength as well.
Read also: Why Arla Foods Nigeria was recognised at 2024 BrandCom Awards
What inspired Arla’s decision to set up a dairy farm in Kaduna, and what impact has it had?
We were already involved in backwards integration. But in 2019, there was more pressure to do this. And we could see as a business that the traditional way of doing backwards integration would not change enough. So, as a company, we decided, let’s find a way where we can actually demonstrate and show how it should be done, even in places where it’s difficult. So, for us now, the farm is running, and we actually have our next open farm day on, 29th of October.
We want to have a demonstration farm that can prove to the world that you can do dairy farming in Nigeria. And we have been in dialogue with some other investors who are building farms around the world. I’m not planning to build more farms. But if I can demonstrate how it’s done, then I will love that and I can help more investors come in. I can share my knowledge for free. This is what I really want to do. So, we see this as a stepping stone leading to something bigger; we hope that one day, we will be able to have a good supply oflocally sourced milk, not only from our own farm but forpeople to see how it’s possible to have a farm with 400 milking cows. This could attract other people to come and do the same, if they can get a guarantee of offtake of their milk.
Nigeria is in a situation where it needs more milk and the local milk production, with the population growth at the moment, can’t keep up with it. So the imports will continue going up. Even if you have 100 farms, it’s still not enough.
Nigeria’s dairy demand continues to outpace local supply, with imports still filling a significant gap. How has Arla positioned itself over the past decade to balance meeting consumer demand with driving local production?
The local consumer demand is by far outperforming whatever we can produce on the farm. The amount of cattle you need before you can get close to the local demand is unbelievable. So there is a long journey to go for local production and I think actually the government is trying to do that, we are working closely with them. They really want to try to professionalize the agricultural industry and we are glad to help. So the traditional way of pastoralism will not fix the problem. They need to modernise. It’s a little bit like how Nigeria was in the telecom industry, they surpassed the landline phone, skipped that step and went straight to the mobile phone, because it was a waste of energy and time. It was much faster. I think we need to do the same in the dairy industry.
I think it’s crucial you mentioned import. It’s important to understand what you see in the news, that milk is heavily imported and a source of so many billions of dollars. The challenge right now is actually that the milk consumption is going down. Because it’s not milk many are drinking at the moment. In the industry, there is a lot of import of non-dairy creamers. Non-dairy creamers are okay if you sell them as non-dairy creamers to be used in coffee. But people think it is actually milk, they put it in their pap and they give it to their kids. So they don’t get the nutrition. That’s another challenge I see.
Are there still other expansion plans or capital investments in the pipeline that you would love to share?
We have plans in the pipeline. But I need the milk volume first because I cannot justify investing when volume is low. I have a yogurt plant up there in Kaduna already and we will launch a new product here in October, made from our own fresh Nigerian milk, 100%, nothing added, 100% no powder, I promise you. But to really do a major investment, I need volume and we need a lot of volume.
I need to make sure that I can collect 50 to 100 million kilos of milk which requires a lot of funds to do. Because it doesn’t make sense to create an efficient industry around this if you don’t have the volume. So that milk has to come otherwise, it will not happen. This is the challenge.
What have been the toughest challenges in the Nigerian market, and how has Arla overcome them?
One challenge, of course, I think you will hear that from any business, was the time when we couldn’t source FX and everybody got hit. After the devaluation hit the bottom line, it went straight down. That’s a big challenge. What I’m proud of as a company, after we had decided to plant the seed is that we did not leave. We’re still here. We want to be here because we see a future here. Many other multinationals have gone.
So, I work for a cooperative. We are owned by farmers, not owned by someone on the stock exchange. So our owners have big hearts. Of course, we need to go back into profitable growth, as we say. But the currency hit was massive. There’s probably no company down there that doesn’t get hit. The only happy ones were probably the banks.
Do you agree that the market dynamics, especially the macroeconomic conditions of the country, have improved? What reforms would you recommend to the government to give businesses like yours some breather?
The current administration has initiated a series of reforms. It’s the right decision. They’re painful but the country has to go through it. It’s like going to the dentist and not getting any anaesthesia and then they pull out the teeth. But I think they’re right, they took away the subsidy for fuel, there’s no way around it. I think they’re putting in the right mechanics. I’m especially happy to see how the central bank is operating more like a central bank not like an individual department. But I think that’s how they operate in the rest of the world. Doing what they have to do and monitoring. There’s of course, still a lot of ambiguity around: “Are the numbers right when they come in and out?”
But I think the direction is right. That’s also why I would say I have a more positive feeling for next year. There’s still some purchasing power that’s been lost. Everybody knows thattakes time to come back. Especially if you talk about the lower-income classes. But I agree that I see positivity. I see light at the end of the tunnel.
If you wanted to advise or recommend a certain reform to the government to make doing business easier, what would you recommend?
One of them is when they want to do duties, they need to do duties fair. This means they have to hit across the same industries equally. That is key. I have nothing against duties. As long as they hit everybody. Then I have no problem if you understand what I mean.
I strongly believe that the government should invest more in NAFDAC. I think they are doing great. They’re trying to reform food safety. They’re trying to communicate to less educated people what good nutrition is. I think they could use a hand in funding to be able to communicate even further. So people are aware of what they eat. Because if you have a country with 200 million people who are not able to eat healthy every day, that’s not helping to develop the country going forward. If the country eats healthy it will also be more productive. And I know it’s the country’s responsibility to take care of the people and to create that framework. I think that would be amazing.
How would you describe Arla’s collaboration with the Nigerian government over the years?