European multinationals are aggressively pursuing one of milk’s few growth markets, where locals say they can’t compete.
European milk is pouring into Africa, with disastrous effects for local herders and farmers.
Multibillion-euro dairy multinationals are exploiting rock-bottom European milk prices to expand aggressively into West Africa. Over five years, they have nearly tripled their exports to the region, shipping milk powder produced by heavily subsidized European farmers to be transformed into liquid milk for the region’s booming middle class.
This milk rush is ratcheting up long-standing accusations that poor countries pay the price for EU farm policies crafted in Brussels. For years, the EU has been in the crosshairs of critics such as former U.N. Secretary-General Kofi Annan (himself a Ghanaian) for its massive financial handouts to farmers. They argue that Europe’s largesse toward its farmers punishes poor countries and is at odds with the EU’s stated goals of promoting development in Africa, reducing migration flows and combating radicalization.
European pressure on Africa’s dairy producers intensified in 2015, when the EU lifted its milk quotas. Coinciding with a Russian embargo on European food, it left the Continent awash in milk. With prices at historic lows, EU dairy companies desperately needed new markets to rid themselves of their glut.
West Africa, with its growing population and demand for dairy, was an obvious destination. Between 2011 and 2016, milk powder exports from the EU to West Africa jumped from 12,900 metric tons to 36,700 tons — most of it flowing to plants in Senegal, Ivory Coast, Ghana and Nigeria, which re-export the product to their neighboring countries.
As global players such as Danone, Arla and FrieslandCampina set up reconstitution plants to process imported European milk, West African farmers are struggling to compete. Although local production has never fully met demand, experts warn that the recent milk deluge risks smothering the local industry, miring the region in dependency.
“People who live from milk are struggling,” said Adama Ibrahim Diallo, the president of Burkina Faso’s milk producers and mini-processors union. He said farmers in his region are gradually giving up, explaining that his processor receives 200 liters of milk a day where once it took 300.
Diallo warned that the problem is aggravating the security situation in the Sahel. “The sons of pastoralists become jihadists — not out of conviction but because there are no jobs.”
“The problem … is tied to overproduction,” he said. “The multinational companies’ strategy is to implant themselves in West Africa to sink their milk in.”
Bacar Diaw of Senegal’s dairy association FENAFILS agrees. “When large quantities of milk powder from the EU … are sent to West Africa, our local milk producers have to shoulder the burden,” he said.
Such accusations are delicate for Brussels, which has for years nudged its farmers toward more open competition. The bloc eliminated much-maligned export subsidies in 2015, for example. And in February, European Commissioner for Agriculture Phil Hogan announced a task force for rural Africa, meant to advise governments on agricultural policy and help EU companies invest responsibly.
In response to a speech Diallo gave in Brussels in February, Hogan stressed that Burkina Faso could use tariffs to slow imports if it wanted. “I would encourage Mr. Diallo to make this point to his government,” he said. “However, I also understand that governments may choose to keep a low import tariff for food security reasons. But that is their sovereign decision.”
A senior Commission official also told POLITICO that less than 10 percent of EU skim milk powder exports go to sub-Saharan Africa and that other companies would swoop in if European firms don’t.
More milk, more markets
European dairy companies say they need to sell milk outside of Europe to survive.
Although West Africa comprises some of world’s poorest countries, it also contains some of its fastest-growing economies. The World Bank estimates that the Ghanaian and Ivorian economies will grow by 8.3 percent and 7.2 percent respectively this year, for example.
Agricultural trade analyst Paul Goodison said that EU dairies ventured into West Africa in anticipation of a post-quota price slump, hoping to capture this growth market.
Arla Foods — a Danish dairy cooperative with €10 billion in annual revenue — established a plant in Ivory Coast designed to handle its milk powder in 2013, for example. In 2015, it opened more facilities in Nigeria and Senegal. Danone made an even more muscular entrance in 2013 when it bought a 49 percent stake in Fan Milk, with plants in six West African countries. The French company took ownership in 2016.
Others such as Nestlé and FrieslandCampina, a Dutch co-op, have been in the region for decades. However, both also invested more just before the end of quotas. FrieslandCampina added a powder plant in Ivory Coast in 2014, while Nestlé opened a new Ghanaian plant the same year.
Bottom-barrel prices driven by Europe’s overproduction also have encouraged exports, which grew a jumbo 38 percent in 2017 over the previous year. The cost of skim milk powder fell from about €3.30 per kilo at the beginning of 2014 to about €1.70 at the same time in 2016, for example, before sliding to €1.30 in March.
The main buyers are in dairy-deficit countries such as China; however, the outflow is reverberating in smaller markets such as West Africa too. “It keeps growing,” said analyst Paul Goodison, referring to milk imports to the region. “This really does make it difficult for local producers.”
Arla told investors in 2014 that it needs to “maintain a stable base in Europe” and “move milk to markets with a high demand in order to create profitable growth.” It added that it wants to increase its sub-Saharan revenue to €240 million in 2017, from €87 million in 2014.
“It’s a way to look good in the European Union. They came for the business — they did not come to help producers” —Adama Ibrahim Diallo, the president of the Burkinabé milk union
Arla spokesman Theis Brøgger said consumer potential drove the company’s expansion, not low prices. “Prices in Europe are volatile, and we do not base our long-term strategy on short-term price developments,” he said.
FrieslandCampina’s Jan-Willem ter Avest didn’t respond to whether low milk prices prompted the company’s Africa expansion, but said oil prices, the “economic situation” and import rules factored in. He added that most local milk isn’t up to standard.
Danone didn’t respond to requests for comment.
Kevin Bellamy, a global dairy strategist at the Netherlands’ Rabobank, agreed that low milk powder prices allowed European companies to expand into West Africa. However, he said the region’s climate is unsuitable to industrial milk production on a par with Europe and that it will likely remain a net importer.
It’s the ubiquity of cheap European milk that makes buying what local supply there is uneconomical.
Domestically produced milk in Senegal, for example, costs about $1 a liter, according to a U.N. Food and Agriculture Organization study published last year. Milk made from reconstituted imported SMP costs half as much.
The Food and Agriculture Organization advised the Economic Community of West African States to invest in agricultural infrastructure — which it suggested is a good bet since some 65 percent of the bloc’s population is rural and owns livestock. It also urged the West African bloc to protect local farmers from “unfair competition.”
For example, the FAO said that the region’s 5 percent external dairy tariff is “weak in comparison with the subsidies for Western countries’ producers.” It added that European milk’s competitiveness in the region is “thanks to a large measure to agricultural subsidy policies.”
Brussels insists that it’s helping the region with its core issues such as poor infrastructure or patchy energy supplies, while also instructing companies how to invest responsibly.
It insists that subsidies aren’t the issue.
“The milk powder exports from the EU to Africa are responding to the African demand. They are concluded by private operators, without any export refund paid by the Union,” a Commission spokesperson said, adding that subsidies to European farmers reward them for stewarding the countryside and guaranteeing food security, but could “not be expressed as price support for any particular product.”
All EU dairies in West Africa say they work with local partners. Danone finances a milk plant in Senegal for local milk producers, for example, while FrieslandCampina and Arla are working with Nigerian dairy farmers.
Some locals dismiss such schemes as window dressing, however.
“It’s a way to look good in the European Union,” said Diallo, the president of the Burkinabé milk union. “They came for the business — they did not come to help producers.”