A new policy statement from the Central Bank of Nigeria (CBN) yesterday banned commercial banks and other authorised dealers from accepting bills for collections as means of payment for milk importation and its related products but only letters of credits (LCs).
With the new policy, financial institutions are to immediately discontinue the processing of imports of milk and its related products on bills for collection basis.
CBN gave the directive in a three-paragraph letter addressed to all bank chief executives, dated August 26, 2019.
Ahmed Umar, director, trade and exchange department, signed the letter, which stated that the policy was to streamline the mode of payment for importing the products.
A Letter of credit is an undertaking by a bank, on behalf of an importer (the applicant) to make payment, provided that the exporter complies with all the terms and conditions stipulated by the credit. Letters of credit can be confirmed or unconfirmed and are irrevocable upon issuance.
On the other hand, a bill for collection is an order by the seller to his bank to collect a certain sum from the buyer against the transfer of the shipping documents. Here, payment can be made by cash or by acceptance of a bill of exchange.
The CBN, in the latest circular, stated: “As part of efforts aimed at streamlining payment modes for imports, all authorised dealers are hereby directed to discontinue the processing of imports of milk and its related products on Bills of Collection basis.
For the avoidance of doubt, the mode of payment in respect of milk and its related products shall henceforth be on the basis of Letters of Credit only. Please ensure strict compliance.”
Godwin Emefiele, the CBN governor, had recently unveiled plans to restrict access to forex for milk importation through its regulated forex windows.
According to him, the country spends between $1.2 billion and $1.5 billion annually on milk importation, which it described as unacceptable.
Owing to this, Emefiele had said domestic production of milk had the potential to reduce recurrent farmer-herder clashes, which have stifled the growth of the agricultural sector.
“We believe that milk is one of those products that can be produced in Nigeria. Milk importation has been going on in Nigeria for over 60 years. If you google West African Milk or Friesland Campina today, they say that they have been importing milk and that they have been in Nigeria for over 60 years.
“Today, the import of milk annually stands at $1.2-$1.5 billion. That is a very high import product into the country. Given that it is a product that we are convinced that it is a product that can be produced in Nigeria.
“The reason some say that our cows are not producing much milk is that our cows roam around; they don’t have water to drink.
“When the policy on the restriction of forex started, we considered including milk on the list. Then we thought that based on the sentiments that people would show, that we should be careful,” he had said.
He had added that the bank held meetings with leading milk producers in the country to encourage them to begin the process of producing milk in 2016.
However, he said there was no significant progress on the part of the companies.