Could these be why Chellarams is pivoting into milk production   


In a notice sent to the Nigerian Stock Exchange (NSE) today, Chellarams Plc announced a delay in its annual financial statements due to ongoing talks with the DMK group of Germany .  Both companies are finalizing arrangements for the marketing, sales and distribution of dairy products in Nigeria.

Here are key highlights of the notice:

  • The two companies have had an existing distributorship agreement for over 25 years.
  • Nigerians will benefit from the full range of products DMK supplies to other markets.
  •  Chellarams DMK will supply products that were hitherto imported into the country namely Oldenburger, Real Milk and Regal Milk

The move into milk production is a form of backward integration by the company. Fast Moving Consumer Goods (FCMGs) made up N6. 3 billion of the N20.3 billion it made in the financial year ended March 2016.  The depreciation of the Naira against the Dollar in 2016 have made imports much more expensive. Consumers have either cut back on imported products or switched over to locally made alternatives. Companies that needed forex either for importing raw materials or goods, found it difficult to access foreign exchange as the Central Bank of Nigeria (CBN) limited the amount of foreign exchange available.  Producing in the country enables the company to cut costs, and leaves it less susceptible to foreign exchange shocks.

Moving into local production also means more jobs will be created, both in processing the milk and dairy farmers who will provide fresh milk. The company however faces a tough battle to gain market share as its products are typically priced at a premium, in a sector that is dominated by low cost brands like Cowbell, Miksi and Loya.

DMK is Germany’s largest dairy, and was created from the merger of two of North German  companies Humana Milchion and Nordmilch in July 2010. The company currently has over 8000 milk producers and 7000 employees. Chellarams Plc started operations in 1923 as a textile company and was listed on the NSE in 1978. The company’s operations are divided into two sectors: industrial raw divisions and consumer products.

 

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