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This case study investigates the Australia Dairy Industry and competition with international firms in liquid and desiccated products. Within their comprehensive response

Competitive Environment: The response examines the Australian dairy crisis, and is supported by least five (5) references to the academic literature. This section has a total potential value of 10 marks. You should adopt any method i.e. PESTLE, Five diamond theory to highlight crises. For example, if using 5 diamond theory you can write “ what is wrong with the vehicle, what is wrong with stages that the diary industry faces” or if following PESTLE analysis “what wrong with social or political environment which is creating crisis”

Strategic Landscape: The response details the effect of Porter’s Five Forces within the Australian Dairy Industry situation with reference to both the core text and the academic literature. 

Competitive Advantage Quantitative Analysis, Recommendation & Conclusion:

Competitive advantages i.e. which you have / which you do/ what your competitive don’t do/ or you both do it but you do it better.

Supported by at least two tables of numeric data the response provides a statement of the competitive advantage or disadvantage at which Australian dairy producers find themselves. Then you should write recommendation to recover from crisis and then conclusion.

Section 1: Competitive environment

The report is prepared to analyse the market scenario of the Australian Dairy Industry and its competition with the global companies that provide liquid and desiccated products to the customers. The Australian Dairy Industry develops an effective network of Focus farms for supporting the decision making of farmers and even allows the dairy farmers to compare the business performance over time with ease and effectiveness. The Australian Dairy industry includes various firms that provides good quality dairy products such as milk, cheese and other milk made items that are consumed by customers all over Australia. The dairy industry of Australia has overcome various challenges and it has shown considerable growth in the production of milk, which has not only favoured the profitability gained by the industry but also has kept the costs under control for production of healthy dairy products (Aya?, Samanlioglu and Büyüközkan 2013). The competitive environment will be analysed with the use of PESTLE framework while the 5-diamond theory can be used to identify the issues and challenges faced by the dairy industry. The strategic landscape will be assessed with the use of Porter’s five forces and few numeric data will show the industry’s performance related to the competitive advantage and disadvantages.

The PESTLE framework is used to identify the political, economic, social, technological, legal and environmental factors that can create an impact on the success of the Australian dairy industry. The Australian dairy industry must continue its business operations and processes without co promising on the natural resources for enabling better market accessibility and enhance the brand image and reputation (Bakan and Do?an 2012).

The Australian dairy industry is part of the agricultural industry, which manages the production, delivery and consumption of dairy products like milk, cheese, butter and ice cream. The various factors that have impacted the functioning of the Australian dairy industry are political, economic, social, technological, legal and environmental factors.

The Government supports the dairy industry of Australia and this has helped in taking immediate decisions regarding how to manage the dairy processing units and extract the best quality milk. Certain laws, rules and regulations have been implemented to maintain safety, health and hygiene standards while managing the milk production In Australia. The Government rules and regulations have supported the management of livestock and ensured that proper licensing are managed too. With the management of political matters and support by Government and external bodies, the milk produced and the other dairy products can be delivered to outside countries as well to generate more revenue and expand business (Bolorian and Faezeh 2014).

Due to the increase in demand of milk products, the Australian dairy industry wants to grow for generating a huge annual turnover. The Shareholders and Government bodies made investments to increase the production of milk and produce good quality dairy items consistently for meeting the demands of customers. The rise and fall in inflation rate could affect the sales revenue as well, which should be properly managed as well (Costa et al. 2013).

PESTLE framework

Nowadays, people have become health conscious, which has enabled the Australian dairy industry to feed the cows properly and maintain healthy livestock so that the best quality milk can be extracted. Many people do not prefer dairy foods, which may also reduce the sales revenue for the dairy industry (Geary et al. 2012).

With the advancement in technology and communication nowadays, the dairy industry in Australia has managed to grow consistently. It has enhanced the ways of transportation and made the industry deliver the dairy products all around the world. The advanced technologies also helped in enhancing the production process and controlled the farming practices and management of livestock easily (Hill and Jones 2013). The new technologies have also facilitated the process of packaging and production of best quality milk.

The necessary nutrition related information must be provided on the labels of the packaged dairy items to make customers know about the ingredients and components present. Values and ethics should be maintained for ensuring that the quality standards were maintained along with the health and safety of theirs while consuming (Hutchinson et al. 2012).  

The environmental laws, rules and regulations were maintained to ensure that the packaging of dairy items were done in environment friendly ways. The laws implemented also helped in reducing the carbon footprints and wastes to maintain an ecological balance in nature too, according to the Australian Government policies and practices (Jouzdani, Sadjadi and Fathian 2013).  

The Five-diamond theory has helped in analyzing the various components including the arenas, vehicles, differentiators, staging and economic logic for the Australian Dairy industry and how it has managed to compete with the New Zealand dairy industry.

The arenas mean the areas where the Australian dairy industry should be active or want to capture various market segments. The products mainly include dairy products such as milk made items, butter, cheese, etc. and these are mainly supplied to the nearby locations and are often exported to other country  (Kumar and Prabhakar 2013). It is often termed as gold for the export markets and so the emerging markets have been considered as major destinations of dehydrated and UHT milk produced by the dairy industry.

As the name suggests, it is some kind of transportation activities that are managed for marketing the products and make sure that the products are delivered to the customers properly. The vehicles and transportation through air, water and land have been made possible for making sure that the products are delivered to the right places. There are joint ventures too, which has helped in working in partnership and ensure expansion of business. The mergers and acquisition of other companies within the Australian dairy industry have also brought good outcomes.

The dairy industry of Australia has differentiated its products and services properly for ensuring that the customers gain a positive mindset and understand the features of products properly. The prices have been set properly, which has attracted enough customers and the profit level has increased too.

The time and speed of delivering the products in the new markets are noteworthy and this has increased the scopes and opportunities of the Australian dairy industry to sustain in the marketplace. Various sustainable initiatives have been considered for ensuring that the staging process is successful (Makos 2015).

Political

The returns have been managed with the help of investments made by shareholders and even with the acquisition of various companies within the dairy industry. The investors were provided with substantial amounts of return to ensure that they are kept satisfied and business expansion is possible  (Keupp, Palmié and Gassmann 2012).

From the various data and information obtained, it could be understood that the earnings had decreased prior to the results of tax and interest when compared for the last few months. The production of milk in the local places is comparatively lower for few months through there has been higher growth expected at the national level. From the analysis of the competitive business environment, it could be understood that in between the years 2017 and 2018, the production of milk had been in the range of 2 to 3 percent with a production of 9.02 billion liters for the years 2017 and 2018.

The five forces that can affect the various situations at the Australian Dairy industry are threats f new entrants, threats of competitive rivalries, threat of substitute products, bargaining power of the suppliers and bargaining power of the consumers (Nag, Han and Yao 2014).

The growth rate within the industry, increase or decrease in demands, differences in products and services and other competitive rivalries in business can affect the business functioning. The New Zealand dairy industry, UK dairy industry and other companies within the dairy industry such as Amul and Nestle have given stiff competition to the Australian dairy industry and this has created many controversies. Many dairy firms such as Fonterra Australia, Parmalat Australia, Lion Dairy and Drinks, Murray Goulburn and Parmalat Australia have given great competition to the newly introduced dairy companies within the Australian dairy industry (Riasi 2015). The competition between the processors of milk has enabled proper functioning of the dairy industry, because of which, the retailers and purchasers have other options to purchase the dairy products too.

The business organizations within the dairy industry can gain better benefits from the turnover of assets when compared with the other industries. The industries, which experience high turnover of assets and low profit margin, are less likely to face barriers to entry. Few major barriers to market entry are laws and rules on the management of health and food safety and loyalty of customers for the dairy industry. The dairy items are perishable, thus it requires high turnover, effective supply chains and channels for distributing those all over Australia. The dairy industry must follow proper guidelines regarding food safety to gain reputation among the customers and enhance the capital requirements to ensure successful business functioning (Spicka 2013). To overcome the issues faced due to new entrants in the market, proper packaging and processing of hygienic milk should be done. The Australian dairy industry must maintain trust and loyalty among the customers to enhance the brand image and reputation and keep the customers satisfied with the products and services delivered. 

There are several substitute products for milk made items like vegetable products including soya milk, coconut milk, oat milk and almond milk, which can be used as substitutes. The cow milk is also replaced with sheep, buffalo and goat milk, which are quite costly. Therefore, the threats of substitute products are comparatively lower. The threat of substitute dairy products is weak or moderate for the Australian dairy industry. There are many substitute products in the market and so it is important for the Australian dairy industry to set right prices so that the customers do not switch on to some other company products and ensure brand loyalty too.

Economic

The prices of the dairy products are set according to the supplies provided along with the milk payment contracts that facilitate the most suitable prices for the average suppliers. The bargaining power of the suppliers is high, because of which, the content of fat, protein and various incentives can also encourage the consistent supply of dairy products and ensure management of scale, growth, quality and development of trust and loyalty between the industry and its suppliers (Stead and Stead 2013). There is no vertical integration between the processors of dairy products and dairy farms of Australia; so, the Australian dairy industry prepares its own milk products that are rich in value. These are afterwards distributed to the markets consisting of the local farmers through automatic bending machines. As the degree of bargaining power of suppliers is high, it is necessary for the dairy industry to keep them satisfied by paying them good amounts of money. This would enable proper supply of good quality raw materials and suppliers and enhance the products’ quality too.

The buying power of the customers depend on the market channels and even on the features of dairy products. The major channels of distribution are supermarkets and hypermarkets, both of which have a total of 50 percent of the market value. The bargaining power of the customers is high, because of which, the dairy industry needs to adapt to the changing needs and provide dairy items for their fulfillment of needs and preferences. The setting of prices is dependent more upon the consumers’ preferences rather than the suppliers’ bargaining power. This has affected the competition within the business environment and can also increase the market share for the Australian dairy industry largely (Zalengera et al. 2014).  The customers’ needs and requirements must be assessed along with reviewing their information for knowing what kinds of products could satisfy them and make them visit the companies within the Australian dairy industry again and again. 

Cost of production versus return on sales

2014

2015

2016

2017

Cost of production

44,051,301

42,323,718

38,050,418

39,192,152

Staffing costs

4,121,856

4,231,506

4,442,350

4,212,345

Return on sales

Weighted average

75th percentile

Median

25th percentile

3.19

4.68

2.81

1.50

0.90

3.60

1.07

-1.20

2.31

3.02

0.89

-0.86

3.04

2.86

0.92

-0.45

Sales of production

Weighted average

75th percentile

Median

25th percentile

0.95

1.15

0.92

0.83

0.98

1.12

0.90

0.85

0.88

0.94

0.85

0.82

0.97

0.91

0.89

0.82

From the table, it could be understood that the return on sales had dropped largely, which resulted in good input and output relations. This had enabled the company to achieve higher profit level in the years 2016 and 2017 after the debacle in 2015.

Australian dairy

Bay of plenty

Canterbury

Northland region

Value of milk production

$1 billion

$482 million

$1.5 billion

$407 million

On-farm cows

554680

342997

930086

322577

Totally dairy employment

5042

3089

7406

3472

Processing and wholesaling

1250

707

1870

617

Working expenses

$1300

$1297

$1618

$1226

Farm size

240ha

134ha

229ha

134ha

Dairy land size

300,012 ha

123, 273 ha

270, 079 ha

142, 032 ha

Based on the data presented in the table, it is clear the value of milk production in terms of the farm cows, processing and wholesaling and working expenses for Australian dairy industry is good, though Canterbury dairy industry’s value of milk production is higher. The Australian dairy industry fares well above Bay of Plenty and Northland region, which has enabled the industry to remain competitive within the business environment (Bakan and Do?an 2012).

· It is recommended to innovate the dairy products of Australia to attract a huge customer base and influence their buying behaviors too.
  • Development of economies of scale is recommended for reducing the fixed cost per unit.
  • It is recommended to develop effective supply chains with various suppliers to ensure production of good quality dairy items and keep the customers satisfied.
  • Research and development should be done for adapting environment friendly approaches and maintain sustainability to create good mindset among the consumers.
  • The management of farms is essential and there is necessity of keeping the cows properly so that milk is extracted and good quality dairy items are produced.

Conclusion

The dairy industry of Australia overcame the past few challenges and there were expectation of growth in production level of milk. Though the profit level achieved and flow of cash were still some issues, the good weather conditions had kept the costs of production of milk under control in certain areas as well. Due to this, the international firms remained competitive and benefited from the less growth in production of milk for the Australian Dairy industry. The suppliers in the domestic market faced challenges because of the unstable weather conditions, which not only deteriorated the sales of dairy products in Western Australia, Queensland and New South Wales but also had increase in prices of milk. The competitive environment showed the various factors that had impacted the industry with the use of PESTLE framework whereas the five forces illustrated the competitive rivalries, bargaining power of suppliers and consumers within the industry. Lastly, the cost of production and return on sales along with the competitive position of various dairy industries had been compared too.

References

Aya?, Z., Samanlioglu, F. and Büyüközkan, G., 2013. A fuzzy QFD approach to determine supply chain management strategies in the dairy industry. Journal of Intelligent Manufacturing, 24(6), pp.1111-1122.

Bakan, I. and Do?an, ?.F., 2012. Competitiveness of the industries based on the porter's diamond model: An empirical study. International Journal of Research and Reviews in Applied Sciences, 11(3), pp.441-455.

Bolorian, M. and Faezeh, T., 2014. Evaluation Strategy Michael Porter’s five forces model of the competitive environment on the dairy industry (Case Study: Amoll Haraz Dvshh dairy company). American Jounal of Engineering Research (AJER), 3(05), pp.80-85.

Costa, J.H.C., Hötzel, M.J., Longo, C. and Balcão, L.F., 2013. A survey of management practices that influence production and welfare of dairy cattle on family farms in southern Brazil. Journal of dairy science, 96(1), pp.307-317.

Geary, U., Lopez-Villalobos, N., Garrick, D.J. and Shalloo, L., 2012. An analysis of the implications of a change to the seasonal milk supply profile in the Irish dairy industry utilizing a seasonal processing sector model. The Journal of Agricultural Science, 150(3), pp.389-407.

Hill, C.W. and Jones, G.R., 2013. Strategic management theory. South-Western/Cengage Learning.

Hutchinson, I.A., Hennessy, A.A., Dewhurst, R.J., Evans, A.C.O., Lonergan, P. and Butler, S.T., 2012. The effect of strategic supplementation with trans-10, cis-12 conjugated linoleic acid on the milk production, estrous cycle characteristics, and reproductive performance of lactating dairy cattle. Journal of dairy science, 95(5), pp.2442-2451.

Jouzdani, J., Sadjadi, S.J. and Fathian, M., 2013. Dynamic dairy facility location and supply chain planning under traffic congestion and demand uncertainty: A case study of Tehran. Applied Mathematical Modelling, 37(18), pp.8467-8483.

Keupp, M.M., Palmié, M. and Gassmann, O., 2012. The strategic management of innovation: A systematic review and paths for future research. International Journal of Management Reviews, 14(4), pp.367-390.

Kumar, R. and Prabhakar, R.K., 2013. Opportunities and challenges in Indian dairy industry supply chain: A literature review. International Journal of Logistics & Supply Chain Management Perspectives, 2(4), p.791.

Makos, J., 2015. An Overview of the PESTEL Framework. PESTLE Analysis, 18.

Nag, B., Han, C. and Yao, D.Q., 2014. Mapping supply chain strategy: an industry analysis. Journal of Manufacturing Technology Management, 25(3), pp.351-370.

Riasi, A., 2015. Competitive advantages of shadow banking industry: An analysis using Porter diamond model. Business Management and Strategy, 6(2), pp.15-27.

Spicka, J., 2013. The competitive environment in the dairy industry and its impact on the food industry. Agris on-line Papers in Economics and Informatics, 5(2), p.89.

Stead, J.G. and Stead, W.E., 2013. Sustainable strategic management. ME Sharpe.

Zalengera, C., Blanchard, R.E., Eames, P.C., Juma, A.M., Chitawo, M.L. and Gondwe, K.T., 2014. Overview of the Malawi energy situation and A PESTLE analysis for sustainable development of renewable energy. Renewable and Sustainable Energy Reviews, 38, pp.335-347.

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