Australian Dairy Farmers And Industry - Free Sample Solution

Question: Discuss about the Australian Dairy Farmers and Industry. Answer: Introduction: Dairy industry in Australia has influential impact on the entire economy. The Australias dairy industry is engaged in generating a huge amount of revenue within the economy through the channel of export. The country has been engaged in exporting both milk and dairy products in the global economy (www.dairyaustralia.com.au 2014). Through this report it has been tried to focus on the Australian Dairy Industry with special mention to the dairy firm named Inglenook. Initially the background of the industry has been highlighted. Following the background of the industry, the intermediate markets have been identified. The next part of the report talks about the influence of this intermediate industry on the entire economy. The present strategy of Inglenook and the future threats has been discussed and a conclusion has been drawn based on the findings. Aim of this Paper: The main aim of this paper is to find out the economic factors and underlying causes that play a vital role in shaping the production, distribution and expected outcome of Inglenook firm in particular and the dairy industry in general Background of Australian Dairy Industry: The history of dairy industry in Australia dates back to 1788. Initially in those days the dairy industry faced the problem of providing enough fodder to its cows. They also faced the problem of refrigerating their products. The dairy industry adopted the step of de-regulation during 2000 (Edwards 2013). The Dairy Industry Association of Australia (DIAA) controls and operates the entire dairy industry within the Australian territory. Data suggests that it has a gross value of around $4 billion and is the third largest industry in agricultural domain (www. dairyaustralia. com. au 2014). The dairy firm produces a wide variety of products ranging from milk, yoghurt, cheese, butter and other milk beverages. Currently, Australia even after being a small producer of is amongst the top largest exporter of dairy products in the world. As a result, of de-regulation, only the competing producers are able to compete in the market. The report focuses on Inglenook dairy, which was established in 2011. Rachel and Troy Peterken founded this firm in the region of Western Victoria. According to their statement, people prefer their dairy products due to its high quality and taste. People have been valuing their products since they came into the industry due to the richness of their products, which are free from additives (inglenookdairy.com.au 2016). Structure of Intermediate Market: The intermediate markets in this report are the supermarkets through which the dairy industry sells their products to the customers. Inglenook has also been selling its products through the help of these supermarkets (Wilson 2013). It has been seen that finding some place in supermarket shelf enables a company to get identified and expand their business. The intermediate markets that are the bunch of existing supermarkets have been oligopolistic nature. Oligopolistic market can be defined as the market where there are no barriers in the entry of market. The products are usually differentiated in nature and the producers usually possess market powers largely (Neary 2016). There are two large supermarkets in Australia namely Coles and Woolworths. Aldi is another such supermarkets, which are coming up in power. These giants have full control over the market power and influences consumers demand. Under this oligopolistic market the demand curve is kinked in nature. The diagram below has showed it: In the diagram above it is seen that the demand curve of the oligopoly market is kinked in nature. The price quoted by the producers in oligopolistic market is at P. At price P, quantity supplied is Q. The supermarket giants have been continuously trying to keep price low. Even if any of the supermarket giants wants to charge higher price o yield better revenue or to establish a healthy relation with the suppliers, then that oligopoly market is going to run out of business. On other hand if the intermediaries of the dairy industry tries to keep price low then the other supermarkets is going to follow the same strategy and ultimately the initial firm loses higher marginal profit. Hence, under oligopoly market the firm always tries to keep the price around or at P to have the maximum benefit. Market power to influence industry: There is existence of several dairy firms in Australia. Existence of multiple firms implies that the nature of market is competitive. Within a competitive structure, the individual firm has no power to influence the price of the product as well as to maximize the profit (Gopinath, Helpman and Rogoff 2014). Under these circumstances the power goes in the hands of the intermediaries. It has already been mentioned that the intermediaries who have been engaged in distributing the supplies of milk and dairy products in Australian market forms oligopolistic market. The oligopoly producers have influenced the market for a long time and are still having almost absolute control over the food and dairy industry in Australia. The ways in which these influence the dairy industry and Inglenook dairy firm in Australia are through the following channels: Price Quoting Power: They supermarkets of Australia have been engaged in price wars amongst themselves and have been continuously slashing the price of their products to attract customers (Lee 2012). The supermarkets have tied up the dairy producers into contracts whereby they cannot operate outside at their own free will. Hence, they have to take in the price quoted but the giant retailers. In here the supremacy of the supermarkets reign and the farmers are the losers. The price went down to $1 per liter of milk. Because of this slash the farmers have revolted. The collaboration amongst the milk farmers of Australia has led them to decrease their supply in market thereby causing a short fall of milk in the shelves of the gigantic supermarkets (N Villanueva 2016). The situation worsened to the extent where the plans have been made to import the milk from other countries namely New Zealand and other such countries. Accumulation of Profit: The present scenario suggests that the dairy industry in Australia is facing troubles within the Australian domain regarding the negligence and price slash by the supermarket giants who acts as intermediaries and helps in distribution of the products (www.abc.net.au 2013). However, it has been seen that the dairy products have been sold at international market through which the revenue and thereby profit is generated within this industry. According to the recent statistics of October 2016, there has been increase of 4.2% in the valuation of Australias total export of milk and dairy products. Current Strategy of Inglenook: Inglenook firm has recently joined the dairy industry. The company being in their initial stages of business is using simple strategies of marketing. They are using business-to-business communication whereby they tried to influence the owners of small and big cafes in using their products as raw material. Within the firm, they use highly efficient technologies in milking the cows and direct packaging the products to maintain the freshness of the same (Nettle, Brightling and Hope 2013). In order to attract the customers they are also placing their products in the shelves of the supermarkets in spite of receiving such a low price. In addition, they have diversified their product portfolio by selling milk, cheese and butter (Irving 2015). Potential threat of Inglenook in the long term: The dairy industry in Australia has few weaknesses, which acts as the reason behind the potential threats of the industry in long term. The primary weakness possessed by this industry is the continuous changes in the climatic factors of the region. Along with it the industry faces the problem of buying raw material and goods at retailed prices whereas selling their products at wholesale prices (www.theconversation.com 2014). In addition, there lies great uncertainty in the policies adopted by the firm. The dairy firm Inglenook has been into the business for only 5 years and they are operating in their 6th year. The potential threats that they might face in the long run is of sustainability issues. Due to the constant war in milk price the nation is now thinking of importing milk from NZ which again implies that this Inglenook is going to face tough competition (Bettles 2016). Conclusion The findings of the report suggest that Australia has been recently facing several up and down in its dairy market. Milk and other dairy products are parts of essential food items and thereby even if the industry faces problems at present, it is going to get revived soon. This short run problem is going to get normalized in long run. The report also suggests that the dairy firms do not possess any market power due to the competitive structure however they are being controlled by the oligopolistic supermarkets. Climate change is the threat faced by Inglenook, which cannot be controlled by the firm. However, the things that they can do in order to survive and flourish in the markets have been given below. It is recommended that the firms should try to bring in innovation within its line of operation so that they can reduce their production cost. As there are multiple numbers of firm selling milk and other dairy products, there is high chance of reduction in the profit margin. Thereby in order to sustain in the market, Inglenook should also try to implement strategies that reduces their time of operation. Using advanced robotic system within the industry to pack and load their products can prove to be beneficial for them. It has been seen that Inglenook has very low diversity in their range of products. The final recommendation for Inglenook is to increase their range of dairy products by launching things like cottage cheese, chocolates, milk shakes and diet milk. It is expected that with these few changes the company can sustain in the market and earn considerable amount of profit. References: Australia, D., 2014. Australian Dairy Industry.Dairy Australia. Available online: www. dairyaustralia. com. au/Industry-information/About-the-industry. aspx. Bettles, C. (2016). Milk wars linger despite Coles intervention. [online] Stock Land. Available at: https://www.stockandland.com.au/story/4141301/milk-wars-linger-despite-coles-intervention/ [Accessed 21 Jan. 2017]. Dairyaustralia.com.au. (2014).Dairy information for Australian Dairy Farmers and the industry - Dairy Australia. [online] Available at: https://www.dairyaustralia.com.au/ [Accessed 21 Jan. 2017]. Edwards, G., 2003. The story of deregulation in the dairy industry.Australian Journal of Agricultural and Resource Economics,47(1), pp.75-98. Gopinath, G., Helpman, E. and Rogoff, K. eds., 2014.Handbook of international economics(Vol. 4). Elsevier. Inglenookdairy.com.au. 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