Dairy Industry Analysis: Inglenook Farm

This assignment analyzes the Australian dairy industry, highlighting its significance in the national economy and global exports. It examines the competitive landscape and challenges faced by farms like Inglenook Dairy due to increased production and concentration within the industry. The analysis explores how Inglenook adapts its strategies to seize opportunities and mitigate threats posed by evolving consumer preferences and market dynamics.

Running head: AUSTRALIAN DAIRY MARKET
AUSTRALIAN DAIRY MARKET
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1AUSTRALIAN DAIRY MARKET
EXECUTIVE SUMMARY
Milk and milk-based products are constant items of consumption basket of any country.
Australia also has larger dairy market operation owing 3rd position nationally and biggest world
exporter of its products. This makes market structure, operation and strategies very important for
the local citizens as well as the demand coming from all over the world. The paper briefs the
market structure, stages of operation, strategies and potential strength and weakness paving ways
for opportunity and threats of the industry overall and analyses case specific study of a farm
Inglenook dairy based in Victoria, the largest milk producing state

2AUSTRALIAN DAIRY MARKET
TABLE OF CONTENT
INTRODUCTION:..........................................................................................................................4
STRUCTURE AND STAGES OF PRODUCTION.......................................................................4
IDENTIFICATION & ANALYSIS OF INTERMEDIATE MARKET STRUCTURE:................5
IMPLICATION OF MARKET SRUCTURE ON MARKET POWER:.........................................6
CURRENT STRATEGY: 190.........................................................................................................6
OPPORTUNITY & THREAT:........................................................................................................8
RECOMMENDATION:..................................................................................................................8
CONCLUSION:..............................................................................................................................8
REFERENCE:.................................................................................................................................9

3AUSTRALIAN DAIRY MARKET
INTRODUCTION:
In the modern world of growing consumer goods, milk and its subsidiary products owe constant
importance in the consumption basket through ages since the importance of milk in balanced
healthy diet. The constant and growing demand with time led the market for the product highly
competitive and concentrated (Argent 2017.). Such dairy market is evident in Australia, which is
the theme of discussion in this paper. The paper throws light on the structure of the dairy market
the nation has with proper explanation of the stages of production of dairy products. The
competition in the processing and retail distribution of retail products blocks the profit potential
of many other firms in the industry. With presenting the current strategy analysis of Inglenook
Dairy operating in Australia the report further discusses the opportunity and threats the firm pose
in the industry and recommendations are made to ascertain profit and good position of the firm in
the industry.
STRUCTURE AND STAGES OF PRODUCTION:

4AUSTRALIAN DAIRY MARKET
Dairy products own the third largest position in the Australian produced goods basket and form
the 4th largest position in terms of export. The annual production in 2015-16 has been 9.54 billion
liter. Almost 30% of the raw milk is used in cheese processing, 29% in skimmed milk powder
and butter,6% in whole milk powder, 26% consumed as drinking milk and rest 9% is used in
producing dairy products such as yogurt, dairy desserts custards and so on. The domestic
production is excess of domestic consumption creating room for enough export of the products
that accounts to 34% (2014-15) of the goods being exported. This export includes 65% of the
manufactured dairy products and 6% of the drinking milk (Klerkx and Nettle 2013.). The huge
production and operation of enormous firms with greater competition and concentration makes
indication of presence of perfectly competitive market structure in the industry.
The production of milk involves complex procedure of converting the pasture into raw milk. The
maximization of pasture and maintaining proper management of the cattle are necessary to make
the conversion capacity maximized. Pasture is the first stage of production that requires to be
maximized. The maintenance of cattle and healthy production of calves are important step in a
way to ensure milk production and harvest.
IDENTIFICATION & ANALYSIS OF INTERMEDIATE MARKET STRUCTURE:
The major intermediate goods in milk production is the availability of potential and healthy cattle
that ensures the quality as well as quantity of the milk. The dairy of Victoria, the largest producer
state, herd almost 1.1 million head consisting of 66% of the national herd. Existence of 4268
licensed firms depicts the largest spread of the industry in Victoria over three production region.
The increase of the farms and herd size have been 56% till 2013-14 from 1999-2000 (Dahl, Leith
and Gray 2013). The large production stems from huge operation of 1000 cattle on an average

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per farm. The market spread follows a location-based concentration. Mostly farms are
accumulated in the South East of Australia mostly in coastal region. Victoria is ground of huge
dairy farms making the local market more competitive and highly concentrated. The existence of
perfect competition is evident. The numbers of supplier are as high as the demand of consumers.
The seasonal production of the state mostly channeled out in export responsive of volatile global
prices. Based on the dairy farms various dairy manufacturing have come into existence
influencing the local as well as national economy of Australia through its overtime growth.
Murray-Goulburn Cooperative, Lion and Fonterra are the three largest processors among 20
major manufacturer of liquid and manufacturing farm in the state. Another major intermediate in
milk production is water as the industry has heavy reliance on water. The dairy industry is
heavily reliant upon water availability; the industry is currently facing uncertainty over water
policy.
IMPLICATION OF MARKET SRUCTURE ON MARKET POWER:
The importance of market structure lies at the heart of market power as captured by the producer
or supplier group. Different market structure has provided seller different circumstances
regarding selling pricing and setting strategies of them. The dairy industry undoubtedly follow
perfect completion since there are huge producers spread all over the country and specially
concentrated in Victoria that alone accounts for 66% of the production (Ho, Newman, Dalley,
Little and Wales 2013). The presence of perfect completion stops seller form discriminating
pricing with other sellers and the products are always homogenous. The presence of many sellers
of same goods disallows the producer to charge higher price and earn more economic profit that
is the case in monopoly market. The sellers are generally price taker and can not go beyond the
price determined in the market through market forces as that might lead to loss of customers who

6AUSTRALIAN DAIRY MARKET
ATC
AR=MR
MC
S
D
P
P
1
Q1 Q
E
Normal Profit
in Long Run
would prefer now other sellers for their purchase. However, the sellers do have option of selling
more units in order to earn profit. In perfect compactions since perfect information prevails in
there is no barrier to entry or exit the industry, there is no possibility of economic profit and all
farm manages to capture only the normal profit.
Figure 1: Perfect Competition Market Equilibrium
CURRENT STRATEGY:
Inglenook Dairy was founded in 2011 as business owned by family operating in
heart of Victoria. The farm offers naturally fresh milk free of additives compared
to artificial dairy products. The farm captures largest share of market due to the
authenticity in their quality evident by the existence of brands and extent of the
products in local market.

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The existence of huge farms already gives birth to higher competition prevailing
in the market.. Moreover, the challenges have increased over time due to
presence of various other manufacturers who bring differences in their quality of
the products by following differed processing techniques. Adding of
preservatives and additives have make the products more appealing and
heterogeneity of the products have started increasing in the industry. This
brings forth the competition in greater scale. Consumers also resort to greater
research before purchase to ensure health related concerns. Moreover the
packaging and advertisement plays big role in making the products appealing to
the customers and play important role in sales in sellers part.
Keeping all these mind the farm Inglenook Dairy’s has resorted to adopt some strategies
to develop a boutique mode of production, processing and distribution. The major aim is to
ascertain the profit even in long run through consolidating the competitive advantage of the farm
(McDowell and Nash 2012). The strategy of modulating their goods through differentiation and
distribution in order to meet specific needs has allowed the farm to capture higher market share
amidst growing competition. The integration of downstream milk process and distribution within
their function have actually allowed the farm to free itself from the depending upon raw milk
producers and contingencies associated with them. This has led the farm to come up with fresh
and authentic products that attracts health concerned customers.
OPPORTUNITY & THREAT:
By adopting newer strategies, the farm has managed the operating risks in production amidst the
present competition. The major opportunity of the farm has been increased efficiency in the
production and distribution that has allowed the farm to create stronger brand image as well as

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capture higher market share. The demand from Asian market has been higher that adds to the
potential of the profit of the farm. The major threat the farm is exposed is to the climate and
location of farms that play pivotal role in the operation of the farm (Regulations 2013). Moreover
prices of the inputs and protectionism and competition in the intermediate market are also major
source of threat to the profitability of the farm
RECOMMENDATION:
Since domestic consumption as well as export both are major concern of the farm’s production it
is highly recommended that the farm should meet the growing trend through changes in
production process or diversify its range of goods to attract more consumers all over the world
(Wilson 2013). The grater management would allow the farm to check its production cost
allowing them To charge lenient price globally that enhances the sales and increases profitability
over time.
CONCLUSION:
Dairy industry in Australia owes much importance in the national economy and plays
pivotal role in world export of the same. The larger production and distribution of them has
brought forward the higher completion and concentration of the farm. Perfect competition
hinders the farm from making higher profits and overtime change in the trends of processing and
composition of products increased more competition and calls for adoption of newer strategy to
deal with the situation. Inglenook Dairy being part of such larger supply chain has been able to
incorporate newer strategies in order to tap the opportunities and subside the threats the farm
face in the concentrated industry domestically as well as internationally.

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REFERENCE:
Argent, N., 2017. Heading down to the local? Australian rural development and the evolving
spatiality of the craft beer sector. Journal of Rural Studies.
Barkema, H.W., Von Keyserlingk, M.A.G., Kastelic, J.P., Lam, T.J.G.M., Luby, C., Roy, J.P.,
LeBlanc, S.J., Keefe, G.P. and Kelton, D.F., 2015. Invited review: Changes in the dairy industry
affecting dairy cattle health and welfare. Journal of dairy science, 98(11), pp.7426-7445.
Dahl, A., Leith, R. and Gray, E., 2013. Productivity in the broadacre and dairy
industries. Agricultural commodities, 3(1), p.200.
Douphrate, D.I., Hagevoort, G.R., Nonnenmann, M.W., Lunner Kolstrup, C., Reynolds, S.J.,
Jakob, M. and Kinsel, M., 2013. The dairy industry: a brief description of production practices,
trends, and farm characteristics around the world. Journal of agromedicine, 18(3), pp.187-197.
Ho, C.K.M., Newman, M., Dalley, D.E., Little, S. and Wales, W.J., 2013. Performance, return
and risk of different dairy systems in Australia and New Zealand. Animal Production
Science, 53(9), pp.894-906.
Klerkx, L. and Nettle, R., 2013. Achievements and challenges of innovation co-production
support initiatives in the Australian and Dutch dairy sectors: a comparative study. Food
Policy, 40, pp.74-89.
McDowell, R.W. and Nash, D., 2012. A review of the cost-effectiveness and suitability of
mitigation strategies to prevent phosphorus loss from dairy farms in New Zealand and
Australia. Journal of Environmental Quality, 41(3), pp.680-693.

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Nettle, R., Brightling, P. and Hope, A., 2013. How programme teams progress agricultural
innovation in the Australian dairy industry. The Journal of Agricultural Education and
Extension, 19(3), pp.271-290.
Regulations, P., 2013. Australian Dairy Industry.
Wilson, N., 2013. The Dairy-Business Plan.