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BUSM3200 - Australian Dairy Industry - Management Strategy

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Royal Melbourne Institute of Technology

   

Strategic Management (BUSM3200)

   

Added on  2020-03-07

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BUSM3200 - In this report, we discussed about Strategic Management of the Australian Dairy Industry. This report examines the competitive environment of the Australian dairy industry, and this will entail special insight into the dairy crisis that has engulfed the country. The report further explores the strategic landscape that will include an analysis of Porter’s Five Forces within the Australian Dairy Industry. Moreover, the report provides a comprehensive competitive advantage and quantitative analysis of the Australian Dairy industry.

BUSM3200 - Australian Dairy Industry - Management Strategy

   

Royal Melbourne Institute of Technology

   

Strategic Management (BUSM3200)

   Added on 2020-03-07

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Strategic Management of the Australian Dairy Industry 1STRATEGIC MANAGEMENT OF THE AUSTRALIAN DAIRY INDUSTRYby (Name): Course:Tutor: College: City/State: Date:
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Strategic Management of the Australian Dairy Industry 2IntroductionThe Australian Dairy industry has contributed massively to the country’s economy with numerous jobs created on dairy farms among other sectors. Indeed, the $13 billion sectoris an important cornerstone to the wellbeing of majority of the Australians. According to Gourley et al. (2012), Dairy, in terms of farm gate value has a large export value with approximately 35% of the country’s dairy production exported annually. However, increased international competition particularly from countries such as the U.S and New Zealand means that the sector is currently experiencing a consistent decline (Chapman et al., 2014). This is evident from the closure of some processing plants, and this has weaken the individual ability of such companies to sufficiently pay dairy farmers. As such, this report examines the competitive environment of the Australian dairy industry, and this will entail a special insight into the dairy crisis that has engulfed the country. The report further explores the strategic landscape that will include an analysis of the Porter’s Five Forces within the Australian Dairy Industry. Moreover the report provides a comprehensive competitive advantage and quantitative analysis of the Australian Dairy industry. Competitive environment: Understanding the Australian dairy crisisThe Australian dairy crisis started when the two major processing companies, Murray Goulbun and Fonterra announced unexpected and backdated price cuts. This decision affected most of the Australian farmers especially from the Southern regions whose only source of income had been disrupted (McDowell and Nash, 2012). Most of these farmers relied on the expanding Asian markets especially the Chinese increased demand for powder milk products. Tracing background of the crisis
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Strategic Management of the Australian Dairy Industry 3In essence, the Ukraine conflict is directly linked to the global milk crisis that also affected the Australian farmers. This was particularly true after the Malaysian Airlines flight MH17 was allegedly shot down by Russian backed rebels in Crimea killing everybody on board. The result was a protracted trade war which saw Russia slapped with numerous sanctions from the European Union and the U.S (Buys et al., 2014). Russia reacted by banning all imports from Western dairy companies from coming into the country. The Australian dairy farmers were greatly affected by this decision taken by Russian government. This is because milk and dairy products from the European Union and the U.S started flooding markets that were initially dominated by Australian companies. To be precise, dairy products from the EU that were initially branded for the Russian markets had tobe rebranded and sold locally and to other new markets such as Asia (Buys et al., 2014). The outcome was a flooded market with dairy products which prompted major processing companies to slash their prices to remain competitive. As a result of the Russian ban of European dairy products, the EU embarked on its long-term objective of eradicating reliance on dairy production by exploring other viable alternatives and substitutes (Von Keyserlingk et al., 2013). The EU also removed the milk quotas further propelling a storm that was already ravaging the Australian dairy industry. The increased stockpiles of cheese and milk powder among other related products meant that production had outstripped demand. Prices of dairy products fell and this meant that farmers were paid less for their commodities. The Chinese market which the Australian farmers targeted also had a stretched supply of dairy products (Lees et al., 2012). Correspondingly, New Zealand’s decision to halt the building of milk dehydrators and explore other feasible production options further affected the Australian Milk industry (Tiwari et al, 2012). The country reasoned that the reducing global powder milk prices was bad for the economy and could easily affect other sectors if it was not adequately contained.
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Strategic Management of the Australian Dairy Industry 4The effects of the Australian milk crisis The immediate effect of the Australian milk crisis was a reduction in farmers’ incomes with most farmers struggling to keep afloat. Companies such as Murray Goulburn started diversifying into other nutritional product such as soy milk to sustain their competitiveadvantage (McDowell and Nash, 2012). The company was also forced to cut milk prices for Australian farmers and significantly re-evaluate its profit forecast. Notably, the decision by Murray Goulburn and Fonterra companies to cut prices exerted the biggest blow to the Australian dairy industry. Strategic landscape: Effects of the Porter’s Five Forces within the Australian DairyIndustryThreat of competitive rivalry There are numerous firms that are currently operating in the Australian dairy industry.As such, there is a comparatively higher level of competitive rivalry in this particular industry. The companies’ market share vary significantly depending on individual operationalprowess among other market factors (Roberts et al., 2012). With the industry recording tremendous growth over the last few decades, dairy companies in the sector must upgrade their products if they are to sustain the fierce global competitions. According to Klerkx and Nettle (2013), most dairy product consumers relates high price to better quality and nutritious products, and companies operating in the industry must comply with such market requirements. Moreover, given the fierce competitive rivalry, most Australian dairy companies are currently focusing on the development of after-sale service, and include setting up free health clubs that provides nutrition information and advice to theirconsumers among other related consultancy service. Suppliers’ bargaining power
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