Analysis of Strategic Management in the Australian Dairy Industry

This report offers a comprehensive strategic analysis of the Australian dairy industry, focusing on its current crisis and global competitiveness. It examines the industry's competitive environment, including domestic and international markets, and modes of entry. The report utilizes the Value Chain Model and Porter's Five Forces to assess the strategic landscape, highlighting both competitive advantages and disadvantages. A quantitative analysis is conducted, incorporating key statistics, export data, and market concentration figures. The report discusses the challenges faced by the industry, such as fluctuating market prices, competition from substitutes, and production issues. It also explores the advantages of Australian dairy farms, including milking techniques and high-quality breeds, while acknowledging the impact of unscientific practices and technological limitations. The conclusion summarizes the findings and implications for the future of the Australian dairy industry.

Running head: STRATEGIC MANAGEMENT
Strategic Management
Name of the student
Name of the university
Author Note:

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Executive Summary
The following report has aimed to discuss on the recent crisis faced by the Dairy Industry of
Australia and its competitiveness in the global market. The 3rd largest dairy product exporter of
the world has been facing some serious crisis regarding milk production. The researcher has
completed a detailed analysis on the following and have discussed on it. He has carried out a
strategic analysis of the subject and has also completed a quantitative research by providing
some key statistics and figures related to the Australian Dairy industry.

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Table of Contents
Introduction......................................................................................................................................5
Competitive Environment................................................................................................................5
Domestic and International Markets Modes of Entry......................................................................7
Value Chain Model..........................................................................................................................7
Figure No 1- Value Chain Model of Australian Dairy Industry......................................................8
Strategic Landscape.........................................................................................................................8
Porter’s Five Forces.........................................................................................................................8
Figure No 2- Porter’s Five Forces Model........................................................................................8
Competitive Advantage.................................................................................................................10
Quantitative Analysis.....................................................................................................................12
Table No 1- Key Statistics of Australian Dairy Industry..............................................................12
Figure No 3- Export of Dairy Products.........................................................................................13
Figure No 4- Dairy Analysis of Australia......................................................................................13
Figure No 5- Snapshot of Australian Dairy Industry.....................................................................14
Table No 2- Market Concentration of Australian Dairy Industry.................................................15
Figure No 6- World’s Leading Dairy Products Exporters.............................................................16
Figure No 7– Total area of Dairy Farming in Australia................................................................16
Figure No 8- Tonnes of Milk Produced per country by per cow...................................................17

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Figure No 9-Producer Support Estimates in Different Countries..................................................18
Figure No 10- Comparison of Australian Dairy Farming.............................................................18
Figure No 11- Return on sales of Dairy Products..........................................................................19
Conclusion.....................................................................................................................................19
Appendix........................................................................................................................................23

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Introduction
The Australian Dairy industry is a 3.4billionAUD industry based on the amount of
production and sales. It is supposed to be one of the largest rural industries of Australia. It
employs more than 40,000 people directly and indirectly. The industry is also one of the biggest
in terms of downstream processing. Significant economic development of rural Australia has
been possible just because of the Diary industry. Australia accounts for just 2% of the global
milk production but it has improved notably in the production of quality dairy products and in
turn has become one of the world’s significant exporters of dairy products. The island continent
occupies the third position in terms of dairy export. The dairy products of Australia are mainly
exported to the different countries of Asia like Japan, Singapore, Indonesia and the Philippines’
The concentration of the Exports of Australia in and around East Asia and the surrounding places
of Indian ocean helps the country to carry out smooth trade and assert their supremacy in these
areas. The main products that are manufactured by the Australian dairy industry include cheese,
butter, milk powders as well as fresh drinking milk. The major dairy producing centres are
located at the rural area of the country.
Competitive Environment
The Australian Dairy Farming industry is in a state of serious crisis. The industry is
suffering mainly due to the cheap rate of other similar products in the market as well as
fluctuations in the amount of cost in both the local and international markets. The presence of
large scale global competitors is posing a serious challenge to the growth of the country’s dairy
industry (Seale et al. 2015). The dairy farmers are finding it tough to adjust in the present
situations. The milk production is on a 21 year low and farmers are expected to produce 700

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million liters fewer milk in the current financial year. Such an immense shortfall in the milk
production will surely have adverse effects on the sustainability of the industry. The rapid fall in
the production will lead to a sharp fall in the exports of the country. The production has been
estimated at around 8.8 billion liters. The major causes of such a situation is the sudden price
drop by major dairy processors Fonterra and Murray Goulburn, wet weather conditions in winter
season are some of the common reasons behind such a crisis (Klerkx and Nettle 2013).
Dairy Australia senior analyst Mr. John Droppert stated that the most affected region of
such a crisis was Northern Victoria. The part of Australia which accounts for a huge production
has been facing a negative downslide of around 18% of the total volume of milk (Byrne et al.
2016). The production of less milk will be surely hurting the cause of other dairy products. The
producers have been failing to meet the market demand for the products and thus are staring at a
blank future.
Another serious concern for the dairy industry is the pressure on the dairy breeds to
perform more so as to meet the demands of the industry. Dairy cows are subjected to continuous
impregnation, calves induction and milking. This process takes a serious toll on the health of the
cows and has been seriously diminishing the amount of milk production on an average. The firm
owners also practice tail docking and remove the horns of the animals which is seriously
reducing the lifespan of these high breed animals (Douphrate et al. 2013). The average lifespan
of these animals have become six to seven years while their original lifespan is around 20 to 25
years. Such unscientific practices by the dairy farms have added up to the crisis as the milk
production has reached the lowest levels.

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Different such problems have made it a burden for the dairy industry of Australia to
compete with the global dairy industry. The presence of such problems for such a long time will
lead to the loss of the position that the Australian industry currently holds in the market in terms
of the exports.
Domestic and International Markets Modes of Entry
The Australian Dairy industry generally enters into international markets by a number of
different strategies. The most common among them are partnering with a number of different
international importers, establishing joint venture companies and partnering with different other
companies of the host country. Australian Dairy farms have also started establishing new
companies in foreign lands by signing MOU’s with the dairy farms of the specific countries.
Value Chain Model

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Figure No 1- Value Chain Model of Australian Dairy Industry
Source- (Martin et al. 2015)
The Value chain model shows the combination of the different elements of Australian
Dairy Farming.
Strategic Landscape
The researcher has used the Porter’s five forces model to analyze the strategies of the
Dairy industry of Australia.
Porter’s Five Forces
Figure No 2- Porter’s Five Forces Model
Source- (As created by the Author)
1. Threat of Substitutes- As mentioned earlier Australian Dairy Farming industry has been
facing huge challenges from different substitutes which are offering quality products at a

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much cheaper price than the market (Martin et al. 2015). The entry of these substitutes in
the market has created a problem for the traditional dairy farms as their products are
slowly losing the competitive edge in the market. The existing customers of the dairy
products are slowly shifting towards these products. The substitute dairy products in the
market are also offering performance advantages for the price value of the products
which is making it a tough proposition.
2. Threat of New Entrants- The threat of entry constitutes the first force of the Porter’s
model. Australian dairy market is already overcrowded with a lot of different
organizations that provide quality dairy products. The existence of huge competition and
powerful competitors makes it difficult for new comers to enter into the industry (Gray et
al. 2014). A recent survey on the Australian dairy industry has revealed that there are
many new firms that are trying to start large scale operations in the Australian market.
The research also revealed that there are lots of barriers faced by these companies.
Barriers include economies of scale, product differentiation, capital requirements and cost
disadvantages.
3. Supplier Power- Supplier power of Australian dairy industry is totally dependent upon
the consumers and buyers. However there are some dominant suppliers present in the
market who demonstrates their power while negotiating with the buyers to increase their
profit. The Australian market contains a considerably less amount of suppliers which
makes it tough for the organizations involved in the dairy business to negotiate the prices
according to their choice. A manager of a leading daily farm stated that it was also tough
for organization (Sinclair et al. 2015).

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4. Buyer Power- The power of buyers refers to the bargaining ability of the buyers.
Australian buyers have a high bargaining power. The products of the Dairy markets are
easily available in different stores and dairy centers of rural and urban Australia which
makes it easier for the people to access the products (Byrne et al. 2016). The high cost of
living in both the rural and urban areas of Australia tends the consumers to choose the
low cost products.
5. Competitive Rivalry- As mentioned earlier the Australian dairy industry faces stiff
competition from other global markets of the world like USA and Canada. There is a
tendency among the buyers to buy the products which have the highest market share in
the world (Turner et al. 2016). The high competition of the global market is one of the
main hurdles faced by the dairy farms of the island continent.
Competitive Advantage
The dairy auction of the world reminds the dairy farm owners of Australia of the massive
advantages and the huge profits that lay in front of them. A global study has estimated that this
year the world will have the largest amount of milk production as a result of the huge demand
(Martin et al. 2015). An approximate amount of more than 530 million tones of milk are believed
to be produced on account of the huge supply from different sources. The dairy farms of
Australia enjoy a healthy competitive advantage over the other competitors. Some of the
advantages of Australian Dairy owners are;
a. Adaption of the milking technique has helped the Australian owners to increase their
activity with a larger herd.

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b. Proper milking machinery has ensured that the milk is collected much faster than the
traditional techniques.
c. The quality of the milk produced by the Australian farms is of the best quality and as per
world standards. There are many other countries which produce much higher amount of
milk than the island continent but they fail to meet the quality provided by the Australian
farms.
d. The use of high quality breeds is another main reason for the success of the Australian
dairy industry as high quality breeds ensure large amount of milk as well as high quality.
e. Implementing the latest technologies has helped the farms save labor costs and other
production costs. The reduction in such costs has increased the profit percentage of the
farms as they are now able to save a considerable sum of money on production.
f. The farms in Australia have been able to schedule proper milking routines that have been
helpful in reducing stress on the herd of animals.
The recent crisis of the Dairy industry of Australia however have led to a different story
altogether as the dairy farms are slowly losing out the competitive advantage of their brand of
products in the local as well as international markets (Ridoutt et al. 2017). Some of the
competitive disadvantages of the Australian dairy industry are;
a. Failure of the traditional farms of Australia to develop and implement new technologies
in dairy farming.
b. Emergence of new industries in some developing nations which is producing much
cheaper goods and is slowly taking over the global market share.
c. Absence of a proper management in the Australian dairy industry has been one of the
main causes for the recent downslide of the industry.

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d. Absence of a proper set of guidelines in dairy farming has also affected the said industry.
Quantitative Analysis
Table No 1- Key Statistics of Australian Dairy Industry
Source- (Barkema et al. 2015)

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Figure No 3- Export of Dairy Products
Source- (As created by the Author)
Figure No 4- Dairy Analysis of Australia
Source- (Klerkx and Nettle 2013)

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Figure No 5- Snapshot of Australian Dairy Industry
Source- (Seale et al. 2015)

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Table No 2- Market Concentration of Australian Dairy Industry
Source- (Ridoutt et al. 2017)

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New Zealand
EU
USA
Australia
Figure No 6- World’s Leading Dairy Products Exporters
Source- (Seale et al. 2015)
Figure No 7– Total area of Dairy Farming in Australia
Source- (Hitt et al. 2012)

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Figure No 8- Tonnes of Milk Produced per country by per cow
Source- (Ridoutt et al. 2017)

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Figure No 9-Producer Support Estimates in Different Countries
Source- (Klerkx and Nettle 2013)
Figure No 10- Comparison of Australian Dairy Farming
Source- (Seale et al. 2015)

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Figure No 11- Return on sales of Dairy Products
Source- (Barkema et al. 2015)
Conclusion
The research that has been conducted by the researcher has been successful to achieve all
its predetermined aims and objectives. The project was successful in providing a brief but
detailed analysis of the dairy industry of Australia which was critical as it provided the readers
with the basic knowledge of the industry on which the study is aimed at. The analysis of the
different problems and the crisis faced by the Australian industry has been critically analyzed by
the researcher. The strategic analysis of the Australian dairy market has been carried out by the
researcher by providing the Porter’s model of the five forces in the industry. A thorough analysis
of the research will conclude that the Australian dairy farms are in a state of acute crisis which
can only be solved courtesy of revolutionary measures like deregulation of the industry and
allowing FDI’s. Such moves can transform the industry and will help it to implement new
technologies and increase the production on a large scale.

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References
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Douphrate, D.I., Hagevoort, G.R., Nonnenmann, M.W., Lunner Kolstrup, C., Reynolds, S.J.,
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Gray, E., Oss-Emer, M. and Sheng, Y., 2014. Australian agricultural productivity
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Appendix
Appendix A
Figure 2 shows the main countries where Australia exports its dairy products. South East
Asia is the largest market of Australian Dairy products with exports accounting to $708 million.
The main markets of South East Asia are Indonesia, Thailand and Singapore. Japan forms
another large chunk of exports as trade figures stood at $459 million in the last year. The weather
of Japan does not suits dairy farming and thus the country is totally dependent on Australia for
meeting its dairy demands. African and Middle East countries are new additions in the list of
Australian exports as the trade this year stood at $326Million.
Appendix B
Figure Number 4 shows the statistics of the Australian Dairy industry. Currently the
country boasts a population of 1.74 Million cows. Annual milk production in the recent year was
9.731 billion liters which shows a sharp rise compared to the last few years when production was
slightly lower than the expected proportion. Average production was 5730 liters per cow.
However the export figures surpassed all limitations and stood at $2.88billion. 34% of the
production was exported to the different countries of the world. The overall profit from dairy
exports stood at $13.5billion. The only dismal figure was the consumption of the milk in
Australia which was just 25% of the total available production in the island nation.