Dairy is one of the most profitable industries in Australia. Moreover, dairy industry contributes a good portion in the gross domestic product of Australia. One of the key advantages that the dairy producers in Australia possess is the favorable weather condition. Another advantage they are having is the variety of the dairy products. Australian dairy industry is having products such as cheese, butter, skimmed milks, milk powder and different variants of milk. This advantage of them helps them to export their products according to the different requirement in the global market (Douphrate et al. 2013). Moreover, it is also been reported export of the fresh milk is difficult due to less lasting period. Thus, having various variants of the dairy product helps them to increase the lasting period of the items and exporting in various countries. However, according to the reports, dairy industry in Australia is mainly pasture based and thus they are more dependent on the seasonal condition and rainfall. This is one of the reasons of the fluctuating growth rate of the dairy production in Australia.
This report will discuss about the external environment being faced by the Australian dairy industries along with determining the strategic landscape of the industry. Porter five forces will be used in order to determine the competitiveness of the industry. Moreover, quantitative analysis will be done in order to determine the competitive position of the Australian dairy industry compared to other country.
Dairy industry in Australia operates in diversified operating environment and thus it is important to determine the environmental factors from different perspectives. Hence, PESTLE analysis will be used in order to determine the external factors.
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Political |
The political environment for the Australian dairy industry is more or less favorable due to the stability in the political scenario of Australia. Moreover, according to the transparency international, Australia is having score of 79, which denotes that corruption is less in Australia. Thus, it is one of the favorable factors for the organizations in the dairy industry. The political infrastructure of Australia is also strong with having effective democratic system. However, a major section of the dairy industry in Australia is not organized and thus, the safety and health regulations are not being followed properly, which is one of the key drawbacks of the Australian dairy industry. |
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Economic |
As discussed earlier, Australian dairy industry is one of the major contributors in the gross domestic product of Australia. However, the size of the dairy industry is relatively small compared to other Australian industry. Though, investment has increased in the dairy sector but it does not have any positive results in enhancing the output. Moreover, the rate of investment in the dairy sector is lower compared to other sectors in Australia. According to the above figure, it can be concluded that, though the value of capital invested in the dairy industry is increasing, but the number of dairy farms are decreasing (Agriculture.gov.au 2017). Thus, this will an economic challenge due to the reason that, the less will be the number of the dairy farms, the less will be the production of the dairy products. |
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Social |
The social environment for the dairy industry of Australia is diverse due to the reason that, they are having huge varieties of products and cater to different sections of customers. However, social acceptance of the dairy products in Australia is favorable and is increasing. According to the reports, consumption of the fresh milk in Australia is 110 litres per capita (Dairyaustralia.com.au 2017). Moreover, with having different varieties of milk along with good number of players in the market, the market penetration is also good. However, one of the issues is the export of the milk. This is due to the reason that, different countries are having different regulations and standards for trading of food and drinks such as milk. Thus, it is difficult for the dairy industries to adhere to all the diverse requirements in different countries. The above figure shows that, the rate of consumption of fresh milk is stable, however other dairy items such as cheese and yogurt is increasing their market share (The Dairy Site 2017). This is mainly due to the reason that, these products other than the fresh milk is long lasting. |
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Technology |
In the current scenario of the cont5emporray business, technology plays an important role by enhancing the effectiveness of the production process. in the case of the Australian dairy industry, it is being reported that, updated technologies are being initiated by the farmers. One of the key technologies being used by them is to reduce the milking time in order to decrease the average cost of the production process (Nettle, Brightling and Hope 2013). Moreover, it is reported that, with the initiation of the technology in the dairy sector, the production of the milk also get increased. Average productivity per cow has increased by 10 percent in 2016 compared to the 2014. However, one of the technological threats is the rapid development in the global market. Some other countries are initiating updated technologies in the dairy sector, which will pose challenge for the Australian dairy industry due to the reason that, it will involve more cost in initiating updated technologies. The above figure shows that, with the initiation of the technologies both internally and externally, the production of milk gets increased (Agriculture.vic.gov.au 2017). It is helping them to enhance the productivity of the industry with having the same resources. |
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Legal |
There are various legal regulations being followed and initiated by the government of Australia for the dairy industry. One of the prominent regulations is the “The Primary Production and Processing Standard for Dairy”. This regulation states different clause to be followed by the players in the dairy industry (Foodstandards.gov.au 2017). Moreover, there are various legal regulations being initiated by the government regarding the health and safety of the internal stakeholders in the dairy industry. However, one of the key threats is the different food standard rules in different countries. In addition, more countries are issuing stringent standards for the food and beverage that will be difficult to adhere with. |
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Environmental |
For the dairy industry, environment is one of the key factors to be considered. As earlier discussed, favorable weather in Australia is one of the key advantages for their dairy industry. However, over dependence on the rainfall force the farmers to buy water from outside, which increases the cost. Moreover, maintaining of livestock cause huge impact on the environment (Barkema et al. 2015). Accordingly, there are various laws being introduced to reduce the impact of the livestock on the environment. Waste management is also important for the livestock (Rad and Lewis 2014). However, initiation of greener approach will involve more cost for the players in this sector. |
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Bargaining power of buyers |
· There are various options are available for the buyers in the domestic and international market. · Switching cost is low. · Higher degree of force. · Innovation is important to stay ahead in the competition and to retain the existing customers. |
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Bargaining power of the suppliers |
· Good number of suppliers is available in the market. · Diverse and different requirement of raw materials. · Relationship marketing with the suppliers will help to reduce the cost of bargaining. · Moderate degree of force. |
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Threats of entrants |
· Threats of entry are lower due to involvement of high cost of investment. · However, small organizations can enter to operate in small quantity. · Economies of scale are important. · Backward integration is important. |
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Threat of substitutes |
· Various players are offering same products. · Price is market determined. · Offering quality product and service will help to reduce the threat of substitute. · By entering in new market and to increase the market area. |
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Industry rivalry |
· More competitors will lead to the less profitability of the existing players. · Differentiation strategy should be initiated in order to cut off the rivalry in the market. · Entering in new market will help to reduce the impact of the industry rivalry. |
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2013 |
2014 |
2015 |
2016 |
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Cost of production |
US$ 629174 |
US$ 721341 |
US$733144 |
US$768532 |
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Labor costs |
US$ 2210 |
US$ 2351 |
US$ 2500 |
US$ 2780 |
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Other cost including transportation, fodder and management |
US$ 1600 |
US$ 1850 |
US$ 2150 |
US$ 2260 |
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Total cost |
US$ 632984 |
US$ 725542 |
US$ 737794 |
US$ 773572 |
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Sales of production |
US$ 5.8 Billion |
US$ 6.1 Billion |
US$ 6.4 Bilion |
US$ 7 Billion |
Source: (Pc.gov.au 2017)
Thus, from the above table, it can be conluded that, transporation cost is increasing rapidly compared to ther cost. It is being reported that, transportation cost of per tone of milk is getting incrased at a rapid rate. However, as per the report of dairy Australia, by 2017, it is being projected that the revenue from the dairy industry will cross US$ 8 billion. Thus, with the incrase in the cost, the revenue is also geeting increased mainly due to the growth in the export market.
Overview of Australian dairy industry
Source: (Dairyaustralia.com.au 2017)
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Australia |
New Zealand |
|
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Herd size |
12566 |
11918 |
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Number of cows |
1.66 million |
5 million |
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Milk production |
9.539 million litres |
21 billion litres |
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Employees |
38000 |
49110 |
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Valuation |
US$ 13.7 billion |
$NZ 12.2 billion |
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Export rate |
6 % of global dairy trade |
3 % of global dairy trade |
Source: (Dairyatwork.co.nz 2017)
From the above table, it can be concluded that, the effectiveness of the production process of Australian dairy industry is their key competitive advantages due to the reason that, Australia is having less number of livestock compared to New Zealand. However, the export rate of Australia is more along with the revenue generation. Thus, the production process of Australian dairy industry is more efficient.
Conclusion
Thus, from the above discussion it can be concluded that though, Australia is having less number of livestock and production facilities, but the total production is more compared to some other countries. Moreover, the growth of the dairy sector is showing positive trend, which is mainly due to the reason of increase in the export area of Australian dairy industry. However, one of the key challenges being identified is the increased cost of transportation, which may increase the end product.
Reference
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