Economics for Business
Inglenook Dairy and the Australian Dairy Industry
Intense competition between raw milk producers combined with high levels of market concentration in both the milk processing and retail distribution sectors have powerfully constrained the profit potential of most dairy farms.
Inglenook Dairy has embarked on a daring strategy of freeing that dairy from the fate of other raw milk producers by (a) integrating the downstream milk processing and distribution functions within their business, and (b) differentiating and distributing their products according to the needs of specific target markets. Their aim is to develop a boutique model of dairy production, processing and distribution, capture a greater share of industry profits, and secure for Inglenook Dairy a sustainable competitive advantage and improved long run profitability.
2.0 The Task
You have been commissioned by Inglenook Dairy to:
Describe and analyse the structure of the Australian Dairy Industry, identifying the stages through which raw milk is produced into dairy products and distributed and marketed to final consumers.
Identify and analyse the structure of any intermediate markets (ie vertically-related markets) involved in the production and distribution of final dairy products (eg perfect competition; monopolistic competition, oligopoly, monopoly)
Explain the implications of the market structures for the distribution of market power in the industry, particularly power over pricing and the implications for the accumulation of industry profits at various stages of the industry production chain;
explain and evaluate Inglenook Dairy’s current strategy to capture more of the industry’s potential profit by vertically integrating forward into the processing and marketing of its own dairy products;
identify any opportunities for or potential threats to long run profits, and
make recommendations and/or suggest any amendments to the current strategy that might help to achieve the Dairy’s goal of sustainable long run profitability.
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