dairy marketing dr. roger ginder econ 338 fall 2009 lecture # 9
TRANSCRIPT
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Dairy Marketing
Dr. Roger Ginder
Econ 338
Fall 2009
Lecture # 9
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CONSUMER TRENDS(ETHNICITY)
• U.S. population will be nearly 50% non white by year
2050 2000 2050
White 72% 53%
Hispanic 11% 25%
African American 12% 14%
Asian 4% 8%
Native American 1% 1%
•Trend will be led by an increase in Hispanic population
of more than 125%
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-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '00 '02 '04 '06 '08
Bill
ion
s o
f lb
s.
Source: ERS data, USDA Net Removals, Milk Equivalent-Milkfat Basis, 8/23/05
CCC Net Removals(milk equivalent, milkfat basis)
CCC Net Removals(milk equivalent, milkfat basis)
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TRENDS IN THE AGRIBUSINESS ENVIRONMENT AND VALUE
CHAINS
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AGRIBUSINESS ENVIRONMENT
• MORE COMPETITIVE
• MORE CONCENTRATED
• MORE INTERDEPENDENT
• MORE INFORMATION ORIENTED
• MORE END USER ORIENTED
• RAPIDLY CHANGING
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VALUE CHAINS
• VALUE CHAINS ARE A USEFUL TOOL TO USE IN UNDERSTANDING CURRENT TRENDS
• A VALUE CHAIN INCLUDES ALL OF THE PRODUCTION AND MARKTING ACTIVITIES REQUIRED TO CONVERT RAW INPUTS INTO A FINAL PRODUCT FOR CONSUMER
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TRADITIONAL VALUE CHAINS FOR AGRICULTURE
• INDIVIDUAL FIRMS COMPETING AT EACH LEVEL
• OPEN MARKETS BETWEEN EACH LEVEL
• CONSUMER PREFERENCES COMMUNICATED THROUGH THE CHAIN BY PRICE
• LITTLE UNDERSTANDING OF FIRMS AT OTHER LEVELS
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INPUT SUPPLY
PRODUCER
ELEVATOR 1ST HANDLER
GRAIN/OILSEED PROCESSOR
REFINER
FOOD MANUFACTURING
RETAIL DISTRIBUTION
FINAL CONSUMER
Figure 1. Human Consumption Value Chain for Grains and Oilseeds
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TRADITIONAL VALUE CHAINS FOR AGRICULTURE
• A FIRMS MAJOR STRATEGIC AND COMPETITIVE CONCERNS WERE AT THEIR OWN LEVEL
• LITTLE CONCERN ABOUT PROBLEMS OR ACTIVITIES AT OTHER LEVELS IN THE CHAIN
• MARKET PRICES SERVED AS THE MAIN FORM OF COMMUNICATION BETWEEN LEVELS
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TRADITIONAL VALUE CHAINS FOR AGRICULTURE
• CHAIN EFFICIENCIES GAINED BY COMPETITION AT EACH LEVEL
• INFORMATION WAS HELD CLOSLY BY THE FIRMS IN THE CHAIN– NOT SHARED WITH COMPETITORS AT THEIR
LEVEL– NOT SHARED WITH CUSTOMERS AT NEXT
LEVEL
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ONE NEW APPROACH TO VALUE CHAINS---VERTICAL INTEGRATION
• GAIN EFFICIENCY BY ELLIMINATING FUNCTIONS IN THE CHAIN
• ELLIMINATE COSTS BETWEEN LEVELS IN THE CHANNEL
• CONVERT PROFIT CENTERS TO COST CENTERS
• IMPROVE PERFORMANCE OF THE CHANNEL----LOWER COSTS
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GRAIN PRODUCER
FEED MILL
LIVESTOCK PROD.
SLAUGHTER PLANT
MEAT PROCESSING PLANT
RETAIL DISTRIBUTION
FINAL CONSUMER
Figure 1. Human Consumption Value Chain for Livestock
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ANOTHER NEW APPROACH TO VALUE CHAINS--COORDINATION
• IMPROVE QUALITY BY BETTER COORDINATING FUNCTIONS IN THE VALUE CHAIN
• IMPROVE PRODUCT QUALITY BY INFUENCING HOW FIRMS AT OTHER LEVELS OPERATE
• REDUCE COSTS BY PROVIDING INCENTIVES TO FIRMS AT OTHER LEVELS
• COMMUNICATE CONSUMER PREFERENCES MORE ACCURATELY
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ANOTHER NEW APPROACH TO VALUE CHAINS--COORDINATION
• SOME EXAMPLES OF COORDINATION IN THE LIVESTOCK VALUE CHAIN– CARCASS CHARACTERISTICS AND LEANNESS IN
HOGS– FECAL AND BACTERIA CONTAMINATION IN BEEF AND
POULTRY– WITHDRAWAL PERIODS FROM DRUG S AND
TREATMENTS– COOL AND SOURCE ANIMAL IDENTIFICATION FOR
CATTLE AND HOGS– ORGANIC MEATS
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GRAIN PRODUCER
FEED MILL
LIVESTOCK PROD.
SLAUGHTER PLANT
MEAT PROCESSING PLANT
RETAIL DISTRIBUTION
FINAL CONSUMER
Figure 1. Human Consumption Value Chain for Livestock
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SOME DETERMINANTS OF A VALUE CHAIN’S SUCCESS
• FOCUS ON VALUE CREATION IN FINAL PRODUCT
• SHARING INFORMATION TO CREATE COST SAVINGS OR ADD VALUE
• EQUITABLE SHARING OF RETURNS FOR VALUE CREATION
• MUTUAL TRUST/COOPERATION AMONG PLAYERS
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SOME DETERMINANTS OF A VALUE CHAIN’S SUCCESS
• OWNERSHIP WHERE NECESSARY
• ALLIANCES WHERE POSSIBLE
• SELECTION OF VIABLE PARTNERS
• CRITICAL MASS AND MARKET PRESENCE
• QUALITY LEADERSHIP
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NEW APPROACH TO VALUE CHAINS
• NEW VARIETIES OF COMPETITION ARE EMERGING
• COMPETITION AMONG VALUE CHAINS RATHER THAN AMONG FIRMS AT INDIVIDUAL LEVELS
• IN SOME CASES FIRMS AT EACH LEVEL ARE ALIGNING WITH COMPETING CHAINS
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GRAIN/FORAGE PRODUCERS
FEED INGREDIENT SUPPLIERS
MILK PRODUCER
COOPERATIVE HANDLER
MILK PROCESSING PLANT
FOOD MANUFACTURER
RETAILER
Figure 1. Human Consumption Value Chain for MILK
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CONSUMER VALUE TRENDS
• DAIRY VALUE CHAINS WILL BE IMPACTED BY FOOD MANUFACTURING AND RETAIL LEVELS IN THE CHAIN– THEY WILL BE LOOKING AT WHAT CONSUMERS
DEMAND – PRODUCERS WILL BE INVOLVED MORE AND
MORE IN PROVIDING DESIRED PRODUCT CHARACTERISTICS
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TASTE
Time
Consumer Value
Hierarchy
Source: Ron Olson, General Mills
Consumer Values in Food Products
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TASTE
CONVENIENCE
Time
Consumer Value
Hierarchy
Source: Ron Olson, General Mills
Consumer Values in Food Products
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TASTE
CONVENIENCE
HEALTH BENEFITS
Time
Consumer Value
Hierarchy
Source: Ron Olson, General Mills
Consumer Values in Food Products
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CONSUMER VALUE TRENDS
• IT IS GENERALLY ACCEPTED THAT THE FOOD MANUFACTURER CANNOT IGNORE THE LOWER ITEMS IN THE VALUE HEIRARCHY
• MUST BE ABLE TO PROVIDE ALL THREE– TASTE– CONVENIENCE– HEALTH BENEFITS
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NEW APPROACH TO VALUE CHAINS
• PROCESSOR TRAITS GOING FORWARD– HIGHER LEVELS OF DESIRED COMPONENTS
– IMPROVED PROCESSING EFFICIENCY
– IMPROVED FUNCTIONALITY IN FOOD MANUFACTURING
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NEW APPROACH TO VALUE CHAINS
• NO LONGER VIEW QUALITY OF PRODUCTS AS STARTING AT FRONT DOOR OF PLANT
• FUTURE SUPPLY CHAIN LEVELS WILL BE MORE INTERCONNECTED MORE CLOSELY THAN IN THE PAST
• INFORMATION SHARED FROM RAW PRODUCT SOURCES THROUGH BACK DOOR OF PLANT AND ON DOWN TO RETAIL AND CONSUMER
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NEW APPROACH TO VALUE CHAINS
• REQUIRES RADICAL CHANGES IN RAW PRODUCT PROCUREMENT– CONTRACT SPECIFICATIONS FOR SOME
– ESTABLISHING TOLERENCES AND TESTING PROTOCOLS AT All LEVELS
– MORE COMPLETE UNDERSTANDING OF SUPPLIER COSTS AND CAPABILITIES
– ARRIVING AT MUTUALLY ACCEPTABLE SOLUTIONS THAT PROVIDE GREATER VALUE
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NEW APPROACH TO VALUE CHAINS
• HEALTHINESS AND WHOLESOMENESS HAVE BECOME A VALUE EXPECTATION FOR CONSUMERS– NUTRIENT CONTENT
– NUTRIENT QUALITY• FAT• PROTIEN • CARBOHYDRATES• VITAMINS AND MINERALS
– FOOD SAFETY
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GRAIN/FORAGE PRODUCERS
FEED INGREDIENT SUPPLIERS
MILK PRODUCER
COOPERATIVE HANDLER
MILK PROCESSING PLANT
FOOD MANUFACTURER
RETAILER
Figure 1. Human Consumption Value Chain for MILK
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NEW APPROACH TO VALUE CHAINS
• CHANGES IN WHO SUPPLIES RAW PRODUCT– ESTABLISHING A LIST OF “APPROVED”
SUPPLIERS– INSPECTING SUPPLIER FACILITIES– ESTABLISHING REQUIRED SUPPLIER
DOCUMENTATION– MUCH SMALLER # OF SUPPLIERS
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Questions?