dairy marketing dr. roger ginder econ 338 fall 2009 lecture # 9
TRANSCRIPT
Dairy Marketing
Dr. Roger Ginder
Econ 338
Fall 2009
Lecture # 9
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%
-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)
TRENDS IN THE AGRIBUSINESS ENVIRONMENT AND VALUE
CHAINS
AGRIBUSINESS ENVIRONMENT
• MORE COMPETITIVE
• MORE CONCENTRATED
• MORE INTERDEPENDENT
• MORE INFORMATION ORIENTED
• MORE END USER ORIENTED
• RAPIDLY CHANGING
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
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
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
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
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
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
GRAIN PRODUCER
FEED MILL
LIVESTOCK PROD.
SLAUGHTER PLANT
MEAT PROCESSING PLANT
RETAIL DISTRIBUTION
FINAL CONSUMER
Figure 1. Human Consumption Value Chain for Livestock
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
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
GRAIN PRODUCER
FEED MILL
LIVESTOCK PROD.
SLAUGHTER PLANT
MEAT PROCESSING PLANT
RETAIL DISTRIBUTION
FINAL CONSUMER
Figure 1. Human Consumption Value Chain for Livestock
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
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
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
GRAIN/FORAGE PRODUCERS
FEED INGREDIENT SUPPLIERS
MILK PRODUCER
COOPERATIVE HANDLER
MILK PROCESSING PLANT
FOOD MANUFACTURER
RETAILER
Figure 1. Human Consumption Value Chain for MILK
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
TASTE
Time
Consumer Value
Hierarchy
Source: Ron Olson, General Mills
Consumer Values in Food Products
TASTE
CONVENIENCE
Time
Consumer Value
Hierarchy
Source: Ron Olson, General Mills
Consumer Values in Food Products
TASTE
CONVENIENCE
HEALTH BENEFITS
Time
Consumer Value
Hierarchy
Source: Ron Olson, General Mills
Consumer Values in Food Products
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
NEW APPROACH TO VALUE CHAINS
• PROCESSOR TRAITS GOING FORWARD– HIGHER LEVELS OF DESIRED COMPONENTS
– IMPROVED PROCESSING EFFICIENCY
– IMPROVED FUNCTIONALITY IN FOOD MANUFACTURING
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
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
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
GRAIN/FORAGE PRODUCERS
FEED INGREDIENT SUPPLIERS
MILK PRODUCER
COOPERATIVE HANDLER
MILK PROCESSING PLANT
FOOD MANUFACTURER
RETAILER
Figure 1. Human Consumption Value Chain for MILK
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
Questions?