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Strategies and Relationships in the Dairy-Food Supply Chain: Options for Milk Producers in South-East Queensland

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Strategies and Relationships in the Dairy-Food Supply Chain: Options for Milk Producers in South-East Queensland The University of Queensland Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland A thesis submitted for the degree of Doctor of Philosophy at the University of Queensland in September 2004 Gurpreet Issar School of Natural and Rural Systems Management Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland Declaration of Originality The work presented in the thesis, to the best of my knowledge, is the original work of the author. It has not been submitted for a degree at this or any other university. Gurpreet Issar ii Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland Acknowledgements I would like to begin by thanking Tom Cowan for being a guide and a mentor during the entire process of writing this thesis. I consider myself extremely fortunate to have had Tom’s professional and personal support, and unfaltering encouragement. I also wish to thank Beth Woods for her continuing involvement in the supervision of my PhD. I am especially grateful for her direction at a very critical time of writing this thesis. My sincere thanks to Mal Wegener for valuable suggestions and providing me with industry information. I am also grateful to Dairy Australia for providing the funding which made this research possible. I must also acknowledge the Graduate School at the University of Queensland for the Graduate School Research Travel Award which provided me with an opportunity to travel to New Zealand for PhD related field work. I am grateful to my industry based advisers, Graeme Busby, Alan Murray and Alex Ashwood for providing industry contacts and making themselves available for interviews. I wish to thank Rita Mortiss and Stephanie Cash in providing assistance with the editing and helping to pull the final product together. Thank you to my family for providing endless encouragement and support. Heartfelt thanks to my parents for our weekly discussions on life and spirituality. Thanks to my daughter Anahita Issar for providing those warm hugs and kisses which brought such cheer and joy in life. Finally, I wish to thank my wife Meenu Issar for her unconditional support and encouragement. Her companionship and love was like a beacon that carried me through some of the very difficult times during all these years. iii Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland List of publications (as a primary author, made during candidature) Issar, G, Cowan, RT, Woods, EJ & Wegener, M (2004) Dynamics of Australian dairy-food supply chain: strategic options for participants in a deregulated environment, paper presented to Sixth International Conference on Chain and Network Management in Agribusiness and the Food Industry, Ede, the Netherlands, 27-28 May, Wageningen Academic Publishers, 458-64 pp. Issar, G, Cowan, RT & Wegener, M (2003) Success strategies being implemented in fresh milk supply chains, paper presented to 14th International Farm Management Congress, Perth, Australia, 10-15 August, 528-37 pp. Issar, G & Cowan, RT (2003) Trends in Australian fresh milk supply chains, paper presented to First Queensland Branch Conference of The Australian Society of Animal Production, Brisbane, Australia, 30-31 July, Australian Society of Animal Production Queensland Branch. Issar, G & Cowan, RT (2002) Milk producers managing market risks in deregulated environment, paper presented to Dairy Research Conference, Shepparton, Australia, The University of Melbourne, April, 167-8 pp. iv Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland Abstract Following deregulation, participants in the Australian dairy-food supply chain, especially milk producers, are confronted with a more complex and rapidly changing environment. The milk producers have found it difficult to adjust to a situation marked by an intensely competitive retail market in the key dairy categories, aggressive competition among processors for rights to supply private labels of the major retailers, and increasing use of contracts with producers, with stringent quality and quantity obligations, to ensure milk supply. This research, set in south-east Queensland and northern NSW, studied the strategic options available to the milk producers in a dynamic and transitory dairy-food supply chain environment. Initially, the research was directed towards identifying risks facing milk producers in a deregulated market environment, and proposing strategies to manage them. However, after a preliminary analysis of the situation, it became clear that identifying the strategic options for milk producers and understanding the dynamics of the domestic dairy markets would require a much broader scope, with understanding of the strategies pursued by the dairy-food supply chain participants (including retailers, processors, milk producers and input providers), the nature of relationships between the chain participants, and how these strategies and the relationships were developing. The profound impact of the trends shaping the dairy-food supply chain necessitated the adoption of supply chain management theory to underpin the conceptual framework for the research. The framework, which provided the focus and boundaries to the research, was designed to integrate two different perspectives in strategic management literature, namely industry competition and organisational capability. It focused on the supply chain, along with the firm, as the proper levels for analysing key factors affecting competitive strategies. A conceptual model was developed based on this framework, and was subsequently adapted to the developing line of reasoning, as the findings from this research were analysed and interpreted. A qualitative research approach was adopted to accommodate the complexity and multi-dimensionality of the research topic. A constructivist research paradigm, and a v Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland flexible, iterative and continuous research design involving qualitative interviews with the key supply-chain participants, allowed an in-depth analysis of the situation, which was continually changing in terms of its structure and issues. The data analysis plan was formulated to identify the range and salience of key items and concepts, discover the relationships among these, and adapt the conceptual model to more effectively deal with these findings. NVivo software-assisted analysis helped with consolidation, consistency, speed and representation of data; whereas theory and data triangulation enhanced validity and trustworthiness of the results. While the strategies of different firms analysed in this research varied depending on their corporate philosophy, capabilities, and choice of market positioning; a common strategic direction can be discerned in the aggregate dairy-food supply chain, where strategies of individual firms were interlinked and interdependent in pursuit of end- user satisfaction with the principal motivation of increasing economic value for the chain as a whole, and thereby for its participants. The retailers have focused on increasing market share and lowering cost of business in order to achieve better returns on the invested capital. This had led to their pursuing private label strategies, and taking control of product movements from processor to the retailer in a bid for supply chain efficiency. The processors in turn have sought to expand into new markets, strengthen brand portfolios in growing dairy segments and pursue targeted market leadership strategies to counter increasing private label influence, and at the same time use private label contracts to establish multi-functional linkages with the retailers. Processors were also increasingly entering into contractual agreements with their milk suppliers and putting greater emphasis on farm services for a reliable and sustainable supply base. Milk producers’ major strategic focus was on operational efficiencies, while their industry representatives were lobbying with the regulatory authorities to obtain a ‘fair’ farmgate milk price, as farmgate milk returns were increasingly being affected by the developments at the retail end and the export market conditions. This research, on the other hand, shows that for business success a paradigm shift may be required in the way dairy-farm businesses are managed. While continued efficiency improvement on-farm is essential, there are additional challenges for milk vi Strategies and Relationships in the Dairy-food Supply Chain: Options for Milk Producers in South-east Queensland producers in managing their businesses strategically. Being part of a dynamic supply chain environment would necessitate taking a position which makes best use of their capabilities and resources. The distinctive positioning could be aligning with a particular processor, or accessing a niche market. It could be entering into an individual contract with a processor or being part of a supply group. The strategic choice of the producer will need to be backed by capabilities such as market knowledge, strong business relationships in the output and input markets, and financial, contract negotiation, and people management skills. The focus should be on profitability rather than operational efficiency for its own sake. The results demonstrate that the Australian dairy-food
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