Deregulating and developing dairy-food chain relationships: Implications for farm business management in south east Queensland

Parker, Amanda Jane (2003). Deregulating and developing dairy-food chain relationships: Implications for farm business management in south east Queensland PhD Thesis, School of Natural and Rural Systems Management, The University of Queensland.

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Author Parker, Amanda Jane
Thesis Title Deregulating and developing dairy-food chain relationships: Implications for farm business management in south east Queensland
School, Centre or Institute School of Natural and Rural Systems Management
Institution The University of Queensland
Publication date 2003-02-25
Thesis type PhD Thesis
Supervisor Beth Woods
Total pages 242
Language eng
Subjects 0701 Agriculture, Land and Farm Management
1503 Business and Management
Formatted abstract

The process of deregulating the dairy industry had significant implications for on-farm business management decision making in south east Queensland. The central purpose of this research, initiated by the Dairy Research and Development Corporation, was to examine the adaptation process of dairy farm businesses to a more competitive environment. There was a common view within the dairy industry that farmers may not have the capacity to deal with the changes associated with deregulation or to make the appropriate adaptations in their farm business management.

In approaching the research problem it became clear that an understanding of relationships in the broader industry context was required to interpret the dynamics of changing on-farm decision making and to identify the opportunities arising from deregulation. Supply chain management theory provided a broad conceptual framework for examining deregulation from economic, political, social and cultural perspectives. The structures of dairy-food chains and relationships were investigated through interviews with participants at the farm business, processing and retail levels, as well as individuals from the farm advisory services and industry organisations.

The complexity of industry change and relationship development was explored through the research questions. These firstly examined the nature of the regulated environment and relationships, and their influences on farm business management. The historical and legislative environment of the dairy industry and the structure of the industry under regulation were examined, developing an understanding of industry paradigms and how they were changing in preparation for deregulation.

The focus then shifted to the implications of deregulation on dairy-food chain relationships and how businesses within the industry responded to the changing environment. Based on this understanding the approach taken by the government and industry organisations in helping the industry to manage the transition to a deregulated environment was questioned. An assessment of industry documentation and public media reports suggested that their approach focused on social welfare and compensation arrangements. Further, government and industry organisations failed to focus on alternative legislative and organisational means of balancing negotiations between farm businesses and processors in the years prior to deregulation. This limited their insight and their capacity to help farm businesses to make the necessary changes in their decision making or consider the issues associated with negotiation in a commercial marketplace.

Finally consideration returned to farm business management decisions, and the question of whether supply chain thinking provides direction for future farm business decision making. The results suggested that the supply chain concepts of power, trust and communication would play pivotal roles in the negotiation, development and maintenance of relationships within the dairy-food chains of south east Queensland. It is clear that the distribution of power, the levels of trust and the effectiveness of communication are interrelated. Post deregulation, businesses within the production sector were in an inherently weak bargaining position because of the large number of small farm businesses supplying a highly concentrated processing sector. The changing nature of relationships between processors, distributors and retailers also had considerable implications for farm business relationships in dairy-food chains given that the business within these relationships were also experiencing difficultly in balancing power, building trust and communicating.

This research proves that sustainable farm business management will not only require improved business management but also improved management of relationships with customers and suppliers. Future successful business decision making on farms in south east Queensland will require:-

•  decisions on milk production which will establish the farm as a valued supplier to at least one processor. These decisions may include quantity, quality, composition (or other special attributes), timing, and may even include location of the production process.

• the decision to develop the skills and knowledge associated with modern farm business management, including financial planning and the use of business plans.

• decisions on which dairy-food chain/s to become a part of, including which milk processor to supply (which processor can the farm business best meet the requirements of, has similar values and ideals, and will offer the best support for the farm business and relationship).

• decisions on either remaining as an individual farm business management unit or joining some form of collective bargaining group, producer group or similar horizontal coordination as a means of negotiating the supply and sale of milk.

This final area of decision making where businesses take a more supply chain orientated approach, if theory adequately describes supply chain outcomes, should enable farm businesses as a part of a group to negotiate more powerfully with other links in the chain. Since individual businesses are unlikely to achieve sufficient size to negotiate with comparable power with the major processors, this research strongly suggests that collective bargaining and supply groups (horizontal integration) will provide opportunities for farm businesses to improve their power in negotiations.

Keyword Dairy farms -- Economic aspects -- Queensland
Dairy products industry -- Deregulation -- Queensland
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