Cheese manufacturing industry in Australia has seen a substantial growth in the last five years. The revenue of Cheese manufacturing industry in Australia amounts $3.7 billion. Three major companies named Bega, Saputo and Fonterra holds the majority of share of Australian Market.

Executive Summary –

Cheese manufacturing industry in Australia has seen a substantial growth in the last five years. The revenue of Cheese manufacturing industry in Australia amounts $3.7 billion. Three major companies named Bega, Saputo and Fonterra holds the majority of share of Australian Market. Nevertheless, this industry has faced numerous challenges in the previous couple of years. Starting form Covid-19, the supply change disruption caused an immense pressure on dairy and cheese manufacturers. As this industry is highly perishable and rely on time sensitive supply chain, Covid-19 has severely affected it (Duan et al., 2022). Variable milk costs and fluctuating exchange rates has also caused immense trouble for the exporters. Furthermore, the demand in conventional cheese products have decreased due to health concerns and other social factors. The trend has shifted to more specialized products such as goat cheese. Exports of Cheese manufacturing industry in Australia has amplified as the demand from Asian countries is increasing day by day. Though the profits of Cheese manufacturing companies might still condense due to expected increase in Milk prices. Industry revenue forecast shows slower rates compared to the previous five years. Yet, this margin can be compensated through the new trade agreements such as AUKFTA which might reduce the tariffs significantly. In this report we will analyse the Cheese manufacturing industry in Australia, examine its micro and macro level environmental analysis and provide our recommendations in the end.

Introduction –

In this report we are going analyse the cheese manufacturing industry in Australia. Even though cheese manufacturing is the part of dairy products industry, it has certain complexities and opportunities that must be analysed distinctly. For this purpose, we will explore the industry background of the cheese manufacturing industry in Australia through market research and available literature. Moreover, a comprehensive situational analysis of Cheese manufacturing industry comprising of both micro environmental analysis & macro environmental analysis will be provided. In the end, we will conclude the report based on the available market information and provide our recommendation for this industry.

Industry Background –

The output of Cheese manufacturing industry amounts to a whopping $3.7 billion. It’s due to the importance of cheese in our daily food items. In addition, 30% of milk production in Australia is used for cheese production (Chen et al.). In the last five years, cheese manufacturing industry has seen 2.0% increase in annual growth. However due to COVID-19 and increasing health concerns among individuals, the projected annual growth for 2023-2028 is expected at 0.4%. Moreover, some of the key external drivers of this includes milk production, dairy products consumption, demand from supermarkets & grocery stores and trade weighted index. An important trend in this industry is the premiumisation. In this regard, gourmet and other value-added varieties of cheese will see enormous growth in near future.

Situational Analysis –

Situational analysis is conducted to examine the internal as well as external environment of businesses and industries which impacts their overall performance. COVID-19 was a significant external factor that has reshaped the industry. Another important factor is that people are moving towards healthy and organic products due to obesity and other health concerns. Hence low-fat cheese and premium value-added cheese products are the future. In case of internal factors, the competition in this industry is high and we have established players like Saputo, Bega and Fonterra. Now we will briefly explain the Micra and Macro analysis of cheese industry in Australia.

Macro-Environmental Analysis –

Macro environment contains forces that are considered uncontrollable from within the organization or industry. As we know, the primary forces that shape the Macro environment of any business are demographic forces, economic, natural, technological, political and cultural forces. Although covid-19 has badly affected the economy, the increase in individual income has enhanced the demand of value-added cheese products. Furthermore, the technological advancements in production have introduced new products in shape of vegetarian and halal cheese products.

Socio-Cultural –

The consumer behaviour of Australian cheese customers has changed in last couple of years. Multiple factors were behind this change. First of all, the Covid-19 disturbed overall supply chain network of this industry due to which business were unable to attain viable profits. Moreover, the demand for conventional products such as cheddars has decreased due to health concerns. Consumers are demanding unprocessed cheddars and fresh cheese. Imports have been decreased substantially due to this change. New Zealand’s imports have dropped from 41.1% to 30.9% following year. Similarly, US has also shrunk the imports of conventional products. However, the demand for unprocessed cheese has also increased in US. As Australian government is encouraging to mention red rating which mentions the high fat content, it may negatively affect the sales of overall cheese manufacturing industry. Finally, big corporations must also consider the Modern slavery act to avoid any legal hurdle in the future.

Economic –

The economy of Australia has seen many ups and downs during and after Covid-19 outbreak. Falling prices due to low demand and supply chain disruptions has reversed the growth of the previous years. Communities considered rich have become even richer and the middle class has shrunk over the period of time. Dairy industry is contributing significantly to Australia’s economy. Almost 46200 people are employed by dairy industry of Australia(Cosby et al., 2022). However, the poor still remained the same. It affects the cheese manufacturing industry. The upper class now prefer primum products with low fats, high quality and gourmet cheese products. However, providing such unprocessed products has its own risks. On the other hand, a vast majority of Australians are disturbed by the increase in commodity prices and inflation which has affected their daily life. Export revenue is expected to increase at annualized 0.9% over next five years to reach 30.2% of the industry revenue. Australian cheese products are largely sold in Asian markets. Japan contributes largely in Australian cheese consumption along with Philippines, China and Malaysia.

Micro-Environmental Analysis –

Micro Environment forces are usually those forces that are considered to be controlled or influenced by the industry and organizations. Few of the forces that are included in Micro environment includes company own departments like finance, accounting, Research & development, suppliers, and operations, marketing intermediaries, customers, policies and other competitors.

Market Players

Competitor Review –

The key competitors in the cheese manufacturing industry are Bega cheese, Saputo dairy Australia and Fonterra group. These players have the 23.8%, 22.5% and 9.4% market share respectively. The remaining market is shared among other small and emerging companies. We will briefly provide an overview of all these industry leaders:

Bega cheese

Bega is almost 100 years old Australian based cheese manufacturing company. Bega’s industry revenue is estimated to grow at 6.6% in 2023 over the five years to almost $889.3 million. Its major brands include Bega and Dairylea Slices.

Saputo dairy Australia

Incorporated in 2013, Saputo dairy Australia is wholly owned subsidiary of Canadian based dairy company Saputo. It is the largest dairy process in Australia (Coppes et al., 2018). The industry specific revenue of Saputo is expected to grow at 16.6% annualised over the course of next five years to $840.8 million. Some famous brands of Saputo are Cheer, cracker barrel cheese and Liddells.

Fonterra group

Fonterra group was formed in New Zealand in 2001. It is considered one the largest dairy products exporter of the world. Fonterra is expected to grow at 7.5% annualized growth in next five years $349.2 million. Some of the famous brands of Fonterra includes mainland and Perfect Italiano.

New Entry Requirements –

Australian cheese manufacturing industry has moderate barrier to entry requirements. As we’ve mentioned earlier, many established brands have a strong presence in the Australian markets. These brands take advantage from economy of scale as they produce enormous quantity of cheese products. High concentration exists in the conventional cheese products among the established players. However, small players can have their share in value added and innovative cheese products like vegetarian cheese, halal cheese and others. Some other Niche markets are also available for such players. Capital investment such as purchasing machinery, storage facilities and automated process are the initial barriers for new players.

SWOT Analysis –

STRENGTHS

WEAKNESSES

· The assistance level provided in this industry is significant

· Imports of Australian cheese manufacturing industry are considered good

· Small number of trained labours can attain high productivity

· The competition in Australian cheese manufacturing is quite high due to established players

· The profits are low compared to the other sectors as its much concentrated

· The initial capital requirements is also stopping new entrants which usually bring innovation

OPPORTUNITES

THREATS

· The revenue growth in past five years were excellent

· The demand from super markets and grocery stores are increasing

· The forecasted revenue growth for next five years is quite low

· Fluctuation in exchange rates can cause a huge problem for international players

Conclusion and Recommendations –

To conclude, Australian cheese manufacturing industry is at its maturity. The established players Bega, Saputo and Fonterra are having the major market share. The only way new entrants or the existing can succeed is through adopting these factors:

Guaranteed supply:

Manufactures must have secured and guaranteed supplies through various suppliers.

Strong links with suppliers:

Manufacturers must have long term and sustainable agreements with milk suppliers.

Production of premium and differentiated goods:

Manufactures must focus on differentiated products rather than exhausting on already concentrated market.

Economy of scale:

Once the product is cherished among consumers, manufacturers must think to increase its production to decrease production cost. It reduces overall cost of the product and provide a competitive edge over competitors (Mwangi and Gakobo, 2018).

References

CHEN, G., GRAS, S. & KENTISH, S. A Review of Separation Technologies for Salty Wastewater Reduction in the Dairy Industry.

COPPES, P. P., VAN BATTUM, S. & LEDMAN, M. 2018. Global Dairy Top 20. Rabobank Report. https://www. rabobank. com/en/press/search/2018/20180726 ….

COSBY, A., LAWSON, A., GUDDE, J. & FOGARTY, E. S. 2022. Connecting Nature: The Potential of Australian Dairy Initiatives in Collaborative Biodiversity Governance. Agronomy, 12, 366.

DUAN, Y., LAI, Q., LI, S., LIU, Z. & YANG, C. Analysis of the Development of the Dairy Industry During COVID-19. 2022 7th International Conference on Social Sciences and Economic Development (ICSSED 2022), 2022. Atlantis Press, 393-399.

MWANGI, E. W. & GAKOBO, J. 2018. Growth strategies and performance of selected milk processing companies in Kenya. International Journal of Contemporary Aspects in Strategic Management, 2, 158-172.

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