Harvard Case - Canadian Dairy Supply Management: Trade Threats
"Canadian Dairy Supply Management: Trade Threats" Harvard business case study is written by Brandon Schaufele, Akshanta Ajay. It deals with the challenges in the field of Strategy. The case study is 8 page(s) long and it was first published on : Apr 27, 2020
At Fern Fort University, we recommend that the Canadian dairy industry adopt a multi-pronged strategy to address the trade threats posed by the elimination of supply management. This strategy should focus on building resilience, embracing innovation, and adapting to evolving market dynamics.
2. Background
The Canadian dairy industry operates under a supply management system, which regulates production and pricing to ensure stable incomes for dairy farmers. This system has been under increasing pressure from international trade agreements, with the US and other countries demanding its removal. The case study explores the potential impact of eliminating supply management on the Canadian dairy industry, including the challenges and opportunities it presents.
The main protagonists in this case are:
- Canadian dairy farmers: They benefit from the stable income and price protection offered by supply management.
- Canadian dairy processors: They rely on the consistent supply of high-quality milk provided by the system.
- Canadian consumers: They enjoy relatively stable prices for dairy products.
- International trading partners: They are pushing for the removal of supply management to gain access to the Canadian market.
3. Analysis of the Case Study
To analyze the situation, we can utilize a combination of frameworks:
Porter's Five Forces:
- Threat of New Entrants: High barriers to entry due to existing infrastructure and regulations.
- Bargaining Power of Buyers: Moderate, with consumers having limited options for substitutes.
- Bargaining Power of Suppliers: Low, as farmers are regulated and have limited negotiating power.
- Threat of Substitutes: Moderate, with plant-based alternatives gaining traction.
- Competitive Rivalry: Intense among existing players within the Canadian market.
SWOT Analysis:
Strengths:
- High-quality products: Canadian dairy products are renowned for their quality.
- Strong brand reputation: Canadian dairy brands enjoy high consumer trust.
- Experienced workforce: The industry boasts a skilled and experienced workforce.
- Supportive government policies: The government has historically provided support to the dairy sector.
Weaknesses:
- High production costs: Supply management can lead to higher production costs compared to other countries.
- Limited export opportunities: The system restricts exports, limiting access to global markets.
- Lack of flexibility: The system can be inflexible in responding to changing market conditions.
- Potential for consumer backlash: Consumers may perceive the system as unfair or inefficient.
Opportunities:
- Increased demand for dairy products: Global demand for dairy products is expected to grow.
- Innovation in dairy production: New technologies can improve efficiency and sustainability.
- Diversification into value-added products: The industry can explore opportunities in specialty cheeses, yogurt, and other value-added products.
- Developing new export markets: The industry can seek new export markets outside of traditional trade partners.
Threats:
- Elimination of supply management: This would expose the industry to increased competition and price volatility.
- Trade disputes: The elimination of supply management could lead to trade disputes with other countries.
- Consumer preference shifts: Consumers may shift towards plant-based alternatives or imported products.
- Climate change: Climate change could impact dairy production and increase costs.
Value Chain Analysis:
The Canadian dairy value chain can be segmented into:
- Raw milk production: Farmers produce milk under regulated conditions.
- Milk processing: Processors transform raw milk into various dairy products.
- Distribution: Products are distributed to retailers and consumers.
- Retail: Retailers sell dairy products to consumers.
Business Model Innovation:
The industry needs to consider business model innovation to adapt to the changing environment. This could involve:
- Direct-to-consumer sales: Farmers could bypass processors and sell directly to consumers.
- Subscription models: Consumers could subscribe to regular deliveries of fresh dairy products.
- Value-added products: Processors could focus on developing and marketing value-added products with higher profit margins.
- Strategic partnerships: The industry could collaborate with other sectors to create new value propositions.
Strategic Planning:
The industry needs to develop a comprehensive strategic plan that addresses the following:
- Market segmentation: Identifying target customer segments and tailoring products and marketing efforts accordingly.
- Product differentiation: Developing unique product offerings that stand out from competitors.
- Pricing strategy: Determining competitive pricing strategies that balance profitability and consumer demand.
- Marketing strategy: Implementing effective marketing campaigns to build brand awareness and loyalty.
- Distribution strategy: Optimizing distribution channels to reach target markets efficiently.
- Operations strategy: Improving efficiency and productivity in milk production, processing, and distribution.
- Financial strategy: Securing funding for innovation, expansion, and market development.
- Human resource strategy: Attracting, retaining, and developing a skilled workforce.
4. Recommendations
The Canadian dairy industry should adopt a multi-pronged strategy to address the trade threats posed by the elimination of supply management. This strategy should focus on:
Building Resilience:
- Diversification: Expand into value-added products, specialty cheeses, and organic dairy options to reduce reliance on commodity milk.
- Vertical Integration: Consider acquiring or partnering with processors to gain control over the value chain and reduce dependence on external factors.
- Strategic Alliances: Form partnerships with other agricultural sectors to leverage shared resources and expertise.
- Developing New Markets: Explore new export markets outside of traditional trade partners, focusing on regions with high demand for dairy products.
- Building Consumer Loyalty: Implement marketing campaigns that emphasize the quality, safety, and sustainability of Canadian dairy products.
Embracing Innovation:
- Technology Adoption: Invest in new technologies to improve efficiency, reduce costs, and enhance product quality. This could include AI-powered farm management systems, precision milking technologies, and advanced packaging solutions.
- Product Development: Focus on developing innovative dairy products that cater to evolving consumer preferences, such as plant-based alternatives, low-fat options, and functional dairy products.
- Digital Transformation: Leverage digital platforms to connect with consumers, enhance marketing efforts, and streamline operations.
- Sustainable Practices: Implement sustainable farming practices to reduce environmental impact and appeal to environmentally conscious consumers.
Adapting to Evolving Market Dynamics:
- Market Research: Continuously monitor market trends, consumer preferences, and competitor activities to stay ahead of the curve.
- Scenario Planning: Develop contingency plans for different scenarios, including the elimination of supply management, trade disputes, and changing consumer demand.
- Strategic Flexibility: Maintain a flexible organizational structure and decision-making processes to adapt to changing circumstances.
- Continuous Improvement: Implement a culture of continuous improvement to optimize processes, reduce costs, and enhance product quality.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The recommendations align with the industry's core competencies in producing high-quality dairy products and its mission to provide a stable income for farmers.
- External customers and internal clients: The recommendations address the needs of both external customers (consumers) and internal clients (farmers and processors).
- Competitors: The recommendations consider the competitive landscape and aim to position the industry for success in a more competitive environment.
- Attractiveness ' quantitative measures: The recommendations are expected to enhance profitability, increase market share, and improve long-term sustainability.
- Assumptions: The recommendations are based on the assumption that the industry is willing to embrace change, invest in innovation, and adapt to evolving market dynamics.
6. Conclusion
The Canadian dairy industry faces significant challenges due to the potential elimination of supply management. However, by adopting a strategic approach that emphasizes resilience, innovation, and adaptation, the industry can navigate these challenges and emerge stronger.
7. Discussion
Other alternatives not selected include:
- Maintaining the status quo: This would be a risky strategy, as it would leave the industry vulnerable to the negative impacts of trade liberalization.
- Complete deregulation: This would expose the industry to intense competition and price volatility, potentially leading to significant economic hardship for farmers.
The key risks associated with the recommended strategy include:
- Resistance to change: Some stakeholders may resist the necessary changes.
- Insufficient investment: The industry may not have the resources to implement all of the recommendations.
- Unforeseen market disruptions: The industry may face unforeseen challenges that could derail its plans.
The key assumptions underlying the recommendations include:
- Government support: The government will continue to support the dairy industry through research, development, and marketing initiatives.
- Consumer demand: Consumers will continue to demand high-quality dairy products.
- Technological advancements: New technologies will continue to emerge that can benefit the dairy industry.
8. Next Steps
To implement the recommendations, the industry should:
- Form a task force: Establish a task force to oversee the implementation of the strategy.
- Develop a detailed action plan: Outline specific actions, timelines, and responsibilities.
- Secure funding: Identify and secure funding for innovation, research, and market development.
- Engage with stakeholders: Communicate the strategy to all stakeholders and solicit their input.
- Monitor progress: Regularly monitor progress and make adjustments as needed.
By taking these steps, the Canadian dairy industry can position itself for success in a changing world.
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Case Description
Following the election of Donald Trump as president of the United States, the US government set out to modernize the North American Free Trade Agreement, threatening to revoke it if a new favourable deal was not reached with Canada and Mexico. Among other demands, the United States wanted to increase its access to Canada's protected dairy markets and was calling for the Canadian dairy supply management system to be dismantled. But the health of the Canadian dairy industry depended on supply management. In negotiating the new agreement, Chrystia Freeland, the Minister of Foreign Affairs for Canada, needed to consider the balance of domestic interests in supply management with Canada's international trade priorities.
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