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Drivers of change in Australian agribusiness and using value chain management as a strategic response

‘Agriculture has undergone much change over the last few decades. Key drivers have been shifts in consumer demand, changes in government policies, technological advances and innovation, emerging environmental concerns and an unrelenting decline in the sector’s terms of trade’

(Productivity Commission 2005, Trends in Australian Agriculture, p. xvi).


The Australian agribusiness sector must effectively and efficiently respond to change and innovate across the entire value chain in order to remain competitive in a global market. A strategic view of value chain management must be cultivated and ‘management procedures and a changing managerial culture, such as a shift towards market orientation’ (Meulenberg & Jongen 2005, p.14) should become modus operandi; coupled with an operational adherence to a “triple A” ethos, ‘agile, adaptable and aligned’ (Global Sourcing Presence 2014, p.24) firms are more likely to succeed and thrive as an ‘agriculture renaissance’ (Pingali 2010, p.3868) in the developing world encroaches on established market share. Developing a robust understanding of the key drivers of change in the Australian agribusiness industry is crucial to the successful development of strategy and management of value chains. The agribusiness sector is a dynamic industry, increasingly susceptible to massive and rapid change across the entire value chain both locally and globally. Consideration to the ever increasing fickleness of the consumer at the end of the chain, internal pressure at the supplier side to keep costs low while delivering superior quality and managing the effects of external shocks such as climate change and globalisation need to be strategically managed to remain successful in a competitive global market. The agribusiness professional needs to be aware of these changes and the key concepts driving these changes. Deploying a strategic view across the entire value chain is critical. This report will highlight major changes occurring in an Australian agribusiness context, what’s driving those changes and how taking a strategic approach to value chain management can maintain and exceed competitiveness in an increasingly competitive globalised market.


1. Changing Consumer Demands

Ultimately, ‘consumers are arbiters of value’ (Priem 2007, p.219). It is the consumer that makes the final purchasing decision based on an idiosyncratic ideal of value perception. It is the consumer that creates the demand for the products and services inside the value chain. Therefore, as Priem (2007, p.219) argues ‘consumers must be an important consideration in strategy formation’. Value chain strategy should always begin with the consumer in mind, despite an intuitive yearning of some value chain managers to resort foci on customer orders only. Much can be learnt ‘about successful strategy through a long-ignored consumer lens on value creation’ (Priem 2007, p.220). ‘Understanding value chains in these terms has far-reaching implications for the whole industry’ and the entire value chain (Daniel et al. 2011, p.2). Value is shared across the entire value chain and ‘creating shared value with consumers is most effectively based on collaboration between retailers and suppliers upstream’ (Daniel et al. 2011, p.3). The significance of consumer value perception should never be understated or omitted from the value chain strategy. But how do we know what consumers value today and will those values precariously deviate tomorrow? Can consumers and their respective markets be sufficiently predicted to extract maximum value throughout the value chain? Agribusinesses must be prompt in responding to consumer needs and perform a strategic response to the ever changing consumer.

Consumers are changing for myriad of reasons; ‘changes are driven by changes in food consumers’ needs, wants and attitudes’ (Boehlje et al.1995, p.493) and the ‘changing consumer demand patterns as incomes rise’ (Trends in Australian Agriculture, 2005 p.25). Rising incomes mean more freedom of choice in consumption and it is not just the traditional food consumer value chains need to respond to. Innovation has spawned new markets for agribusiness products and services. Neves (2014, p.16) lists 13 industries that are increasingly sourcing raw materials from primary producers in addition to the traditional food and beverages market; feed, fuel, pharma-medicine, pharma-cosmetics, electricity, plastics, environment, entertainment/tourism, textiles and clothing, construction and furniture, paper and packing market segments are increasingly demanding products and services from the agribusiness sector. Throngs of new consumer markets are opening up. A plethora of opportunities are available for the niche agribusiness player and their subsequent value chain to end user discourse. But that conversation must be authentic. Anderson et al. (2006, p.1) declare that ‘most value propositions make claims of savings and benefits to the customer without backing them up’.

Consumers are demanding superior value; values that transcend the simple supplier-buyer fulfilment nexus. There is an underlying new demand from the modern Australian consumer. They implicitly want to know how their simple purchase decision has created value across the entire value chain and was that value share fairly distributed. They want to know if their caffe latte was made with rainforest alliance coffee beans. Did the milk come from an “ethical” farmer who was paid a decent return for their milk? Is the vessel in which their beverage is being conveniently held made from a biodigrable material like corn starch or will it contribute to landfill?

Where that consumer is making their purchase is also a value chain conundrum; ‘retailers have gained power and control from manufacturers, producers and wholesalers’ (Gustafsson 2006, p.1). Consumers are increasingly aware, and responding, to the larger value chain conglomerates squeezing smaller players. The ‘foundations of sustainable success lie in creating shared value’ (Daniel et al. 2011, p.2) across the value chain. Consumers are demanding this. They are demanding the triple bottom line of corporate responsibility, it ‘provides jobs and, if organized properly, environmentally sustainable economic development’ (Daniel et al. 2011, p.2). They want ethical products that are serving a higher value than mere function. They also want gluten free, allergen free, organically grown, superfoodishly healthily beneficial, conveniently supplied and packaged safely and reliably at a reasonable price that guarantees a reasonable return to the farmer because multiculturalism, an ageing society and a propensity to eat out of home more is now in vogue. Can the agribusiness sector in Australia guarantee a response to this multifaceted, diverse and increasingly demanding consumer?


2. Changes in Government Policies

If consumers are the arbiters of value, the government are the arbiters of the framework that that value can be delivered and act as the guardians of guarantees. However, government policy in Australian agribusiness is as reliable as the rainfall on Australian farms. Therefore, it is imperative that value chain management strategy ranks the government as the second most important operational stakeholder after the consumer. The Australian government has a history of meddling with agribusiness policy; it is either brutal or beneficial depending on the political expediency of the day. Ultimately the government must safeguard what is in the publics interest for example, ‘logistics changes have been driven by legal requirements on the safe and healthy handling and supply of food products’ (Gustafsson 2006, p.1). However, this logic has recently failed with the importation of Hepatitis A laden frozen berries from China.

Governments have the ability to either decimate, eliminate, facilitate, regulate or protect the entire agribusiness value chain. For example, the live cattle export trade was decimated in 2011 after government policy halted the trade; supposed factory fishing of the Tasman Sea was eliminated after the supertrawler Abel Tasman was banned from operating there; Free Trade Agreements were facilitated with key trading partners that will open new export opportunities; an ever ‘increasing Governmental regulation’ (Boehlje et al.1995, p.493) agenda; the protection of Grain Corp by rejecting a foreign takeover bid by US multinational Archer Daniels Midland.

The Australian government has significant leverage over the agribusiness sector be it through subsidies, bio-security controls and quarantine, quality assurance enforcement or research and development grants. A successful value chain management strategy will only work if it is in synergy with governmental policy or to the contrary a significant investment is made via lobbying to amend adverse policy.


3. Technological Advances and Innovation

Agribusiness ‘is a technology-orientated industry’ (Ricketss & Rawlins 2001, p.13) and ‘Australia’s agriculture sector has a history of innovation’ (Trends in Australian Agriculture, 2005 p.28). A ‘techno-managerial approach combining technical and managerial innovation’ Meulenberg & Jongen (2005, p. 14) must be incorporated in the value chain management strategy. Rapid ‘technological and other advancements are enabling farms to be multi-product and service providers’ (Neves 2014, p. 16) whilst enabling ‘changes at the farm production level’ (Boehlje et al.1995, p.493). However, ‘a critical issue in agriculture is the role of technology adoption and the adjustment of supply’ (Hudson 2007, p.48). Rapid Increases in supply and subsequent diminishing returns for oversupply could potentially dent the return on investment. Consequently, what happens when other countries replicate productivity increasing technological systems pioneered in Australia? Australia must continue to innovate across the entire value chain in order to remain both globally competitive and operationally sustainable.


4. Emerging Environmental Concerns

There is a cumulative demand on the agribusiness sector to operate in accordance with ‘society’s heightened interest in reducing environmental degradation’ (Boehlje et al.1995, p.494). Sound environmental corporate citizenry is a must across the value chain. Firms must be transparent with waste management, land clearing, water usage etc. The issue of climate change is also a concern and this must be factored into long term strategy.


5. Decline in the Sector’s Terms of Trade

Globalisation is a double edged sword. It has enabled Australian agricultural commodities access to global markets. However, it must compete with other countries that are producing the same commodities but from a lower cost base i.e reduced labour inputs.The fluctuating value of the $AUD also affects the terms of trade. A high $AUD makes Australian exports more expensive. The value of that $AUD recently fell after a sustained period of historically high valuations due to the mining boom. Subsequently this will make Australian agricultural exports more competitive globally if the current price trend holds.



For Australia to remain globally competitive, it must take a market leading mindset across the entire value chain. Australia can not compete on mere price terms with the emerging agricultural sectors from developing countries. Value must be added to compete. This strategic approach must always begin with the consumer in mind. It is the consumer, not the proverbial customer, who is the real king. Their values must be treated with the most highest regard, for it is the consumer who decides upon the value perception that underpins the worth of the entire value chain.



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