Competitive Strategy Analysis for Agricultural Marketing Cooperatives

Competitive Strategy Analysis for Agricultural Marketing Cooperatives

Competitive Strategy Analysis for Agricultural Marketing Cooperatives

Competitive Strategy Analysis for Agricultural Marketing Cooperatives

Excerpt

Agricultural marketing cooperatives face strategic choices that can make or break them as business organizations. Successful choices are well known. Examples include Ocean Spray's success with blended cranberry juices and the creation of Sun-Diamond, a strategic alliance among the California fruit and nut cooperatives to jointly distribute and promote their branded products in the nation's grocery stores. Failures such as the Dairymen's League, Inc., exit from milk processing and the demise of their once strong regional brand, Dairylea, have received less press attention but are well known in cooperative circles. In addition to dramatic successes and failures, there is a middle ground. In many instances businesses dodge or defer strategic choices. They muddle through opportunities and respond defensively to threats.

Competitive strategy analysis seeks to identify strategic moves that create sustainable competitive advantage. Competitive advantage has two general sources: increased cost efficiency or market power that comes from underlying structural features, including substantial market share, and product differentiation. Cooperative marketing practice over the past sixty years has reinforced the two original theories or rationales for farmers to organize beyond the farm gate to improve their incomes. The competitive yardstick theory, first presented by Edward G. Nourse, counsels that farmers should integrate forward into the marketing system to share in the profits earned there. Such integrated cooperatives serve as a yardstick for farmers. When markets are not competitive these cooperatives can pay higher prices to patron members. Other farmers will shift patronage from investor-owned firms, ultimately forcing such firms also to pay higher procurement prices. Nourse's yardstick theory was developed for undifferentiated commodity products. In modern markets where food products are differentiated and brand-name capital is important, the decision to integrate is more complex. Should the cooperative produce only private-label products, should it develop branded products, or should it do both? The second general rationale for cooperative marketing is Sapiro's horizontal integration of all producers into a commodity marketing association such as the raisin or cranberry growers. Control of all or nearly all of the commodity allows such an organization to capture real marketing efficiencies in assembly . . .

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