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HW#3 (Pasta)_Problem_Set_Solution

HW#3 (Pasta)_Problem_Set_Solution - AEM 427 Agribusiness...

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AEM 427 Agribusiness Strategy Fall 2008 Dakota Growers Pasta: Vertical Integration in Durum Wheat and the Pasta Manufacturing Industry (Response) Attractiveness and Favorability of Industry The pasta industry in the United States has been increasing at a steady rate since 1984 with only a slight decline in growth between 1994 and 1998 . The industry went almost 20 years with completely stagnant growth between 1967 and 1984, but has since seen continued growth by about 1lbs of consumption per year . Growth peaked around 14lbs per capita in 1994, and continues to be a very strong industry . According to a study conducted by the National Pasta Association, the average consumer had three to five packages of dry pasta products on their shelves at any one time . This demand for pasta, according to the U . S . Department of Agriculture, could be attributed to 4 primary trends in the U . S . economy . For one, the consumer’s everyday lifestyles and values were changing . Life was of the essence and pasta provided for a meal that was not only convenient but easy to make . Secondly, demand was driven by the abundance of pasta sauces entering the market . This goes back to the idea of convenience and simplicity; homemade sauce is very time consuming . Also, per capita income was steadily increasing allowing more and more people to dine out, ultimately expanding the food service sector of the pasta industry . In 1998 a study showed Americans spent 46 percent of their food expenditures away from home compared to 34 and 39 percent respectively in 1970 and 1980 . Furthermore, healthy eating was becoming a significant quality or practice in American society, be it for reasons of actual health or just social acceptance . Pasta was looked at as being healthy . Lastly, they cited demand as being driven by an increasing number of Italian restaurants . Italian Restaurants were becoming mainstream American foods, similar to a burger and fries . The abundance of these restaurants was also having an effect on the product packaging . Consumers looked for names that sounded authentically Italian or pasta actually made in Italy . Regardless of whether or not these were the actual driving forces of demand within the pasta industry, what was obvious was that it (demand) existed and was growing at a significant rate . The Pasta Industry was comprised of four market segments for dry pasta: government, food service, ingredient, and retail . Each of which had both private and brand label products except the government segment which was driven completely by brand labels . Around 5 billion lbs . of pasts was consumed in 1998 compared to just 4 billion just 6 years earlier . Total market capitalization reached 2 . 6 billion in 1998 . Government bids and food services each represented about 10 percent of this while retail and ingredients took 37 and 43 percent respectively .
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Between 1994 and 1998 private label pasta was growing at a faster rate than brand label paste within the retail sector; however, despite growth, brand labeled products still represented almost
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