barriers to limit the impact of imports / exports, which would face strong resistance due to the ramifications on other agriculture industries (due to WTO restrictions) − Longer-term, this strategy will have drastic implications on the dairy industry • Higher cost structure due to creeping inefficiencies, depressing producer margins, pushing prices even higher • Negative impact on dairy consumption at the consumer level • Substitution of dairy for other ingredients by CPG companies • Complete lack of investment, innovation and growth leading to stagnation • Vulnerability to imports as inevitable loopholes are exploited or if the trade barriers are ever taken down • Highly unfeasible given the required change in overall trade policy and agreements in place − The IC Board has agreed that Fortress USA should not be pursued On a base case, Consistent Exporter appears to be most attractive with PV of ~$29B compared to status quo (5% price increase assumed; $26B) or status quo with flat prices assumed ($21B), while Global Player has also been deemed as an premature industry strategy at this point by the board Executive summary of scenario modeling
Presentation to the Dairy Industry Advisory Committee June 3 - 4, 2010 Theoretical PV of industry profits: ~26 Theoretical Fortress USA (20% price increase due to supply mgt.) ~30 Fortress USA (Risk Adjusted) Status Quo (5% price increase due to latent demand) $60B 40 20 0 Risk adjusted, Fortress USA does not create value over the Status Quo
Presentation to the Dairy Industry Advisory Committee June 3 - 4, 2010 0 10 20 30 $40B PV of each scenario through 2025 (Profit ) Status quo (5% price increase) 25.7 Status quo (0% price increase) 20.9 Consistent exporter 29.1 Global player 31.1 Base case Options studied in detail Option deemed infeasible at industry level Price increase No price increase PRELIMINARY Base case : Consistent exporter provides better industry value than Status quo
Presentation to the Dairy Industry Advisory Committee June 3 - 4, 2010 “Fortress USA” might be attractive only for producers in the near term Producers Processors CPGs Retailers/ Consumers Requires significant gov’t oversight and intervention and fundamental change in trade policy counter to current trade agreements Positive impact Negative impact Neutral impact
Presentation to the Dairy Industry Advisory Committee June 3 - 4, 2010 “Status Quo” would lead to neutral to negative impact in the long run Positive impact Negative impact Neutral impact Producers Processors CPGs Retailers/ Consumers Note: If we consider the missed opportunity for dairy innovation and trading up the dairy category, this could be considered a negative impact for consumers and retailers
Presentation to the Dairy Industry Advisory Committee June 3 - 4, 2010 Positive impact Negative impact Neutral impact “Consistent Exporter” would help US in global and domestic markets; positive long term outlook Producers Processors CPGs Retailers/ Consumers Efforts to manage volatility as a priority strategy benefit entire value chain
You've reached the end of your free preview.
Want to read all 41 pages?
- Summer '18
- Sagar Arora