Horizontal Integration In Fonterra Brands

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Horizontal integration strategies
Horizontal Integration allows resource sharing at the same level of the value chain in similar or different industries (Investopedia, 2016). This allows potential competitors to merge. If this type of integration is used widely by competitors, it could result in a monopoly. This is due to these competitors having the same end goal of selling products. A horizontal integration within the organic dairy chain is the relationship between Fonterra and an American organic milk company called Organic Valley. When exporting to America, Fonterra uses Organic Valley’s distribution network (Luxton, 2016).
Nature and level of competition
The nature of competition within the organic dairy industry in NZ is a monopsony.
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Minimal travel from collection to processing factory with more factories recently built around the country and more in the pipeline (Luxton, 2016). Fonterra Brands managing director Tim Deane said there was a growing demand for organic milk. “Demand has grown about 50% in the past year and as a result of that we’re very keen to provide consumers with that option because if we don’t provide it they’re going to go somewhere else” (Gibson, 2015). Fonterra’s research showed 72% of New Zealanders would buy organic milk if it was more affordable and a further 25% said if it was available at a supermarket it would also make a difference (Gibson, 2015). Fonterra saw an expanding market for the product and as a result were the first major producers on a national scale in NZ. Although there are many smaller operations. For example Bio Farms who are located in Palmerston North, which we visited, have a tiny proportion of the market share, so cannot compete with the likes of Fonterra (Tait-Jamieson, 2016). They produce specialised products and rely on consumer loyalty as well as a self-sufficient low input operation to remain profitable. There is also demand from baristas and others in food service for Fonterra’s organically produced milk, this is another example of a competitive strategy implemented, expanding Fonterra’s market share (Perger, 2015) . The target audience is people …show more content…
This has further incentivised farmers to continue to be organic in the recent tough climatic conditions and for regular farmers to make the switch, its making the industry more attractive and ensuring that supply can meet the continuous rising demand. Globally organic milk based products grow by 36% annually (Garibay, 2007), showing that NZ is expanding at a similar rate to the rest of the world, with massive consumption happening in the USA and UK especially, this further emphasises the demand for more suppliers of high quality organic milk in

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