a2MC Case Study

Australia has an ethnic composition of 85-90% of those who identify as white. This is important considering that the study states only 20% of caucasians report having lactose intolerance compared to 70% of those of African descent and 90% of those of Asian descent. This data suggests that Australia should have a population that is less predisposed to avoiding milk, and fundamentally be one of the more attractive dairy markets for milk products. Exhibit 3a supports this idea of high demand, showing Australia and New Zealand leading the world in milk consumption second only to Finland and Ireland.

However, additionally provided data suggests that the dairy industry within Australia has low margins and is unlucrative as a whole: “Farming was a difficult business that generated both low and volatile margins: the average pretax return on capital for Australian Dairy farms was 2.2% since 2000.” The consolidation of the market since deregulation of the industry in 2000 makes the market very hostile to small mom and pop farmers or new, innovative companies and the existence of significant price competition between the 6 leading firms not only lowers their profits, but makes the venture even less profitable for the farmers that supply them.

For a company like a2MC, who supply a milk product that contains lactose but lacks the A1 protein that can cause additional indigestion, Australia is a good fit. Markets with the greatest room for growth would be countries and populations that traditionally have not integrated dairy as a primary part of their diet – due to a history of lactose intolerance. However a2MC doesn’t address this issue, and as such, these large unexploited markets present a better fit for lactose-free dairy firms or alternative milk companies. Dats suggests that a2MC’s ventures in Australia have been largely successful. This is likely due to the company’s early focus on intellectual property, branding and marketing efforts, and outsourcing much of its actual milk production to third parties in favor of a lightweight operating model somewhat similar to Amazon. The company has an EBITDA of $142, second only to the industry giant Fonterra, and the highest net margins of any dairy company in Exhibit 6.

To provide a satisfactory answer to the question of if Australian dairy processing is attractive, more information is needed concerning who it is attractive or unattractive to. This market is friendly to existing corporations already operating in the market and unfriendly to outsiders. It is more friendly to companies selling the dairy products than to those raising the cattle. The data provided in this case suggests that the Australian dairy processing market is most attractive to companies that are able to inflate their profit margins by focusing on research and development, distribution and branding, rather than focusing on the rather immutable business of raising cows and creating the product.