The dairy industry is a sub-set of the agricultural industry and deals with the production, consumption and sale of milk-based products, such as milk, butter, cheese, cream and ice cream. There are many factors which affect the running of the dairy industry, and a PESTEL analysis of industry is as follows:
Political
Government policies and regulations regarding agricultural products will affect the farmer’s decisions to keep livestock and extract milk out of them relative to other uses of livestock. If government policies and incentives are in favor of, for example, promoting beef or mutton, it would be more in farmer’s interests to slaughter their cows rather than draw milk from them. This is especially true in agrarian economies.
In certain countries which import agricultural products instead of producing its own, the dairy industry would also be affected by import laws as well as the government’s foreign relations. Similarly, a company that exports its dairy products must take care to comply with the regulations of its own country, but also of the country to which it wishes to export to.
Economic
The most obvious economic factor affecting the dairy industry would be purchasing power in the economy as a whole. Milk in its most basic form is considered an essential product and people still make an effort to purchase milk regardless of their cash position. As a result, the sales of milk would not be significantly hit in case of a reduction in a family income, unless the income is reduced to a bare minimum. On the other end of the spectrum, an increase in purchasing power will only boost the sales of milk up to a certain level after which it would taper off, as there is a limit to the amount of milk a family can assume.
Increase in purchasing power however can lead to an increase in the acquisition of pets such as dogs and cats and their spending on these pets will increase. This means they will be purchasing more milk to feed their pets, and this will lead to an increase in milk sales. A reduction in purchasing power, for example one which is caused by an increase in inflation, will have the opposite effect as people cease to acquire pets or abandon their existing ones.
In the case of dairy products other than milk, an increase in purchasing power will cause an increase in consumption, while a decline in purchasing power will have the opposite effect. This is because these products come under the category of luxuries and/or non-essential goods.
Sociological
A move towards vegan lifestyles will negatively affect the sales of dairy products. Vegans make it a point to shun all animal products, including milk and eggs, in their lifestyle including their diet. As this lifestyle gains more and more followers, the sales of milk and other dairy products, including ice cream and chocolate will decrease, negatively impacting the dairy industry.
Another factor that could affect the dairy industry is growing concerns over halal foods in regions where Muslims are in a majority. This is because Muslims do not consume products that they do not believe to be halal, so if a dairy product manufacturer is considering to expand into a Muslim-majority region it must take care of this issue before it considers entering such a market. Milk itself is generally considered a halal product, but other ready-made desserts for example ice creams will have to be halal-certified before they can expect to be successful in Muslim-majority parts of the world.
Attitudes towards obesity can also affect sales of milk and dairy products in the market. A general perception that full-fat dairy products contribute towards obesity can cause a shift away from full-fat versions towards healthier lower-fat or skim varieties. Similarly, other ingredients such as sugar and gluten may also trigger certain conditions such as diabetes or gluten allergies. A dairy manufacturer needs to take all this into account before launching a particular product or product line.
Technological
Technology has made it possible for dairy manufacturers to market several different kinds of dairy products, along with several variants of these products at a very low cost.A main factor in the upward trend of the dairy industry has been the pace with which technological advances have been embedded into farming practices, often enough under the pressure of falling prices and the necessity to vindicate land values resulting from excessive optimism in periods of rising prices.”
Environmental
The dairy industry is heavily dependent on the health and availability of livestock. Plagues, epidemics and other diseases affecting the livestock, more specifically cattle, will reduce the quality of milk and supply will be adversely affected if the livestock is killed off.
The climate in which a dairy manufacturer chooses to operate is another concern. In a warm climate, a dairy manufacturer will have to look into methods of preservation in order to be able to extend their product’s shelf lives without the items going bad. Similarly, in the case of refrigerated or frozen foods they will also have to look into ways of extending durability in regions where power outages are common.
The climate also influences the product lines the manufacturer will branch into. In warmer countries, for example, ice creams and frozen desserts may be more successful, while in a colder country cheese or tea whiteners would be more successful than ice creams.
Legal
Organizations such as the FDA in the United States and their counterparts in other countries heavily regulate food items in their respective countries. The dairy industry is no different as it too will be required to abide by any laws imposed by all food regulatory bodies in the countries in which they operate. While the specifics vary from country to country, many laws are similar across all countries. For example, most countries require all food and beverage manufacturers, including dairy manufacturers, to display complete nutritional information of all their products very clearly on the product labels. This includes calorie counts, serving sizes, number of servings per container as well as nutrient information.
Dairy manufacturers will also have to comply with all laws related to advertising and product labeling in their own country. For example, they will have to clearly mention any potential allergy-causing ingredient, for example nuts or gluten, on their product labels. Similarly, they will also have to refrain from false claims in advertising. For example, they would not be allowed to state that a particular product is “100 percent sugar-free” when there are traces of sugar in it.
References
Climatic and environmental factors affecting dairy productivity . 2015. Climatic and environmental factors affecting dairy productivity. [ONLINE] Available at: https://www.ilri.org/InfoServ/Webpub/fulldocs/SmHDairy/chap4.html. [Accessed 13 December 2015]
Factors affecting milk production in the smallholder dairy sector of Zimbabwe. 2015. Factors affecting milk production in the smallholder dairy sector of Zimbabwe. [ONLINE] Available at:http://www.lrrd.org/lrrd18/5/ngon18072.htm. [Accessed 13 December 2015].
Five Factors Affecting Dairy Markets | Agweb.com . 2015. Five Factors Affecting Dairy Markets | Agweb.com . [ONLINE] Available at: http://www.agweb.com/blog/dairy-market-fundamentals/five-factors-affecting-dairy-markets/. [Accessed 13 December 2015].
Factors affecting dairy farmers’ attitudes towards antimicrobial medicine usage in cattle in England and Wales . 2015. Factors affecting dairy farmers’ attitudes towards antimicrobial medicine usage in cattle in England and Wales . [ONLINE] Available at:http://www.sciencedirect.com/science/article/pii/S0167587715002093. [Accessed 13 December 2015].
The Dairy Industry contd. 2015. The Dairy Industry contd. [ONLINE] Available at: http://www.techhistory.co.nz/OntheLand/Dairy.htm. [Accessed 13 December 2015].