The California Dairy Feed Market
Considering that the Pacific Coast District of Cargill's Animal Nutrition Division is a predominantly dairy district and that the largest dairy market is in California, it will be the focus of this analysis. I define the industry as the California dairy-feed industry. This industry is a highly fragmented industry with a high level of competition among the feed companies. Most of the competitors in the market are involved in the sales of commodities and are therefore subject to great price wars. The companies fight for a customer base by attempting to deliver the same product as the competition b ut at lower prices. It is basically a biding system between the feed companies and the dairy producers. The way the companies are able to accept very low bids is by lowering their freight costs if they are closer to their customer base than the competition or if they are able to move more volume. The commodity business yields very low margins so volume again is crucial.
There are, however, some companies in the market that do provide more than just commodities. They provide processed grains, mixed feeds, calf feed, pelleted feeds, texture feeds, nutritional supplements and even nutritional services. These companies have large mills and technically-trained sales forces to service their customers. In this type of business, there is more differentiation and basis for comparison (competition) besides price. Each company has different qualities of processing, pelleting, product consistency, nutritional value, services, and technology.
In this market, companies sell directly to the end consumer, the dairy producer. Their sales forces go directly to the producers to sell product contract feed, consult on nutrition and management, and check inventory. Unlike other markets in the nation, the
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