The Threat Of The 'Vertically Integrated' Takeover

South West Victorian Communities face a critical time as we are confronted by the threat of a takeover of the Dairy Industry, an industry that provides for 60% of the regions economy. Local Government and Levy funded industry representatives are allowing the sale of a quarter of the local industry's production, enabling foreign investment to enter the region and takeover the resource to process through their own dairy supply chain.

For Communities in the area this means a vital part of the economy will be siphoned away for the profits of large internationally owned companies, cutting off small rural towns and local businesses from the promised benefits of the 'Asian boom'.

Farmer Power has committed to ensuring the communities that rely on the dairy industry can maintain the competitive market that breathes life into small rural communities.

What Is Vertical Integration?

Vertical Integration is a system of ownership where a company takes control of every facet of their supply chain. The company is able to manage each process in order to maximise profits and minimise costs.  

Vertical integration threatens the sustainability of a competitive marketplace as it enables a company to gain a large amount of power in a particular industry. The efficiencies gained by owning all facets of the production process allows a company to gain a competitive advantage over other businesses in each part of the system, squeezing them out of the market. This power is used in two ways; Market Power and Contract Power.

Market Power:

A vertically integrated company gains market power as more assets are acquired across each facet of the supply chain. As more control is gained the company is able to put in 'barriers to entry' that prevent new players from entering the system and force existing competitors into foreclosure. These barriers can be implemented by increasing costs to existing players, or by creating a dwindling supply of resources and services that would otherwise allow for new players to enter the market.  


Contract Power:

Uncontrolled contract power allows for companies to make decisions opportunistically, passing on risks, and controlling prices. Unchecked exclusion policies can allow a company to strangle competitors on any level of the supply chain, increasing market power that can inevitably benefit future contracts negotiations.