Farmlands Cooperative Society Limited - Company Structure and History - Case Study Example

Business Analysis University: Date: Company Structure and History Current Company Characteristics Farmlands Cooperative Society Limited is a New Zealand owned company rated the largest rural supplies cooperative in the country (NZDA, 2013 p.24). It is owned by approximately 60000 shareholders; a number that increases annually since the founding of the company. It employs about 1400 employees to work in its various business units geared towards providing customers with quality services. The company operates 83 branches throughout New Zealand which have generates annual revenue of $2.5 billion in the current financial period. Its business units include livestock, card services, real estate, lubricants, grain and seed, fuel, nutrition, finance, horticulture, and rural supplies. History of the Company Farmlands emerged 50 years ago in New Zealand through farmers expressing their desire to reap higher benefits from their businesses and overcome the monopoly of stock agents. The Economic Trading Society and Otago Rural Trading Society merged and amalgamated to form Farmlands Trading Society Limited and Combined Rural Traders Limited. In 2013, the two influential rural trading societies in the country merged to form Farmlands Cooperative Society Limited (NZDA, 2013 p.26). The company also underwent rebranding of its business units to improve operations with first of July 2013 marking the beginning of reporting as a fully merged entity. Company Financial Situation The company has recorded a rise in its revenue since 2012 with the largest improvements occurring after the merger in 2013. In 2012, the revenue was $1,190,020, $1,746,187 in 2013, $2,184,644 in 2014, $2,210,035 in 2015, and $2.5 billion in 2016. The company has experienced a steady rise in income over the past few years and the expansion of its operations promises to increase its revenue further. The asset level of the company has also increased steadily since 2013 indicating an increase in the level operations and productivity within the company (NZDA, 2013 p.33). The merger could also explain the improving performance over the years due to the economies of scale enjoyed by the company. Capital Structure / Financial Stability / Liquidity Position The company has maintained a healthy gearing ratio over the past years since its merger. In 2013, the assets amounted to $335,494 while total liabilities amounted to $222,289 indicating that the assets exceeded the liabilities. In 2014, the total assets were $388,227 while total liabilities were $265,010 once again indicating a healthy gearing ratio. In 2015, total assets increased to $411,653 while total liabilities increased to $283,856. The level of assets in the company has risen steadily since 2013 when the company became a merger. The steady rise in revenue has also been steady since 2013 indicating increased productivity and efficiency in the company’s operations. Farmlands have the capability of borrowing finances from financial institutions due to its healthy financial position and consistent financial performance (NZDA, 2013 p.73). Its finances indicate its potential to grow in the future and expand its operations since its revenue and asset level continues to grow. A favorable gearing ratio boosts investor confidence since it indicates proper management, efficiency, higher productivity, and growing market share. Profitability The level of profitability improved in 2014 with the level of profit reported at $4,179 from $3,888 in 2013. However, it recorded a decrease in profit level in 2015 at $1,784 attributable to an increase in operational costs (NZDA, 2013 p.81). Expansion of the company’s operations has raised its level of revenue over the past years but has also increased the costs of operation. There is a concern for the company’s future in terms of profitability level since the costs have increased at a higher rate than the revenue. This threatens to reduce the profitability level and the company could eventually incur losses when the costs exceed the revenue. Losses threaten the survival of the company and investors may start to pull out their resources in case this happens. Value Chain Analysis Value Chain Mapping The supply chain of farmlands involves provision of supplies to customers who are predominantly farmers in the rural areas. Farmers pay affordable prices for these supplies and services, which go into the firm’s revenue to assist in the running of the business (NZDA, 2013 p.66). Consultants Shareholders employees Farmers Value Factors The extensive market of farmlands indicates customer satisfaction with the company’s services over the years. It has increased its revenue level through offering affordable prices to customers, which translates into high sales level. It offers competitive prices for fuel and fertilizers as well as affordable financing to its shareholders. It also offers expert technical advice to its shareholders ensuring the shareholders gain knowledge on better farming. The company is the largest dealing with rural supplies in New Zealand making it very reliable (NZDA, 2013 p.74). It also has a good reputation for delivery of quality services to shareholders as well as timely delivery. This has increased the level of trust that shareholders have in the cooperative society. Industry Analysis: Company Competitive Situation Intra-Industry Rivalry Market Structure (Concentration Ratio) The market of farmlands is in New Zealand where all its shareholders originate from and undertake their farming (NZDA, 2013 p.83). It deals with rural supplies hence its market is highly concentrated in the rural areas where farming takes place. It therefore deals with people in rural areas who need expert advice and supplies to facilitate farming. Competitors PGG Wrightson is the main competitor of Farmlands Cooperative in the farm services cooperatives despite Farmlands’ dominance in the industry (NZDA, 2013 p.111). The company realizes half the amount of revenue recorded by farmlands. It offers its services at very low prices that match those of farmlands making it a competitive firm. It offers farm inputs, livestock trading, real estate, credit, horticulture, and rural retail. Other main competitors for farmlands include RD1 and Ashburton Trading Society known as ATS dealing with farm services. Farmlands cooperative has a high level of differentiation offering a wider range of services than competitors do. However, all the companies offer similar services since they deal with farm services and target shareholders in rural areas. Comparison to Competitors Farmlands cooperative is a dominant player in the industry especially after its merger, which increased its production capacity (NZDA, 2013 p.101). PGG Wrightson records annual revenue of approximately $1 billion, RD1 has a turnover of $1 billion while ATS records a turnover of $220 million. Compared to farmlands cooperative’s annual revenue of about $2 billion, its competitors do not offer stiff competition. Suppliers’ Bargaining Power Farmlands cooperative is the largest company in New Zealand dealing with rural supplies hence a dominant player in the industry (NZDA, 2013 p.92). After its merger in 2013, its operational capacity doubled after the combination of the two major players in the industry; the Economic Trading Society and Otago Rural Trading Society. It has about 60000 shareholders who are major players in the cooperative’s operation and decision-making process. Customers’ Bargaining Power Relative firm size and share of customers in Farmlands’ business Customers of the company are similar to the shareholders giving them a high bargaining power. The company exists to cater for the needs of customers by offering them farm supplies and relevant services. They value quality and reliability offered by the company by ensuring they obtain maximum returns from their businesses (NZDA, 2013 p.114). Threat of New Entrants The greatest threat for new entrants is the available market share for new industry players (NZDA, 2013 p.120). Due to dominance of farmlands cooperative in the industry, new entrants face the challenge of acquiring a market share. They require heavy funding to undertake marketing campaigns to attract customers and develop a pool of loyal clientele. Threat of Substitutes Technology offers a tough threat to farmlands cooperative since it can enable the customers to access services at the comfort of their home (NZDA, 2013 p.99). An individual farmer can access services from experts online and access buyers in the international market without the need of a cooperative. Potential Critical Success Factors in the Industry Success in the industry requires maintenance of a high level of trust among customers and taking advantage of economies of scale to reduce operational costs (NZDA, 2013 p.87). Business Environment The agricultural industry in New Zealand is the largest sector in the country contributing two thirds of the exports (NZDA, 2013 p.11). The trade industry highly depends on agriculture making it a prominent sector in the country. The government has eliminated tax concessions and offered farmers subsidies and price supports to assure them of high returns. This shows that the government is supportive of the agricultural industry creating a healthy environment for it to thrive and expand in future. Farmlands cooperative therefore has an assurance of the continued expansion of the industry therefore safeguarding its business. Exposure of the country to the international market expands the market for firms in the agricultural sector, which has increased the level of demand for its farm products. This has triggered an increase in supply for the commodities by encouraging more people to take up farming. This has an effect on the price of commodities, which the government intervenes by offering subsidies. The challenge The decision-making problem for Farmlands Cooperative is management of its extensive operations to reduce operational costs hence enhancing the level of profitability (NZDA, 2013 p.230. References New Zealand Dept of Agriculture (2013). Agriculture in New Zealand. Wellington: Department of Agriculture. Read More