In late 2005 a client was interested in developing a product / service for cattle stations (ranches) in Australia. The product was based on services applicable to individual cattle so market analysis was required to understand all the standard market size issues and the value of the cattle to the owners.
Market penetration was based on the ability to reach different segments (farm sizes), cost of marketing, the variance of applications, development of marketing collateral etc. The report also estimated a suitable retail sales price based on the market size and what the market would accept. This price included a cost breakdown of all company cost and a forecast of net profit for the first three years.
Below is a part of the non confidential ‘market segments’ section of the report:
There are many potential beef markets for beef producers in Australia. These include “the sale of weaners, vealers, feeder steers, back-grounding cattle for feedlots, bull beef, cull cows, pregnancy-tested in-calf heifers and cows, unjoined heifers, domestic and/or export trade finished cattle, animals for live export and niche market cattle. “ 11 These ‘markets’ provide a good starting point for the definition of more accurate benefits/ applications in further research reports, however they are too heterogeneous and out of the scope of this report.
Beef Price variance in Australia
It is noted that in 2002-03 there were 36,200 establishments 12 classified as 'beef cattle' farms in Australia, accounting for 27% of the total 133,000 agricultural establishments. This is a large diversified target market to reach. The data located under ‘Beef Market Facts’ in this report’s Appendix suggests that for the practicality of marketing (and promotion) there are three main beef segments:
- Small (300 cattle or less)
- Small to medium (less than $200k, (accounting for 72% of establishments) and holding 30% of the herd
- Large - Value of over $1m (3% of establishments) holding 30% of the herd
An extra consideration to the marketing of this product is the existence of feedlots (areas where cattle are completely hand fed or mechanically fed for the purpose of production). Nearly half of the accredited feedlots in Australia are in Queensland and over a third in New South Wales. These accredited lots only exist in about 600 establishments and account for only one million of the 27 million herd. It is not currently known what size farms use these lots or what benefits this product could provide to these closed in areas. Small (300 cattle or less)These farms are niche farms most likely located in green pastures in Vic and NSW. In 2003 this segment (number of herds with less than 150 head) had fallen to 60% of total herds. 12 While establishments with herds fewer than 300 beef cattle account for 70% of all beef properties they only account for 17% of the total beef herd. 12 This statistic shows the level of fragmentation in the market and the challenge for pricing and promotion.
Cattle Distribution in Australia (ref ABS)
It is believed that with these relatively small herd numbers, that these farms are spread over a relatively small area. The general density of cattle grazing is shown in the Appendix (of the full report). It is also likely that while the small farms bring in a relatively small amount of cash from the herd, that each of the cattle is of higher relative importance to the owners. Small yards and close proximity of roads suggests that these farms would receive the most benefit from preventing theft of cattle and sickness spreading throughout the herd.
Large (Value of over $1m (3% of establishments) holding 30% of the herd. Statistics show that recently there has been a consolidation of farms in an attempt to gain scales of economy and bargaining power over suppliers and export markets.The large establishment’s overall value and large herd sizes suggests that these companies could afford to buy the client’s product / service. However they would also most likely expect low purchase cost for bulk purchases. It is speculated that they would be most concerned about cattle theft due to the large farm size and remote location of their farms as well as disease prevention.
This market analysis report required a detailed understanding of the client’s product, inventing possible applications for them (in this particular segment) and segmenting the market into manageable parts. From the market analysis and forecasts of the cost of business development, forecast of potential market penetration were given.
Because the client’s product has required considerable R&D and several rounds of Venture Capitalist investment, this project is still ongoing and Confidential (as of 2009). The value of this research has been immense for the start up. I have been able to act as an independent source, with reliable reference information, which has allowed them to ‘put a stake in the ground’ four years ago. It has also meant that with a basic understanding of the market they have been able to budget more accurately for R&D and associated company running costs. With this independant report they can justify to their cautious investors the need for further development and investment as required. While individual cattle prices have varied and cattle stations continue to change hands and consolidate this exploratory report provides a very useful broad brush estimate of their products potential.