Micro-level clusters in the Australian dairy industry: the case of collaboration in the Central Murray region.

SUMMARY

Discussion groups in the dairy industry are a vital forum for knowledge transfer amongst dairy farmers. Discussion groups are made up of people engaged in the business of dairy farming and they can be classified as micro-level clusters. Micro-level clusters are collaborative networks of individual firms (Boekholt and Thuriaux, 2000). In these clusters dairy farmers absorb and disseminate knowledge from professional agronomists, veterinarians, government advisers and research institutions. This paper explores the practice of small dairy farmers working in clusters to share knowledge and know-how. The study was conducted in the Central Murray dairy region of Victoria, Australia.

KEY WORDS

micro-cluster; Australian dairy industry; dairy discussion groups; knowledge transfer; skills transfer; public policy; collaborative networks; case study

INTRODUCTION

The Australian dairy industry has a history of working effectively towards common agendas through dairy discussion groups. Dairy discussion groups can be classified as micro-level clusters. Micro-level clusters are collaborative networks of individual firms (Boekholt and Thuriaux, 2000). Dairy discussion groups provide an environment for knowledge transfer amongst dairy farmers who access expertise from agronomists, veterinarians, government advisers and research institutions. In this setting dairy farmers build their capacity for innovation through knowledge transfer. Knowledge transfer occurs during the conversion of tacit knowledge into explicit knowledge through sharing experience, dialogue discussions, know-how exchange and teaching (Politis 2003).

The dairy industry reflects Drucker's observation that 'knowledge constantly makes itself obsolete' (Drucker 1997:22). The industry's uptake of new technologies and better farm management practices, improved herd genetics, pasture management and supplementary feed regimes have resulted in dramatic improvements in productivity (Getting a Better Return 2001; www.dairycorp .com.au/statistics). In 1975 the average yield per cow was 2750 litres per year (ABARE, 2002: 39). In 2000-03 the yield had grown to 5037 litres of milk per cow (Australian Commodities 2004). These improvements can be attributed to the effective dissemination of know-how throughout the industry.

This paper explores the practice of small dairy farmers working in clusters (loose collaborative relationships) to share knowledge and know-how. The report examines collaboration amongst small dairy farmers operating in the Central Murray dairy industry in Australia and evaluates the importance of government and industry intervention. Victoria is the largest producer of dairy products in Australia. The Central Murray dairy region is the largest in Australia, producing 26% of Australia's total milk production (Tesdorpf 2002). The Australian dairy industry is Australia's largest processed food industry and, with 13% of the world dairy produce market, Australia is the worlds' third largest dairy exporter (Getting a Better Return 2001).

DAIRY FARMING

Dairy farms run by owner managers (family farms) account for 99% of all Australian dairy farms. On average the owner manager of a Victorian dairy farm is aged 49 years, works 65 hours a week and has a 46 year old spouse working 30 hours a week on the farm, a total of 135 hours per week in labour (ABARE 2002: 77). The average Victorian dairy herd in 2000 was 179 cows (ABARE 2002: 39).

Dairy farming is becoming increasingly sophisticated with higher production methods being employed. Dairy farm production has traditionally been pasture based but experiences during the recent drought (2002/03) and the 1982/83 drought have resulted in more farmers moving to grain feeding and other alternatives to perennial pasture. Farmers now choose their method of production from traditional methods, modest use of grain (<1.5 tonnes/cow/year) and hay, or high stocking rate systems which require up to 70-80% of the feed being brought in as supplements (McGuckian 2000). As well as increases in supplementary feeding new technologies adopted include fodder conservation, soil testing, artificial insemination, synchronised oestrus, defined mastitis control programs and computers on farms (Tesdorpf, 2002). Doucouliagos and Hone (2000) show that over the past 20 years of an increasingly deregulated environment new capital investment has improved milk production and utilisation. It has also enabled the industry to reduce its dependence on labour (Doucouliagos and Hone, 2000).

Deregulation of the dairy industry in July 2000 has forced farmers to identify strategies to improve their productivity. There is continuing pressure on the cost/price margin, particularly for smaller milk producers (Murray Dairy, 2001).

STRATEGIC FLEXIBILITY IN DAIRYING

Globalisation, increasing reliance on the export market, the bilateral trade agreement with the United States, the impact of the 2002-03 drought, the ongoing threat of water shortages in the Murray-Goulburn irrigation system and the rise in the Australian dollar against the US currency are all factors which have or will impact upon dairy farmers. The economic, political and ecological environment has become more uncertain. Dairy farming has become a risky business. In such an uncertain and dynamic environment dairy farmers must develop greater strategic flexibility.

Farm work is time consuming and tiring, leaving little opportunity for strategic thinking. In the dairy industry historically measures have been physical--the number of cows milked, bales made and paddocks irrigated. Dairy farmers are managers of small businesses and small firms tend to have difficulty in differentiating between strategic and operational managerial roles; they are not geared to scanning for environmental threats and opportunities; they have few external linkages and they have little influence over external events (Lang et al., 1997).

Strategic flexibility is a concept suited to dynamic environments where continual change is unlikely to make once-and-for-all adjustments an appropriate form of managing change (Genus, 1995). Collaboration among dairy farmers can be viewed as the development of a capability to permit some freedom of manoeuvre, as illustrated in Figure 1. In Cell 1 the flexibility of an organisation is high against a background of low uncertainty in the external environment. In Cell 3 the level of organisational flexibility is low, but so too is the level of environmental uncertainty. An organisation in this situation may find itself vulnerable to future change. Most dairy farm businesses would have fitted this category until the late 1980's.

[FIGURE 1 OMITTED]

Cell 4 depicts the current situation for many small dairy farmers as 'hostages to fortune'. Here a combination of low organisational flexibility and highly uncertain environmental conditions places the farm business at the mercy of external circumstances. Cell 2 portrays a state of 'readiness'--the desirable state.

Dairy farmers who are able to avoid committing to a future deployment of resources, and are able to reverse, remedy or undo strategic decisions can gain some measure of control over their destiny. Cell 2 indicates that flexible organisations are better able to cope with increasing uncertainty. Obviously this is the desirable position for dairy farmers to work towards. Collaborative practices can help dairy farmers to achieve some flexibility.

Through collaboration the results of one farmers' experimentation can be a useful source of trial and error learning for others in the cluster, enabling problems to be identified without incurring the costs of implementation (Genus, 1995). Porter (1998) argues that clusters offer good mechanisms for transferring technology out of research establishments and into practice. Having preferred access to such knowledge gives dairy farmers enhanced control over their destiny.

Nevertheless, the difficulties inherent in the development of clusters are real. If collaborative practices are to work well many factors must be considered. The management of inter-firm linkages tend to be problematic (Hamel et al., 1989). Dairy farmers tend to hold strong personal views about farming practice. Participants in collaborative relationships enter with different histories, experiences and motives (Genus 1995). While the history of dairy discussion groups has been positive recent changes in public policy are now impacting upon the processes of knowledge acquisition and transfer in dairy farming.

DAIRY DISCUSSION GROUPS: MICRO-CLUSTERS

A dairy farmer discussion group is:

A group of people engaged in the business of dairy farming. The group may have either a specific focus (eg mastitis) or may wish to cover a number of topics throughout the year. Groups can be established to solve a particular problem within a short time frame (a Learning Group) or can be ongoing.

There are a large number of dairy farmer discussion groups around the state of Victoria, with groups in each region operating differently.

(Nelson 2002)

Jack Green, an Inspector with the Department of Agriculture, started dairy discussion groups in the 1950's. Since that time discussion and knowledge sharing has become part of the culture of the dairy industry.