Archer Daniels Midland is an American Multinational firm dealing in the food processing and commodities industry and offering the products and services of cereal grain and oilseed used in food, ethanol, bioenergy, beverage, and animal feeds. It also provides the services of flour milling. Within the food processing and commodities trading industry, the company was founded in 1902, and the headquarters is located in Chicago, Illinois, United States.
As of 2019, the company generated a solid revenue of 64.656 billion dollars, and the company has an active employment figure of over 38,000 under its umbrella (ADM, 2019). From an international perception of the food processing and commodities industry, the evaluation of Porter’s five forces would be a beneficial technique to preserve future strategies to better comprehend the organization’s situation.
Competitive Rivalry in The Market
The competitive rivalry in the food processing industry is high because of the increasing need in demand and supply of goods by the community to fulfill the requirements. As a consequence of this increase, several groups and companies have captured the market to provide options for the customers to purchase from, resulting in fierce competition among established players.
The major competitors of the company are Cargill, Bunge, and Tyson Foods. Archer Daniel Midland is trying to lead the market among its rival by showing strong revenue of 64 billion US dollars. At the same time, other firms reflecting revenue of 114.6, 41.4, 43.2 billion US dollars in the industry (Craft, 2020). Therefore, the presence of such big companies in the industry makes the competition more complex.
Threat of Substitutes
The threat of having substitutes is considered moderate in the food processing industry because of the range of products like seeds, corns, and other high fiber food available to meet the community’s demand. Product differentiation and costing also play a key role in the context of substitutes in the industry.
The product and food in packaging sold by the firms that have built brand image have less impact of such substitutes because of the customer loyalty factor (Greve, 2014). Another factor is the better quality as a substitute; customers nowadays prefer healthy food and pay more attention to the healthy ingredients. Therefore, the risk of substitutes in food processing is moderate.
The Threat of New Entrants
The threat of new entrants in food processing is considered low because of established firms’ existence, and the barriers to entry placed by them make it difficult for the new entrants to step in. Economies of scale are another factor for the new firms, and they will face major pressure as a result in terms of capital issues. To establish a factory, a lot of equipment is needed to deal with that depends on.
A large area for the warehouse and production is required, and the location also matters in terms of accessing the crops and products easily; otherwise, transportation costs are incurred. Also, the laws and regulations are recognized as one of the few entry barriers in the processing industry (O’Hara et al, 2020). Therefore, the new entrant’s possibility is low.
Bargaining Power of Buyers
The Bargaining power of customers in the context of the food processing industry is high because of the availability of several firms in the market, and customers can buy from whichever brand or firm they want. Further, the product offerings and cost of such food offerings and products are somewhat similar, making the buyer power high.
The factor of switching cost is also low from one firm’s product to another, which further influences buyer behavior (Pick and Eisend, 2014). Furthermore, the technology factor has increased the awareness in buyers, which further influences their negotiation. Keeping in view such a method, the bargaining power of customers is high in the food processing industry.
Bargaining Power of Suppliers
The Bargaining power of suppliers in the food processing industry is considered to moderate. The suppliers of the raw food or product offered are either the producer or the farmers doing business in specific items and mostly the suppliers are dependent on the big firms to stay aggressive and rising. Switching costs do not affect sellers in such a context as they have made agreements with the food processing firms in advance. However, big firms hold a significant ability of authority in the process dynamics of the industry and have the skill to fluctuate the agreements (Selwyn, 2013). Thus, in context to the retail industry, the bargaining power of suppliers is low to moderate.
References
ADM, 2019. ADM – Financials – Annual Reports. [online] Investors.adm.com. Available at: https://investors.adm.com/financials/annual-reports/default.aspx.
Craft, 2020. Competitors. [online] https://craft.co/archer-daniels-midland/competitors. Available at: https://craft.co/archer-daniels-midland/competitors.
Greve, G., 2014. The moderating effect of customer engagement on the brand image–brand loyalty relationship. Procedia-Social and Behavioral Sciences, 148, pp.203-210.
O’Hara, J.K., Castillo, M. and McFadden, D.T., 2020. Do Cottage Food Laws Reduce Barriers to Entry for Food Manufacturers?. Applied Economic Perspectives and Policy.
Pick, D. and Eisend, M., 2014. Buyers’ perceived switching costs and switching: a meta-analytic assessment of their antecedents. Journal of the Academy of Marketing Science, 42(2), pp.186-204.
Selwyn, B., 2013. The global retail revolution, fruit culture, and economic development in northeast Brazil. Review of International Political Economy, 20(1), pp.153-179.