Case analysis of "Although the dairy farm is small, the economic problems are big"

Although the dairy farm is small, the economic problems are big

Southern Gansu Province In the early 1980s, in order to adapt to the improvement of urban living standards and the increasing demand for milk, a township enterprise opened a dairy factory that provided high-quality milk powder as its main product to urban residents. Since the factory was located in a livestock area, at that time There are few pastures in the area, and the milk powder market is in short supply. The enterprise has good economic benefits, and the number of cows has grown from 20 to 50 at the beginning. In the mid-to-late 1980s, the leather industry was developing rapidly. Leather raw materials were in short supply. The prices of leather raw materials were rising rapidly. The economic benefits of leather factories in various places increased significantly. The director of the factory decided to slaughter all the original cows and use all the profits from the original dairy factory. With accumulated profits and a loan of 500,000 yuan, the original factory was converted into a larger local leather processing factory within two years. However, after entering the 1990s, the light industry became increasingly weak and enterprises were unable to make ends meet financially. The operating rate dropped from the original high of 95% to 40%. Workers' wages were in arrears for more than a year. The recovery rate of corporate fixed asset investment was less than 60%. In order to reverse the company's losses as soon as possible, the factory director decided to sell the tanning equipment at the purchase price of 30% (the cumulative depreciation rate of the equipment reached 40%) and rebuild the dairy factory.

(-) Try to choose one of the following questions to analyze the above case:

(1) From the perspective of supply and demand balance, is the decision of the factory director correct? Why?

(2) Use the marginal analysis method to analyze what is worth learning from the factory director’s decision-making? Why?

(3) From the perspective of opportunity cost, is the decision of the factory director correct? Why?

(2) If you were the director of the factory, how would you make the above decisions?

Case Analysis

(1)

From the perspective of opportunity cost, the decision of the factory director is correct

In Economics "Opportunity cost" is explained in this way. The benefits of giving up another option due to choosing one option are also called opportunity costs or substitution costs. It reflects the "cost" of not choosing the best option or opportunity, or the benefits that can be obtained by sacrificing another opportunity by choosing a certain business project. In layman's terms, if you don't do this, the price you pay is the value of not realizing your potential. If you know you can create value now, but you don't do it, the price you pay is a lost opportunity. You may not know the value of not doing something, but people who understand value creation will know it very well. In business, if a CEO has the ability to develop the company, but because he is afraid of risks, he does not dare to borrow money from banks to promote growth, he may have caused the company to lose an opportunity cost.

For dairy factories, in the mid-1980s, giving up profitable dairy factories and switching to tanneries was an option, although judging from the market supply and demand situation, his first priority This choice is already a lost opportunity cost. Because, although the demand for leather sales in the market is very strong, the supply and demand of the dairy products market are still strong. When he gives up a profitable situation and switches to another industry that is unfamiliar to him, the risk is still very high.

After entering the 1990s, the light industry became increasingly weak and enterprises were unable to make ends meet financially. The operating rate of tanneries dropped from the original high of 95% to 40%. Workers’ wages were in arrears for more than a year. The recovery rate of enterprise fixed asset investment was less than 10%. 60. In order to reverse the company's losses as soon as possible, the factory director decided to sell the tanning equipment at the purchase price of 30% (the cumulative depreciation rate of the equipment reached 40%) and re-establish a dairy factory. From an opportunity cost perspective, his approach is still correct. If the factory director does not choose to change production, he will face the bankruptcy of the company. Rather than going bankrupt, it is better to give it a try. Besides, he also has management experience in a dairy factory. I think his choice is correct for four reasons:

1. In the 1990s, the living standards of domestic residents gradually improved, and residents' income increased, which led to a surge in demand for milk market. According to statistics, the growth of per capita income and the enhancement of the purchasing power of RMB will promote the growth of milk consumption.

my country's GDP is expected to maintain a growth momentum of more than 7% in the next few years, and a large number of research results have proven that per capita income and milk consumption expenditure are highly correlated. If based on 2001, domestic milk consumption per capita will be An increase of 10% means an increase of more than 900,000 tons, which is equivalent to about half of the liquid milk production in 2001.

2. Changes in concepts have led to the continuous expansion of the dairy product market. Milk, once considered a "luxury" symbol of high-quality life, has become common and practical. Our country is currently creating a new healthy diet concept of "a glass of milk strengthens a nation". Milk is rich in nutrients and is a food that is beneficial to human health. As a simple and convenient way to supplement calcium, drinking milk has become a dietary habit of more and more people. Seizing this opportunity, there is still a chance to make a profit by reopening the dairy farm. From the following data, we can see the changes in demand for milk in the domestic market.

According to statistics, although my country's per capita milk consumption is only 6.4% of the world's average, my country has "eliminated poverty" from being a "milk-poor" country. Look at the data from various places. Milk consumption in the Beijing market has doubled compared with five years ago, with average daily consumption reaching 500 tons. The average annual milk consumption per person in Nanjing is about 30 kilograms. Every year, the milk consumption of Nanjing people increases at a rate of 30%. Last year, the Nanjing Dairy Group purchased more than 70,000 tons of raw milk. Despite this, the milk consumption of Nanjing residents is only at a medium level nationwide, lagging behind that of Beijing and Shanghai. In the economically underdeveloped Anshan region, the per capita fresh milk consumption of urban households has reached 12.70 kilograms, which is 12.70 kilograms. The same period last year increased by 79.6%, and per capita expenditure was 53.39 yuan, an increase of 76.3% over the same period last year.

Affected by the SARS epidemic this year, milk consumption has grown rapidly. It can be seen that the nutritional value of milk is being recognized and accepted by consumers.

3. The dairy industry is a sunrise industry and there is still a lot of room for development. What is the growth potential of the dairy market? In the past nine years, the national milk consumption has increased by 66%. Last year, the per capita consumption of urban residents was 20 kilograms. Judging from the growth pattern of milk consumption in neighboring countries, it will have to reach 30 kilograms to 40 kilograms to enter a relatively stable growth. stage, so this rapid growth trend will continue.

Since 1998, the development of China's dairy industry has entered the "fast lane". In 1999, the country's total milk production was 8.069 million tons, which was only 1.43% of the world's total production. The gap in per capita possession of milk is also very wide. A 1997 European Union statistical material showed that China ranked 148th in the world's per capita milk possessions. At present, China's per capita milk consumption is only 6.4 kilograms. Not to mention compared with developed countries, even compared with the average level in Asia, it is only 1:6.25.

In addition, according to statistics, the average profit margin of dairy companies is around 25%, making the dairy industry the fastest growing industry in the agricultural economy.

4. From the perspective of production management experience, there are still opportunity costs for redeveloping the dairy industry. From a geographical perspective, my country's dairy industry is currently mainly concentrated in the northeastern region and economically developed coastal areas. The dairy industry in the western region is still scarce and the entire market is unsaturated. There is great potential for investment in the dairy industry. Moreover, the factory is located in a livestock base and has advantages in resource supply.

The factory was originally converted from a dairy factory. The management of the dairy factory is relatively mature, so from a cost perspective, it will also be improved a lot.

(2)

If I were the director of the dairy factory:

If I were the director of the dairy factory, first of all, based on the profitability of the original dairy factory, eight In the mid-1900s, diversified investments should be made, taking advantage of the resource advantages of the dairy factory, and then investing in and operating a tannery factory to achieve maximum sharing of resources. In this way, if the economic situation changes, complementary benefits can be achieved.

Secondly, during this production change, the factory director can carry out the following reforms:

1. Because the company has already suffered losses and has owed workers wages for more than a year, the factory has lost money Under the circumstances, it is basically unrealistic to rely on bank loans. At this time, when the enterprise changes production, it can first realize the system transformation, and can adopt the method of workers becoming shareholders to realize the enterprise transformation, which can also raise the capital to reopen the milk factory;

2. Resources can be leased. The local area is an animal husbandry base, and the local cow resources are relatively abundant. In the early days of the dairy factory, due to financial constraints, some cows can also be leased.

3. After the development of dairy farms, diversified operations of dairy products can be achieved. Carry out product innovation according to market demand.

4. When the dairy farm becomes profitable and funds are accumulated, it may be possible to diversify and invest in other industries.