AAU-ETD AAU-ETD
 

Addis Ababa University Libraries Electronic Thesis and Dissertations: AAU-ETD! >
Faculty of Business and Economics >
Thesis - Business Adminstration >

Please use this identifier to cite or link to this item: http://hdl.handle.net/123456789/1217

Title: Market structure, conduct and performances of some selected Large and Medium Scale Food Manufacturing Companies
Authors: Yifru, Tafesse
Advisors: Dr. Rakesh Belwal( Assistant Professor of Management)
Copyright: 2007
Date Added: 24-May-2008
Publisher: Addis Ababa University
Abstract: The objective of this project work is to explain the characteristics of selected pasta, macaroni and biscuits producing firms in terms of the industrial organization model of structure-conduct-performance. The finding reveals that the market is highly concentrated. The concentration of pasta and macaroni producing firms as measured by CR3 of i.e. three of the firms producing pasta and macaroni - Dire Dawa Food Complex, Kaliti Foods SC, and Kokeb Flour and Pasta Factory have been dominating the market from 2002/03 to 2005/06 with a concentration ratio of 76% to 46% respectively. As the concentration ratio dropped from 76% to 46% due to new entrants so did the performances to a certain extent. The combined performances of these three firms as measured in terms of their operating profits and return on investment dropped from 7.75% to 0.19% and from 7.10% to 0.14% respectively in the period under review. The return on invest was lower than the bank interest rate which proves the poor performances of these firms. Market entry in terms of capital requirement and access to quality wheat supply in the pasta and macaroni business is higher than that of biscuits investment. That is why the number of existing firms operating in the biscuits market are fourteen, while that of pasta and macaroni markets are eight. Like that of the pasta and macaroni producing firms, the biscuits market is characterized by high degree of concentration. The concentration ratio (CR4) of the four firms that was 53% in 2002/03 grew to 91% in 2005/06. Two of the firms namely NAS Foods and 2Brother had 85% of the market share. NAS Foods alone had 55% of the market in 2005/06, followed by 30% of 2Brothers. Although the biscuits market is somehow concentrated, the market leader or dominant firm does not charge higher prices at the retail level as that of Pasta and Macaroni sub-sector. At the wholesalers level however, firms charge different prices with a range of Birr 2 to Birr 4 per carton. The overall average capacity utilization of the five firms covered in this study was 65% in 2006. Their capacity utilization in 2006 declined mainly because of expansions made by Dire Dawa Food Complex on its pasta and macaroni lines from 7272 tons and 7272 tons to 16059 tons and 18786 tons per year respectively, and that of 2Brother’s additional biscuits line with a capacity of 6000 tons per year. However the capacity utilization of individual firms vary significantly. Dire Dawa Food Complex that contributes 67% (34845 tons) of the production capacity of the three firms has contributed 68% (22956 Tons) of the total products produced in 2005/06. In terms of capacity utilization by product, pasta had higher utilization rate (69%) than the rest of products. Dire Dawa Food Complex, the market leader in the sector, had 70% capability utilization for pasta (Spaghetti) product, followed by Kaliti Food SC at 69%. Kokeb and Kaliti Foods had relatively better capacity utilization in 2006 although their combined capacity was much lower than that of Dire Dawa Food Complex. The average capacity utilization rate of the four biscuits producing firms in 2006 was the lowest in the sector i.e. only 47%. This below average performances were attributed to the poor performances of the two firms, namely Dire Dawa Food Complex (34%) and Kaliti Food Complex (3%). NAS Foods which leads the biscuits industry had a capacity utilization of 97% followed by 2Brother, a challenger in the industry, by 67%. The evaluation of the five firms with the application of the structural-conductperformance model of industrial organization reveals the following key findings: • The Ethiopian food processing firms of pasta, macaroni and biscuits are highly concentrated and mainly dominated by the two major firms, Dire Dawa Food Complex and Kaliti Foods for Pasta and Macaroni Products with a combined average market share of 55% from 2002/03-2005/06; and NAS Foods and 2Brothers in the case of biscuits market with a combined average market share of 85% in 2005/06. • Competition among the biscuits firms is more intensive than the macaroni and pasta markets due to the larger number of firms, and low level of product differentiation although attempts are made to differentiate through branding and advertised. However, there is a tendency where a dominant firms are emerging in each case, followed by infringe firms that are competing at low level. • Market entry to pasta and macaroni manufacturing is more difficult than biscuits production in terms of capital requirements and lack of access to supply of quality wheat (or high cost of imported Durum wheat). • Firms are not integrated be it is forward, backward or horizontal. Lack of back ward integration has made firms vulnerable to lack of continuous supply of raw materials that constitutes about 55% of the cost of production for biscuits and 75% for pasta and macaroni production. • Prices are not determined in consultation among rivals, no collusion. But in the case of biscuits producing firms, NAS Foods, the market leader, sets its wholesale prices higher than its competitors. At the retail level all the prices biscuits of same sizes have uniformity. In the case of pasta and macaroni market, Dire Dawa Food Complex, the market leader, Charges higher than its rivals due to its brand preference among consumers. • The profitability of firms measured in terms of operating margin except for NAS Foods and Kokeb Flour and Pasta Factory that have continuous growths reveals a discontinuous of growth of profits. • The five firms had an average capacity utilization rate of 65%in 2006. The three major reasons, besides expansions of production capacity of Dire Dawa Food Complex and 2Brothers in 2006, for the poor performances these firms were: o Shortages of working capital has been ranked as the first reason for not working at full capacity o In inadequate supply of raw materials and inputs on time due to financial constraint. o Lack of demand for their products and fierce competition has been the 3rd reasons for poor capacity utilization mainly for the biscuits producers of government owned companies.
Description: A Project Paper Submitted to the School of Graduate Studies of the Addis Ababa University in partial fulfillment for the requirement of Masters of Business Administration (MBA) Degree
URI: http://hdl.handle.net/123456789/1217
Appears in:Thesis - Business Adminstration

Files in This Item:

File Description SizeFormat
Yifru Tafesse.pdf657.79 kBAdobe PDFView/Open

Items in the AAUL Digital Library are protected by copyright, with all rights reserved, unless otherwise indicated.

 

  Last updated: May 2010. Copyright © Addis Ababa University Libraries - Feedback