Please review my first AWA!

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Please review my first AWA!

by netrike » Sat Sep 14, 2019 7:30 am
Hello all, below is my first AWA (starting a 6-month study plan, currently on week 1). Please take a look and let me know if you have any suggestions. My major concerns are:
1. Have I presented enough in terms of number of arguments?
2. Is my second paragraph too convoluted?
3. I wrote and reviewed the below in about 20 minutes. Since I have extra time, what should I be working on?

Any other feedback is greatly appreciated!

"Over time, the costs of processing go down because as organizations learn how to do things better, they become more efficient. In color film processing, for example, the cost of a 3-by-5 print fell from 50 cents for five-day service in 1970 to 20 cents for one-day service in 1984. The same principle applies to the processing of food. And since Olympic Foods will soon celebrate its 25th birthday, we can expect that our long experience will enable us to minimize costs and thus maximize profits."

The argument that food processing costs will go down over time and thus profits will be maximized, as presented in Olympic Foods's annual report, is flawed. It reaches its conclusions based on an overstated premise of parallelism with other industries and a siloed view of itself within the broader food processing industry.

Olympic Foods uses the example of improved efficiency over time in the color film processing industry as support for the idea that the food processing industry will also benefit from increasing levels of efficiency over time. This argument is fundamentally flawed, as the requisite contributions to efficiency may not be present in the food processing industry. For example, demand for colored film prints was likely very high in the late-20th century. While in the short term this may have had a positive influence on prices and perhaps margin, over time this may have introduced a wider swath of competitors into the market. As individual corporations sought to claim market share, they would have invested in the research and development required to improve both the turnaround time and cost of color film processing. It is not clear whether a similar level of demand, and consequently competition, exists in the food processing market. Therefore, to claim that the latter industry will necessarily enjoy efficiency gains to a similar degree and over a similar time period, as compared to the former industry, is illogical.

Congruently, the annual report claims that Olympic Foods can expect efficiency gains that will minimize costs and maximize profits. Even if the food processing industry were to be experiencing significant efficiency gains (which the former paragraph calls into question), the improvement in efficiency leads only to minimized costs for the more efficient service, and does not necessarily lead to increased profits. As stated in the previous paragraph, if the industry as a whole experienced a significant increase in competition, this could lead to improved efficiency but it would also put downward pressure on consumer prices. Costs would have to decrease by a significant enough margin to overcome the decrease in price as well as the probable investment into research and development in order to claim that profits are maximized. On a related note, even if Olympic Foods did decrease production costs through efficiency gains, this does not preclude the possibility of a competitor outperforming Olympic Foods in terms of efficiency, let alone other potential competitive advantages such as brand recognition and distribution, that could lead to stronger pricing power and thus improved profit margins. Since the magnitude of each effect is not communicated and the broader industry and competitive pressures are not taken into consideration, it is incorrect to assume that profits will be maximized due to increased efficiency.

Due to the false parallelism drawn between the food processing industry and the color film processing industry, as well as the oversimplification of the drivers of profit, the argument presented in the annual shareholder report is unsubstantiated and logically unsound.