Australia’s competition watchdog has raised concerns about the acquisition by Canadian dairy company Saputo of the speciality cheese business owned by a subsidiary of Japan’s Kirin Holdings.

Saputo emerged as the winning bidder of Australia-based Lion Dairy & Drinks’ cheese assets and two plants in Burnie and King Island in April, which would also see it acquire the brands South Cape, King Island Dairy and Tasmanian Heritage. The purchase price was settled at AUD280m (then US$196.9m) for the business that Kirin put up for sale last October following a strategic review.

However, the Australian Competition and Consumer Commission (ACCC) issued a statement today (8 August) saying it has “preliminary” concerns about the deal, namely that associated dairy farmers will get a lower price for their milk if the acquisition is approved. 

Saputo owns a milk processing plant in Smithton, Tasmania, and the deal would combine the facilities of the the second- and third-largest buyers of raw milk in the island state behind Fonterra, the ACCC said.

Its deputy chair Mick Keogh said: “We are concerned that combining these two operators may lead to Tasmanian dairy farmers being paid lower prices for their raw milk. If Saputo acquires the Burnie and King Island Lion plants, we will be left with a structure where two companies, Fonterra and Saputo, buy more than 80% of the raw milk produced in Tasmania.

“Each would have a market share several times bigger than the next largest buyer of raw milk, Mondelez-Cadbury.”

Some farmers have told the ACCC that Lion has been offering competitive contract terms, including better prices for winter milk and an option to fix the price of a percentage of their milk for up to three years. The competition authority is “further investigating whether these features may be lost after the proposed acquisition”.

Meanwhile, the ACCC is also assessing the impact on the supply of cheese in Australia – Saputo owns the Coon, Sungold and Devondale cheese brands – but said it does not expect any competition issues in that area.  

“Lion focuses on premium speciality cheeses, and Saputo focuses on everyday cheeses,” said Keogh. “Our initial analysis suggests that a combined Saputo-Lion would face continued competition from a range of suppliers, including domestic cheese producers, supermarket private labels, and cheese importers.”

The ACCC is now inviting interested parties to submit any concerns about the deal by 22 August, with a final decision expected on 26 September.