Australia’s competition watchdog is to examine concerns within the dairy sector about the plan by retailer Coles to buy two facilities from Saputo.

In April, Coles, Australia’s second-largest grocer, announced a deal to acquire two milk processing facilities from Saputo, the Canada-based dairy group.

However, The Australian Competition and Consumer Commission said today (20 July) the transaction had “raised strong concerns” among what it described as “a significant number of industry participants”.

The ACCC said the deal would “result in a major structural change” in Australia’s dairy sector. If approved, the acquisition would be the first time a supermarket “owns and operates its own milk processing facilities”, the regulator said.

The deal would see Coles buy two plants in Laverton North in Victoria and in Erskine Park in New South Wales for around C$95m (currently $72m). The transaction was expected to close in the second half of 2023.

At present, Coles acquires raw milk from farmers in Victoria and New South Wales. The retailer processes the milk at these plants under an arrangement with Saputo.

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“For NSW dairy farmers, concerns have been raised that this acquisition may change Saputo’s incentives to continue acquiring raw milk in NSW. If Saputo does exit NSW as a result of the acquisition, this would leave limited competition in regions of NSW, which could result in farmers receiving lower prices for their raw milk,” Mick Keogh, the deputy chair of ACCC, said.

The regulator is considering whether Saputo would be likely to exit New South Wales after the acquisition.

The ACCC is concerned Coles would have increased bargaining power that could lead to reduced competition at the wholesale level, affecting processors and farmers.

“We have heard strong concerns across the industry about how the acquisition will strengthen Coles’ position in the dairy supply chain,” Keogh said.

“Many industry participants have expressed concerns that the acquisition will result in Coles consolidating its private-label milk production, which would increase its bargaining power in negotiations with dairy processors and dairy wholesalers.”

Coles said it would “continue to work constructively” with the ACCC but insisted “sees no lessening of competition in any relevant markets”.

“…Coles already acquires approximately 80% of the volumes at the facilities and will provide milk processing services to Saputo Dairy Australia under a tolling arrangement,” Coles CEO Leah Weckert said. “We remain confident that any outstanding concerns can be addressed so that the proposed transaction can proceed to completion.”

Interested parties have until 3 August to contact the ACCC.