Australia’s competition watchdog has raised concerns over the sale of local dairy group Murray Goulburn to Canada’s Saputo, which already has assets in the country.
The companies announced their deal in October, with Saputo agreeing to pay CAD1.29bn (then US$1bn) for the co-op’s operating assets and operating liabilities, including milk supply commitments.
Saputo’s existing operations in Australia include Warrnambool Cheese and Butter Factory (WCB), in which it acquired a majority stake in 2014 after a takeover battle against Bega Cheese and Murray Goulburn. It snapped up the rest of the shares in WCB last year.
The Australian Competition & Consumer Commission has been looking into how Saputo’s purchase of the Murray Goulburn assets could affect competition in the dairy sector.
Today, the ACCC outlined its concerns, pointing to the prospective change of ownership at one Murray Goulburn plant.
“While Saputo is proposing to acquire most of the Murray Goulburn business, our only concern is in relation to Murray Goulburn’s Koroit plant,” ACCC chairman Rod Sims said.
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The ACCC said, in combination, Murray Goulburn’s Koroit facility and Saputo’s Allansford plant would have over two-thirds of the raw-milk processing capacity in a region covering the south-west of the state of Victoria and the south-east of the state of South Australia.
The sites acquire “the majority” of raw milk from dairy farmers in the area, the ACCC said, adding New Zealand’s Fonterra is “the only other major competitor with a processing plant in the region” and raising the prospect of farmers being paid less for the commodity.
“Our view is that Saputo owning the Koroit plant would substantially lessen competition for the acquisition of dairy farmers’ raw milk in the region,” Sims said. “When Murray Goulburn dropped its prices in 2015–16, Fonterra was quick to follow. Our analysis has shown that many farmers switched to Saputo in response, the only other major processor nearby. We are concerned this transaction would ultimately lead to lower prices being paid to dairy farmers in the region.”
Sims acknowledged there are farmers who “just want the Saputo transaction to proceed” given the uncertainty over the future of Murray Goulburn.
“However, if the acquisition of Koroit by Saputo proceeds, our view is that dairy farmers in the region will be worse off and face lower raw milk prices in the longer run,” Sims said. “It’s important to preserve competition in these markets so dairy farmers get a price for their product determined by healthy competition. The ACCC considers that Koroit would remain in the market, continue to operate, and would likely be acquired by another business if the Saputo acquisition does not proceed,” Sims said.
The watchdog said it had heard “concerns” from “industry participants” over the impact on the market for bulk cream. The ACCC said it believes that unease “arose primarily from a recent decrease in bulk cream production overall rather than any potential impact on competition from the proposed acquisition”.
Meanwhile, the ACCC said it is “unlikely” there will be competition concerns in other regions where there is no overlap between Murray Goulburn and Saputo plants, or in downstream dairy product markets, such as fresh milk, butter, cheese and cream.
Interested parties have until 13 March to respond to the ACCC document issued today. The ACCC’s final decision is due on 29 March.