Australia’s competition regulator has raised concerns about a proposed CAD1.29bn ($1.01bn) acquisition of Murray Goulburn Co-Operative (MG) by Canada’s Saputo, saying that the transaction would lead to lower prices being paid to dairy farmers in western Victoria.
The Australian Competition & Consumer Commission (ACCC) said that its concerns are centered on the Koroit dairy plant of Murray Goulburn in western Victoria.
The competition authority has particularly raised concern over the impact the transaction will have on competition for farmers’ milk in the region.
According to the ACCC, the Koroit plant along with Saputo’s Allansford plant would have more than 66% of the raw milk processing capacity in the south-west Victoria/south-east South Australia area.
Currently, the two milk processing plants procure the majority of raw milk supplied by dairy farmers in the region, said the competition body.
ACCC chairman Rod Sims indicated that competition for the purchase of raw milk from dairy farmers in the area will be lowered substantially once Saputo takes over Murray Goulburn’s Koroit plant.
Fonterra is currently the only other significant competitor with a processing plant in the region. As a result, the ACCC said that both Fonterra and Saputo could probably offer lower prices for the milk after the acquisition, thereby leading to very few alternatives for several farmers.
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.”
However, the ACCC also revealed that dairy farmers want the Saputo transaction to move ahead given the uncertain future faced by Murray Goulburn. But at the same time, the acquisition of the Koroit plant by Saputo will only make it worse by lowering of raw milk prices, reiterated the competition watchdog.
Sims added: “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.”
The ACCC also said that in other regions, the proposed acquisition is unlikely to pose any competition concerns as there is no overlap, as of now, between plants of Murray Goulburn and Saputo.
The competition authority said In downstream dairy product markets like fresh milk, butter, cheese and cream, there shouldn’t be any concerns.
