Sector News

Murray Goulburn-Saputo deal: competition concerns flagged

March 1, 2018
Food & Drink

Australia’s competition watchdog has raised concerns about Saputo’s $1 billion purchase of struggling dairy business Murray Goulburn, in particular about how the deal will affect competition for farmers’ milk in parts of Australia.

The Australian Competition and Consumer Commission (ACCC) said Saputo’s Allansford plant and Murray Goulburn’s Koroit site would have over two thirds of the raw milk processing capacity in the south-west Victoria and south-east South Australia region. The two plants currently acquire the majority of raw milk from dairy farmers in the area.

Fonterra is the only other major competitor with a processing plant in the region. The ACCC’s concerns are that Saputo and Fonterra would be more likely to offer lower prices if Saputo acquired Koroit, and that there would be very limited alternatives for many farmers.

ACCC chairman Rod Sims said: “While Saputo is proposing to acquire most of the Murray Goulburn business, our only concern is in relation to Murray Goulburn’s Koroit plant. Our view is that Saputo owning the Koroit plant would substantially lessen competition for the acquisition of dairy farmers’ raw milk in the region.”

He added: “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.”

The proposed deal was announced last October and it would see Saputo expand presence in Australia after the acquisition of Warrnambool Cheese & Butter in 2014, followed by a deal for Lion Dairy’s remaining stake in Warrnambool last year.

Murray Goulburn reported net revenue of AUD 2.49 billion ($1.9 billion) for its 2016/17 fiscal year – down 10%, which it said was due to a decline in liquid milk sales.

Last month, the ACCC extended the provisional date for the announcement of its outcome of the deal as it required more time to consider data.

The watchdog said during its consultations with farmers in the area, it heard from dairy farmers who just want the Saputo transaction to proceed.

Sims said. “We understand Murray Goulburn faces an uncertain future, and that many farmers just want certainty after a tumultuous few years.

“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. 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.”

The ACCC said there are unlikely to be competition concerns in other regions where there is currently no overlap between Murray Goulburn plants and Saputo plants, or in downstream dairy product markets, such as fresh milk, butter, cheese and cream.

A final decision on the deal will be made by 29 March.

Source: FoodBev

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