The Australian Competition & Consumer Commission (ACCC) says it won’t oppose Lactalis’ proposed acquisition of Fonterra’s consumer and food service businesses, if the bid goes ahead. While it would see two of the largest buyers of raw milk combine, the ACCC says it is “unlikely” to result in a lessening of competition.
Fonterra announced the sale of its global Consumer business, Fonterra Oceania, and Fonterra Sri-Lanka. The businesses have been rebranded Mainland Group and is estimated to be worth around $4 billion.
Bega had applied to the ACCC for informal clearance to bid in late June.
Currently, Lactalis and Fonterra both acquire raw milk from dairy farmers in Victoria and Tasmania, as well as processing and supplying a range of dairy products across Australia.
ACCC deputy chair, Mick Keogh, said, “We looked very closely at the transaction as it will combine two of the largest buyers of raw milk in Victoria and lead to some further consolidation in Tasmania.
“While we acknowledge the concerns raised by some representative bodies, after careful consideration we have determined that the acquisition is unlikely to result in a substantial lessening of competition.”
Alternative buyers of raw milk across Gippsland, the Murray and Western Victoria will constrain
The ACCC found that across, alternative buyers of raw milk would continue to constrain Lactalis if the acquisition proceeded.
“We found that while the industry in Tasmania is already concentrated, Lactalis has a limited presence, and the acquisition would not substantially alter the market dynamics. If the acquisition proceeded, Lactalis would continue to be constrained by Saputo and, to a lesser extent, Mondelez,” Keogh said.
“Because Fonterra and Lactalis have differing end product mixes, they often seek to acquire milk from farmers with different production profiles. Accordingly, we found that they are not likely to be each other’s closest competitors. This was reflected by analysis which showed very few farmers switched between the two processors.”
The ACCC also concluded that the transaction was unlikely to substantially lessen competition in the wholesale supply of dairy products such as drinking milk, cream, cheese, chilled yellow spreads and dairy ingredients like milk powder.
It said the differing production focus of Fonterra and Lactalis meant there was limited overlap between the two in the supply of these products.
For longer-life, readily transportable products such as cheese, dairy ingredients and chilled yellow spreads, the ACCC found that retailers and wholesalers would also continue to benefit from import competition.
“Supermarkets like Coles and Woolworths are also major customers in this market, with significant levels of bargaining power.
“They also have the ability to sponsor new entry or even enter directly, as Coles has demonstrated through its acquisition of Saputo’s milk processing assets,” Keogh said.
