ACCC Flags Concerns Over Saputo, Murray Goulburn Deal
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While Montreal-based Saputo’s $1.3 billion acquisition of distressed rival Murray Goulburn has stalled after the competition regulator revealed concerns over one plant in western Victoria, the obstacle looks easy to overcome - sell the milk plant in question
The Australian Competition and Consumer Commission said Thursday it has concerns related to the Koroit dairy plant in western Victoria,”in particular the impact the acquisition will have on competition for farmers’ milk in the area.”
The ACCC outlined its concerns in a Statement of Issues paper (https://www.accc.gov.au/media-release/accc-flags-concerns-about-saputo-murray-goulburn-deal) and is seeking responses from interested parties by March 13.
The ACCC said Saputo’s Allansford plant and Murray Goulburn’s Koroit plant would have over two thirds of the raw milk processing capacity in the south-west Victoria / south-east South Australia region. The two plants currently acquire the majority of raw milk from dairy farmers in the area.
“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.
“Our view is that Saputo owning the Koroit plant would substantially lessen competition for the acquisition of dairy farmers’ raw milk in the region.”
The Commission said 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.
“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,” Mr Sims said.
“We are concerned this transaction would ultimately lead to lower prices being paid to dairy farmers in the region.”
The ACCC says during its extensive consultations with farmers in the area, it heard from dairy farmers who just want the Saputo transaction to proceed.
“We understand Murray Goulburn faces an uncertain future, and that many farmers just want certainty after a tumultuous few years,” Mr Sims said.
“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,” Mr Sims 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.
While concerns were expressed by industry participants in relation to bulk cream, the ACCC considered that those concerns arose primarily from a recent decrease in bulk cream production overall rather than any potential impact on competition from the proposed acquisition.
Selling the plant in question sounds easy, but there is a dearth of buyers - Bega Cheese would be the logical buyer, but it is still swallowing Mondelez Australia and vegemite and peanut butter.
So watch for Chinese buyers to try and snap up the plant. That will generate as much opposition as the Saputo offer has among dairy farmers.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.