ACCC Raises Concerns Over Saputo-Lion Dairy Deal

By Glenn Dyer | More Articles by Glenn Dyer

The competition watchdog, the ACCC has raised concerns that Tasmanian dairy farmers could be paid less for their milk under a proposed $280 million deal that would transform the Tasmanian dairy market.

The Commission said yesterday that it has preliminary competition concerns about Canadian dairy company Saputo’s proposed acquisition of the Tasmanian-based cheese business of competitor Lion Dairy & Drinks, which is owned by the huge Japanese brewer, Kirin

The proposed sale is the first step by Kirin to exit the Australian dairy and juice market and if the ACCC knocks this deal on the head, the sale of other businesses will be much tougher to complete.

Saputo owns a milk processing plant in Smithton, Tasmania. It proposes to acquire Lion’s Tasmanian cheese processing plants, located in Burnie and on King Island, as well as Lion’s cheese brands, including South Cape, King Island Dairy and Tasmanian Heritage.

The proposed acquisition would combine processing plants of the second and third biggest buyers of raw milk in Tasmania, which currently compete separately with the biggest buyer, Fonterra, the giant Kiwi dairy group and the second or third largest operator in Australia.

“We are concerned that combining these two operators may lead to Tasmanian dairy farmers being paid lower prices for their raw milk,” ACCC Deputy Chair Mick Keogh said in a statement yesterday.

“If Saputo acquires the Burnie and King Island Lion plants, we will be left with a structure where two companies, Fonterra and Saputo, buy more than 80 percent of the raw milk produced in Tasmania.”

“Each would have a market share several times bigger than the next largest buyer of raw milk, Mondelez-Cadbury,” Mr. Keogh said.

He said that some farmers have told the ACCC that Lion has been offering competitive contract terms, including better prices for winter milk and an option to fix the price of a percentage of their milk for up to three years.

The ACCC is further investigating whether these features may be lost after the proposed acquisition.

The ACCC has also examined the impact of the proposed acquisition on the supply of cheese in Australia. Saputo’s cheese brands include Coon, Sungold, and Devondale. The ACCC’s preliminary view is that the proposed acquisition is unlikely to raise competition concerns in this area.

“Lion focuses on premium specialty cheeses, and Saputo focuses on everyday cheeses. Our initial analysis suggests that a combined Saputo-Lion would face continued competition from a range of suppliers, including domestic cheese producers, supermarket private labels, and cheese importers,” Mr. Keogh said.

The ACCC’s final decision is scheduled for September 26, 2019.

About Glenn Dyer

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.

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