The ACCC’s issues are solely in relation to Murray Goulburn’s Koroit dairy plant in western Victoria, in particular the impact the acquisition will have on competition for farmers’ milk in the area.
Its concerns have been addressed in a Statement of Issues paper, and it is seeking responses from interested parties by March 13, with a final decision being made on March 29.
The ACCC says Saputo’s Allansford plant and Murray Goulburn’s Koroit plant would have more than 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.”
Lower prices possible
New Zealand’s 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,” Sims said.
“We are concerned this transaction would ultimately lead to lower prices being paid to dairy farmers in the region.”
Looking for stability
The ACCC said it had only heard from dairy farmers who want the Saputo transaction to proceed during extensive consultations with farmers in the area
“We understand Murray Goulburn faces an uncertain future, and that many farmers just want certainty after a tumultuous few years,” 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.”
Sims said the ACCC believes the Koroit facility would remain in the market and continue to operate if the Saputo deal does not happen, adding it would likely be acquired by another business.
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.