THE Australian Competition and Consumer Commission (ACCC) says it has concerns about the proposed acquisition of Murray Goulburn's Koroit plant by Saputo.
It says the Koroit plant is the only area of concern about the deal.
It is concerned about the impact the acquisition will have on competition for farmers’ milk in the area.
In October last year, Saputo entered an agreement to buy Australian dairy co-operative, Murray Goulburn (MG) for nearly $1.3 billion.
The transaction is subject to an ordinary resolution of MG's voting shareholders and other customary conditions including ACCC and Foreign Investment Review Board (FIRB) approvals.
The ACCC outlined its concerns in a Statement of Issues paper on Thursday and is seeking responses from interested parties by March 13.
Murray Goulburn in a statement released after the announcement said the successful completion of the asset sale remained its primary focus.
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 dairyfarmers 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 dairyfarmers’ raw milk in the region.”
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 limited alternatives for many farmers.
“When Murray Goulburn dropped its prices in 2015–16, Fonterra was quick to follow," Mr Sims said.
"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 dairyfarmers in the region.”
The ACCC says during its extensive consultations with farmers in the area, it heard from dairyfarmers who just wanted 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 dairyfarmers 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 dairyfarmers 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.”
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.
The ACCC invites further submissions from interested parties in response to the Statement of Issues by March 13. The ACCC’s final decision is due on March 29.
MG noted the ACCC's statement of issues was not a final decision, but provided the ACCC’s preliminary views.
It said Saputo had advised MG that it was reviewing the SOI.
MG said its preparations for seeking shareholder approval for the asset sale were otherwise well advanced.
MG expects to be able to issue an explanatory memorandum and notice of meeting convening an extraordinary general meeting to consider the asset sale shortly after there is clarity around the ACCC process.
MG said it had received support from suppliers and shareholders regarding the security and certainty this transaction will deliver.
The Statement of Issues is available on the ACCC’s public register: Saputo Dairy Australia Pty Ltd proposes to acquire Murray Goulburn's operating assets.