Competition watchdog running microscope over dairy deal

Australia’s competition watchdog has raised concerns over a potential takeover of cheese assets in Tasmania saying dairy farmers could be worse off.

The Lion speciality cheese factory at Burnie.

AUSTRALIA’S competition watchdog could block dairy company Saputo’s bid to buy the Tasmanian-based cheese business of competitor Lion Dairy & Drinks over concerns dairy farmers will be the losers.

Saputo already owns a milk processing plant in Smithton and the Australian Competition and Consumer Commission on Thursday said it had “preliminary competition concerns” about the proposed deal.

In April the company announced it had bought Lions Dairy & Drinks cheese assets for $280 million subject to ACCC approval.

The deal includes the brands King Island Diary, Tasmanian Heritage, South Cape, Mersey Valley, Heidi Farm plus dairy plants at Burnie and Currie and two King Island farms.

On Thursday the ACCC said the proposed takeover would combine the processing plants of the second and third biggest buyers of raw milk in Tasmania, which currently compete separately with the biggest, Fonterra.

“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.

“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 per cent 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.”

The ACCC said some farmers have told the commission that Lion had 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,” it said.

The Commission is not concerned about the effect of the proposed buyout on the cheese market.

“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,” it said.

“Lion focuses on premium speciality 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.”

The ACCC’s statement of issues outlining its preliminary concerns can be viewed online.

Submissions are invited until August 22 with the ACCC’s final decision scheduled for September 26.