ACCC decision on Coles purchase of Saputo processing plants this week

Farm lobby leaders say the competition watchdog made the right call by further examining the Coles takeover of Saputo plants.

Farm lobby leaders have welcomed the competition watchdog’s call to further investigate a potential sale of Saputo’s fresh milk plants to Coles.

The Australian Competition and Consumer Commission released a preliminary report on Thursday, calling for further information over the $105 million deal.

In April, Coles announced to the Australian Securities Exchange that it would buy the Melbourne processing site at Laverton as well as its Sydney equivalent at Erskine Park.

Following the first stage of the review, the ACCC outlined concerns that a Coles acquistion would trigger a major structural shift in the dairy sector.

EastAUSMilk chairman Matt Trace said it would be better for the industry to have another player take over the Saputo plants if the Canadian dairy giant needed to divest.

“The decision by Saputo to sell to Coles was done fairly behind-the-scenes,” he said.

“If Saputo needs to sell its Sydney and Melbourne plants, most farmers would prefer a more open sales process. Who knows? Maybe there are several businesses out there that would be interested in acquiring the two plants.

“If it was an existing processor, that would be better for competition than having a retailer involved. Even better for competition would be having a new player on the scene.”

In a statement, the ACCC said a significant number of industry participants had raised strong concerns about the proposed acquisition.

One of the main concerns was that the sale represented a major structural change, with a supermarket owning and operating its own milk processing site for the first time.

“The ACCC’s preliminary view is that the proposed acquisition may substantially lessen competition by giving Coles the incentive and ability to foreclosure or frustrate competitors at various levels of the dairy supply chain,” an ACCC spokesman said.

Australian Dairy Farmers president Rick Gladigau said the ACCC had recognised the potential for the Coles-Saputo deal to weaken competition in the sector.

“Dairy farmers need strong competition for their milk at the farmgate,” he said.

“The ADF does not wish to see a sale that disadvantages dairy farmers in the long-term.

“We look forward to engaging with the ACCC further to ensure an outcome is achieved that benefits – or at least does not disadvantage – dairy farmers and the market, more generally.”

Saputo’s Laverton factory at its July 2014 opening

Coles chief executive Leah Weckert said the supermarket was confident any outstanding concerns could be addressed.

“From Coles’ perspective, we see no lessening of competition in any relevant market,” Ms Weckert said.

“(We note) that Coles already acquires approximately 80 per cent of the volumes at the facilities and will provide milk processing services to Saputo Dairy Australia under a tolling arrangement.”