Dairy takeover: Lactalis and Bega to battle for Fonterra’s Australia

Lactalis and Bega Cheese are locked in a high-stakes battle for Fonterra’s Australian assets, with major implications for the dairy industry.

Bega and Lactalis are preparing to battle it out for Fonterra Australia’s assets, including the Kiwi’s giant’s largest local processing plant at Cobden.

A showdown is looming in Australia’s dairy sector as global giant Lactalis and locally-listed Bega Cheese position themselves to acquire Fonterra’s Australian operations.

Lactalis — the world’s largest dairy processor — lodged an application with the Australian Competition and Consumer Commission on last Friday, seeking informal merger clearance before making a formal bid for Fonterra’s assets.

At the same time, Bega executive chairman Barry Irvin told the Australian Securities Exchange: “We hope to work constructively with Fonterra Group on the sale of its Oceania businesses of which Bega Group is a natural acquirer and remains very interested in.”

The ACCC has opened public consultation on Lactalis’ proposal and is expected to close scrutinise any competing bid from Bega, given the market power it could deliver.

ACCC merger investigation manager Morag Bond said Lactalis was seeking to acquire Fonterra’s global consumer business, as well as its Australian ingredient and food service businesses.

“Lactalis and Fonterra overlap in milk acquisition, milk processing and dairy product production,” Ms Bond said.

“Both also engage in the wholesale supply of dairy ingredients and dairy products to food service businesses in Australia and the wholesale supply of cheese, chilled yellow spreads and cream to retailers in Australia and for export.”

The ACCC is now seeking feedback from farmers, processors and retailers to assess whether Lactalis’ acquisition would reduce competition in raw milk procurement and wholesale dairy markets.

Any bid from Bega will also be under the microscope. The company already owns the Koroit powder plant in Victoria’s southwest and processes close to 500 million litres of the region’s milk. Acquiring Fonterra’s flagship Cobden facility would give Bega control of about 800 million litres of the region’s two billion-litre production.

Australian Dairy Farmers president Ben Bennett said that, in relation to ACCC concerns about reduced competition, “Lactalis would be in the lead (compared to Bega)”.

“Then it comes down to who has better cultural compatibility with farmers.”

In July 2023, the Federal Court fined Lactalis Australia $950,000 in penalties for breaching the Dairy Code of Conduct, by publishing and entering into agreements that allowed it to unilaterally terminate an agreement in circumstances that didn’t involve a material breach by farmers.

United Dairyfarmers of Victoria Bernie Free said: “I don’t want any more (market) concentration. We want more players, given there doesn’t appear to be true competition in the raw milk market.”

But Mr Free also noted that Lactalis has limited exposure in western Victoria, whereas whereas Bega is a major buyer.

“Ideally we’d like a new local player to buy Fonterra’s assets or if not one from overseas,” he said.

Lactalis is already one of Australia’s largest dairy processors, purchasing milk from more than 400 dairy farmers across all states. Its portfolio includes a wide range of dairy products across a number of brands including Pauls, Oak, Vaalia and Ice Break.