There has been a new development in Lactalis’ bid to acquire Fonterra’s consumer, dairy ingredients and food service businesses.
The Australian Competition and Consumer Commission (ACCC) has said it will not oppose the proposed acquisition.
Lactalis and Fonterra both currently acquire raw milk from dairy farmers in Victoria and Tasmania, as well as processing and supplying a range of dairy products across Australia.
Lactalis is a French multinational dairy group based in Laval, France.
Lactalis’ business activities include acquiring raw milk from farmers and processing it into dairy products and ingredients for domestic consumption and export.
Fonterra is a New Zealand-based dairy co-operative which is owned by around 8,000 New Zealand farmers.
In Australia, Fonterra processes raw milk acquired from its farmers into various dairy products as part of its ingredients and consumer and food service businesses.
Large buyers of raw milk
ACCC deputy chair Mick Keogh said that the regulator “looked very closely at the transaction as it will combine two of the largest buyers of raw milk in Victoria and lead to some further consolidation in Tasmania”.
“While we acknowledge the concerns raised by some representative bodies, after careful consideration, we have determined that the acquisition is unlikely to result in a substantial lessening of competition,” Keogh said.
The ACCC found that across Gippsland, the Murray and Western Victoria regions of Australia, alternative buyers of raw milk would continue to constrain Lactalis if the acquisition proceeded.
“We found that while the industry in Tasmania is already concentrated, Lactalis has a limited presence and the acquisition would not substantially alter the market dynamics,” Keogh explained.
“If the acquisition proceeded, Lactalis would continue to be constrained by Saputo and, to a lesser extent, Mondelez.
“Because Fonterra and Lactalis have differing end product mixes, they often seek to acquire milk from farmers with different production profiles.
“Accordingly, we found that they are not likely to be each other’s closest competitors. This was reflected by analysis which showed very few farmers switched between the two processors.”
Differing focus of Fonterra and Lactalis
The ACCC also concluded that the transaction was unlikely to substantially lessen competition in the wholesale supply of dairy products such as drinking milk, cream, cheese, chilled yellow spreads and dairy ingredients like milk powder.
The differing production focus of Fonterra and Lactalis meant that there was limited overlap between the two in the supply of these products, the ACCC said.
For longer-life, readily transportable products such as cheese, dairy ingredients and chilled yellow spreads, the ACCC found that retailers and wholesalers would also continue to benefit from import competition.
“Supermarkets like Coles and Woolworths are also major customers in this market, with significant levels of bargaining power,” Keogh added.
“They also have the ability to sponsor new entry or even enter directly, as Coles has demonstrated through its acquisition of Saputo’s milk processing assets.”
While the ACCC has reviewed the proposed acquisition of Fonterra’s consumer, dairy ingredients and food service businesses by Lactalis, this is not an indication that Lactalis’ bid will ultimately be accepted.
Whether Fonterra will ultimately accept Lactalis’ bid is a matter for Fonterra.
