Dairy News

Milk price worry over Saputo’s Tasmanian bid

By Geoff Adams

Allowing Saputo to buy the Tasmanian dairy processing plants could lead to farmers being paid lower prices, the Australian Consumer and Competition Commission has found.

The ACCC said it has "preliminary competition concerns" about dairy company Saputo’s proposed acquisition of the Tasmanian-based cheese business of competitor Lion Dairy & Drinks.

Saputo owns a milk processing plant in Smithton, Tasmania. It proposes to acquire Lion’s Tasmanian cheese processing plants, located in Burnie and King Island, as well as Lion’s cheese brands, including South Cape, King Island Dairy and Tasmanian Heritage.

The Commission says the proposed acquisition would combine processing plants of the second and third biggest buyers of raw milk in Tasmania, which currently compete separately with the biggest buyer, 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,” Mr Keogh said.

Some farmers have told the ACCC that Lion has 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.

The ACCC has also examined the impact of the proposed acquisition on the supply of cheese in Australia. 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.

“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,” Mr Keogh said.

Saputo has responded that the ACCC has not yet made a final decision on the proposed Acquisition and that the ACCC's final decision is anticipated to be due on September 26.

"Saputo will carefully review the ACCC's Statement of Issues and will continue to work closely with Lion Dairy & Drinks and the ACCC with a view to securing the ACCC's approval as soon as practicable,'' the company said in a statement..