Australia’s peak representative group for dairy farmers has expressed serious concerns following the competition watchdog’s decision not to oppose a potential deal between two of the industry’s biggest dairy businesses.
Australian Dairy Farmers president Ben Bennett said the Australian Competition and Consumer Commission had left farmers vulnerable in giving the green light to Lactalis’s proposed takeover of Fonterra’s Australian dairy business.
The ACCC’s announcement on July 10 means Lactalis can progress discussions with Fonterra. Whether Fonterra will ultimately accept Lactalis’s bid is a matter for Fonterra.
Mr Bennett said the decision risks further weakening processor competition in Victoria and Tasmania — two of the country’s most critical dairy regions.
“Combining two major buyers reduces choice and bargaining power for farmers,” he said. “That’s a major threat to farm gate prices, especially in a shrinking milk pool.”
Lactalis and Fonterra both currently acquire raw milk from dairy farmers in Victoria and Tasmania, as well as processing and supplying a range of products across Australia.
“We 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,” ACCC deputy chair Mick Keogh said.
“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.”
The ACCC found that across Gippsland, northern Victoria and western Victoria, 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,” Mr Keogh said.
“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.”
Despite the ACCC concluding the merger would not substantially lessen competition, the ADF maintains:
- Farmer options are already limited, particularly in western Victoria and northern Tasmania. Post-merger, some regions may only have one major buyer.
- Market concentration will grow, reducing pricing tension. Fonterra and Lactalis may target different contract types, but still influence prices across the same regions.
- Lactalis has a record of Dairy Code breaches, including a $950,000 fine. Enforceable compliance obligations are essential.
- A deal between Fonterra and Lactalis increases market concentration of processors. This further reduces competition right along a supply chain that is already dominated at the processor and retail end by supermarket giants Coles and Woolworths. Farmers need strong processor choice.
ADF is calling for court-enforceable undertakings to protect farmers, including:
- Preserving milk supply freedom — no forced exclusivity in contracts with farmers.
- Honouring all current Fonterra milk contracts.
- Guaranteeing continued operation of key processing sites.
- Committing to regular Dairy Code compliance audits.
“Without enforceable protections, we risk further processor consolidation that hurts farmers and undermines supply security,” Mr Bennett said.
ADF urges the Federal Government and regulators to strengthen the Dairy Code of Conduct and ensure any deal maintains fair competition and protects the interests of local farmers.