Interest in Fonterra’ Australian assets has been growing in the past few months, with Bega Cheese Group and Lactalis both seeking permission from regulators to put together a bid.
Bega is partnering with Dutch-based multinational company, FrieslandCampina NV, for a potential bid.
On July 10, the Australian Competition and Consumer Commission gave the okay for Lactalis to begin discussions, and at the end of the month the commission began seeking industry feedback on the Bega request.
The ACCC has formulated a series of questions for dairy farmers and processors for its inquiry.
ACCC general manager of merger assessments Morag Bond said the ACCC’s public investigation is focused on the impact on competition.
The commission is seeking views on whether the proposed acquisition would likely reduce competition in the acquisition of raw milk in the areas where the parties overlap, reduce competition in the supply of milk processing services to processors and retailers in the areas where the parties overlap or reduce competition in the wholesale supply of dairy products, such as milk, cheese, butter and cream, and dairy ingredients.
Bega’s view is that the acquisition would create greater efficiencies in the national dairy industry and better outcomes for farmers.
In questions designed to stimulate discussion, the ACCC asks dairy farmers for their reaction to a decrease in farm gate milk prices by five to 10 per cent.
Other questions revolve around calving patterns and what influences the choice of processor.
Australia’s peak representative group for dairy farmers has expressed serious concerns following the competition watchdog’s decision not to oppose the Lactalis proposal.
Australian Dairy Farmers president Ben Bennett said the commission had left farmers vulnerable in giving the green light to Lactalis’s proposed takeover.
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.”
ADF is calling for court-enforceable undertakings to protect farmers.