AUS | The ACCC (Australian Competition & Consumer Commission) will not oppose Coles’ proposed acquisition of two milk processing plants from dairy processor Saputo. The processing plants are at Erskine Park, NSW and Laverton, VIC.
Coles and Saputo acquire raw milk from dairy farmers in Victoria and NSW. Coles currently has its milk processed at the Erskine Park and Laverton plants by Saputo. After the acquisition, Saputo will have its raw milk processed by Coles at these facilities under similar arrangements.
Following engagement with critical stakeholders, the ACCC released a Statement of Issues in July 2023, identifying its preliminary concerns that the proposed acquisition may increase Coles’ bargaining position in the dairy supply chain.
Concerns were raised that the acquisition may change Saputo’s incentives and result in its exit from the raw milk market in NSW, reducing the number of raw milk buyers.
“We acknowledge the strong concerns raised by some dairy industry participants about Coles’ acquisition of milk processing facilities,” ACCC Deputy Chair Mick Keogh said.
“We explored the industry’s concerns very closely through discussions with farmers and their representative bodies and conducted a detailed review of Saputo and Coles’ internal documents and their incentives.”
Keough continued that, after careful consideration, ACCC concluded that, compared with the current state of competition where the majority of the capacity at these facilities was already contracted to Coles, the acquisition is unlikely to result in a substantial lessening of competition in breach of section 50 of the Competition and Consumer Act.
The ACCC considered Saputo’s financial data, which indicates that it has a commercial incentive to continue selling its Devondale milk in NSW. Saputo also recently entered into a five-year toll processing agreement with Coles at the Erskine Park processing plant.
“We considered that the proposed acquisition would unlikely change Saputo’s incentives to continue acquiring raw milk from farmers in NSW for at least the next five years.”
The ACCC also found that other dairy companies, such as Lactalis and Bega, would continue to be competitors for raw milk in central NSW and that the proposed acquisition was unlikely to change this.
The ACCC also looked closely at concerns that the acquisition would strengthen Coles’ position in the dairy supply chain and give Coles the incentive and ability to affect other processors adversely.
While the ACCC found that Coles may be incentivised to consolidate some of its milk volumes in the eastern states, this was unlikely to lead to substantially lessening competition.
“Coles will likely continue to face financial incentives to stock and support branded milk from other processors due to the higher retail margins it earns on these products.”
In addition, the ACCC found that Coles’ commercial incentives to consolidate its milk supply would exist with or without the transaction due to the significant excess capacity at the Laverton and Erskine Park facilities.
The ACCC acknowledges that some stakeholders asked that conditions be imposed on Coles so existing industry behavioural codes effectively cover its relationships with processors and farmers.
The ACCC considers that these safeguards are already in place, given that Coles’ conduct with farmers it purchases raw milk from is covered by the mandatory Dairy Code of Conduct like other processors and purchasers of raw milk.
The voluntary Food and Grocery Code of Conduct also covers Coles’ interactions with processors.
