Australia’s competition watchdog has raised preliminary concerns about Canadian dairy giant Saputo’s proposed acquisition of Lion Dairy & Drinks’ Tasmanian-based cheese business, saying that it could have a negative impact on Tasmanian dairy farmers.
Saputo, which owns cheese brands Coon, Sungold and Devondale, is set to acquire Lion’s speciality cheese business, including King Island Dairy, South Cape, Tasmanian Heritage, Mersey Valley, Australian Gold and Heidi Farm, as well as its cheese processing plants, in Burnie and King Island, and two King Island dairy farms as part of the A$280 million deal.
Saputo already owns a milk processing plant in the state and the ACCC is concerned over an imbalance of power in the market. The watchdog said that combining processing plants of the second and third biggest buyers of raw milk in Tasmania, which currently compete separately with the biggest buyer, Fonterra, could lead to dairy farmers being paid lower prices for their milk.
“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,” ACCC deputy chair Mick Keogh said.
“Each would have a market share several times bigger than the next largest buyer of raw milk, Mondelez-Cadbury.”
The ACCC said that some farmers reported being offered competitive contract terms with Lion and is investigating whether these features will be lost when the deal goes through.
The ACCC has also examined the impact of the proposed acquisition on the supply of cheese in Australia but said it 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,” Keogh said.
The ACCC has released a statement of issues outlining its preliminary concerns and is inviting submissions from interested parties by August 22, with a final decision scheduled for September 2019.