Australia’s competition authority (ACCC) has decided not to oppose Saputo Dairy Australia’s proposed acquisition of Lion Dairy & Drinks’ Tasmanian-based cheese business, having previously raised concerns about the impact it could have on the local farming community.
The proposed deal includes Lion’s cheese brands, including South Cape, King Island Dairy and Tasmanian Heritage as well as its Tasmanian cheese processing plants in Burnie and King Island.
Saputo has an existing milk powder processing plant in Smithton, Tasmania, and last month the ACCC raised preliminary concerns about the imbalance of power that the deal could create, saying that it could lead to dairy farmers being paid lower prices for their milk.
The ACCC examined the impact the deal would have on competition for the acquisition of raw milk and found that many farmers were supportive of the deal.
“We looked very closely at the transaction because it will combine the processing plants of the second and third biggest raw milk buyers in Tasmania. We spoke with many farmers and other interested parties,” ACCC deputy chair Mick Keogh said.
“Some farmers told us that Lion has been offering competitive contract terms and they were concerned these would be lost after the proposed acquisition. However, most farmers were not concerned about the transaction, and told us the remaining milk processors will keep price and non-price terms competitive. Many farmers expressed strong support for Saputo’s investment in cheese production in Tasmania.”
Fonterra is the largest buyer of raw milk and Saputo’s closest competitor in Tasmania. Other processors include Mondelez-Cadbury, Lactalis-Parmalat and a small fresh-milk plant in Hobart that Lion will retain.
“Ultimately, and on balance, we do not think this acquisition is likely to have the effect of substantially lessening competition.”
“However, the ACCC acknowledges that there is a significant degree of concentration in the Tasmanian dairy sector. Any further consolidation of dairy processors would cause significant concern,” Keogh added.
The consumer and competition watchdog also determined that the acquisition is “unlikely to substantially lessen competition” in the supply of cheese in Australia.
Saputo’s cheese brands include Coon, Sungold and Devondale and Lion’s cheese brands include South Cape, King Island Dairy and Tasmanian Heritage.
“Lion focuses on premium speciality cheeses and Saputo focuses on everyday cheeses. We considered that a combined Saputo-Lion would face continued competition from domestic cheese producers, supermarket private labels, and cheese importers,” Keogh said.