ACCC concerned with MG Saputo deal

March 02, 2018

Murray Goulburn continues to spiral towards disaster as suppliers start leaving in droves and the co-op axes 200 jobs in an effort to cut costs and increase returns to besieged farmers.

THE ACCC has raised red flags with the proposed sale of Murray Goulburn to Saputo. 

The Australian Competition and Consumer Commission (ACCC) said their sole concern is in relation to MG's Koroit dairy plant in western Victoria, in particular the impact the acquisition will have on competition for farmers’ milk in the area.

The ACCC outlined its concerns in a Statement of Issues paper yesterday and is seeking responses from interested parties by March 13.

The ACCC said Saputo’s Allansford plant and MG's Koroit plant would have over two thirds of the raw milk processing capacity in the south-west Victoria and south-east South Australia region.

The two plants currently acquire the majority of raw milk from dairy farmers in the area.

“While Saputo is proposing to acquire most of the Murray Goulburn business, our only concern is in relation to Murray Goulburn’s Koroit plant,” ACCC Chairman Rod Sims said.

“Our view is that Saputo owning the Koroit plant would substantially lessen competition for the acquisition of dairy farmers’ raw milk in the region.”

Fonterra is the only other major competitor with a processing plant in the region.

The ACCC’s concerns are Saputo and Fonterra would be more likely to offer lower prices if Saputo acquired Koroit, and there would be very limited alternatives for many farmers.

“When Murray Goulburn dropped its prices in 2015–16, Fonterra was quick to follow. Our analysis has shown that many farmers switched to Saputo in response, the only other major processor nearby,” Mr Sims said.

“We are concerned this transaction would ultimately lead to lower prices being paid to dairy farmers in the region.”

The ACCC says during its extensive consultations with farmers in the area, it heard from dairy farmers who just want the Saputo transaction to proceed.

“We understand Murray Goulburn faces an uncertain future, and that many farmers just want certainty after a tumultuous few years,” Mr Sims said.

“However, if the acquisition of Koroit by Saputo proceeds, our view is that dairy farmers in the region will be worse off and face lower raw milk prices in the longer run. It’s important to preserve competition in these markets so dairy farmers get a price for their product determined by healthy competition.”

“The ACCC considers that Koroit would remain in the market, continue to operate, and would likely be acquired by another business if the Saputo acquisition does not proceed."

There are unlikely to be competition concerns in other regions where there is currently no overlap between Murray Goulburn plants and Saputo plants, or in downstream dairy product markets, such as fresh milk, butter, cheese and cream. 

In a statement by MG, the dairy company said the SOI is not a final decision by the ACCC. 

"The ACCC will continue its review process and has announced 29 March 2018 as the anticipated date for its final decision," the statement said.

"Saputo has advised MG that it is reviewing the SOI.

"The successful completion of the Asset Sale remains MG’s primary focus and MG will continue to work closely with Saputo and the ACCC to be able to achieve completion.

"MG’s preparations for seeking shareholder approval for the Asset Sale are otherwise well advanced.

"MG expects to be able to issue an Explanatory Memorandum and Notice of Meeting convening an Extraordinary General Meeting to consider the Asset Sale shortly after there is clarity around the ACCC process."

MG said a successful transaction with Saputo is the best outcome for MG’s stakeholders.

"And we have received support from suppliers and shareholders regarding the security and certainty this transaction will deliver."

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