Lactalis's proposal to buy some Fonterra businesses not opposed by ACCC

After conducting an informal review process with stakeholders, the ACCC (Australian Competition and Consumer Commission) has announced that it will not oppose Lactalis BSA S.A.S. (Lactalis)’s proposed acquisition of Fonterra Co-Operative Group (Fonterra)’s consumer, dairy ingredients and food service businesses.

Lactalis and Fonterra both currently acquire raw milk from dairy farmers in Victoria and Tasmania, as well as processing and supplying a range of dairy products across Australia. The French dairy group Lactalis owns a range of brands in Australia such as Pauls, Vaalia, Oak, Président and Lactalis Foodservice. New Zealand-based dairy co-operative Fonterra owns consumer brands such as Western Star, Mainland and Perfect Italiano, and produces certain Bega Cheese products under licence. It also supplies foodservice products via the Anchor Food Professionals brand.

“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,” said ACCC Deputy Chair Mick Keogh.

“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, the Murray 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. If the acquisition proceeded, Lactalis would continue to be constrained by Saputo and, to a lesser extent, Mondelez,” Keogh said.

“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.”

The ACCC also concluded that the transaction was unlikely to substantially lessen competition in the wholesale supply of dairy products such as drinking milk, cream, cheese, chilled yellow spreads and dairy ingredients like milk powder.

The differing production focus of Fonterra and Lactalis meant that there was limited overlap between the two in the supply of these products.

For longer-life, readily transportable products such as cheese, dairy ingredients and chilled yellow spreads, the ACCC found that retailers and wholesalers would also continue to benefit from import competition.

“Supermarkets like Coles and Woolworths are also major customers in this market, with significant levels of bargaining power,” Keogh said.

“They also have the ability to sponsor new entry or even enter directly, as Coles has demonstrated through its acquisition of Saputo’s milk processing assets.”

While the ACCC has completed its review, this is not an indication that the Lactalis bid will be accepted by Fonterra.

For more information about the ACCC review, visit here.

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