Cheese buyout may be blocked

AUSTRALIA’S competition watchdog could block dairy company Saputo’s bid to buy the Tasmanian-based cheese business of competitor Lion Dairy & Drinks over concerns dairy farmers will be the losers.

Saputo already owns a milk-processing plant in Smithton, and the Australian Competition and Consumer Commission said it had “preliminary competition concerns” about the proposed deal.

In April, Saputo announced it had bought Lions Dairy & Drinks cheese assets for $280 million, subject to ACCC approval. The deal includes the brands King Island Dairy, Tasmanian Heritage, South Cape, Mersey Valley and Heidi Farm, plus dairy plants at Burnie and Currie on King Island, and two King Island farms.

The ACCC said the proposal would combine the processing plants of the second and third-biggest buyers of raw milk in Tasmania, which currently compete separately with the biggest, Fonterra.

“We are concerned that combining these two operators may lead to Tasmanian dairy farmers being paid lower prices for their raw milk,” ACCC deputy chairman Mick Keogh said. “If Saputo acquires the Burnie and King Is 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.

“Each would have a market share several times bigger than the next largest buyer of raw milk, Mondelez-Cadbury,” Mr Keogh said.

The ACCC said some farmers had told it Lion had been offering competitive contract terms, including better prices for winter milk, and an option to fix the price of a percentage of their milk for up to three years.

“The ACCC is further investigating whether these features may be lost after the proposed acquisition,” it said.

The ACCC is not concerned about the impact of the proposed buyout on competition in the cheese market.

“Lion focuses on premium speciality cheeses, and Saputo focuses on everyday cheeses,” the commission said. “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.”

Submissions are invited until August 22 with the ACCC’s final decision scheduled for September 26.