By RICK GLADIGAU, PRESIDENT, AUSTRALIAN DAIRY FARMERS
Dairy farmers are reassured by the Australian Competition and Consumer Commission’s (ACCC) decision to further examine Coles’s proposal to buy two milk processing sites from Saputo.
Australian Dairy Farmers (ADF) believes the ACCC’s decision validates its concerns about the proposed sale of Saputo sites at Laverton North, Victoria, and Erskine Park, NSW, to Coles. The sites produce fresh milk for Saputo’s Devondale brand, and for other parties, including Coles’s home-brand dairy products.
ADF is concerned the proposed acquisition could substantially lessen competition for raw milk and have further implications for the sale of dairy products at a retail level.
In June, we raised these concerns in a submission to the ACCC that opposed the deal. In reply, the ACCC has identified issues associated with the acquisition that it is investigating further.
In releasing the Statement of Issues, ACCC deputy chair Mick Keogh echoed our concerns and those of many of our members. “For NSW dairy farmers, concerns have been raised that this acquisition may change Saputo’s incentives to continue acquiring raw milk in NSW,” Mr Keogh said.
“If Saputo does exit NSW as a result of the acquisition, this would leave limited competition in regions of NSW, which could result in farmers receiving lower prices for their raw milk.
“We have heard strong concerns across the industry about how the acquisition will strengthen Coles’s position in the dairy supply chain.
“Many industry participants have expressed concerns that the acquisition will result in Coles consolidating its private label milk production, which would increase its bargaining power in negotiations with dairy processors and dairy wholesalers.
“The ACCC is concerned that Coles’s increased bargaining power could lead to reduced competition at the wholesale level, impacting on processors’ long-term viability and with the potential for flow on impacts to farmers in Queensland and regions of NSW.”
Like ADF, the ACCC has raised concerns the sale of the Erskine Park facility may see Saputo exit market/s for raw milk in NSW and give Coles the ability to foreclose or frustrate competitors.
As part of an ACCC consultation process, interested parties have until August 3 to respond to the Statement of Issues. ADF has, of course, submitted a response.
From the outset, ADF has argued competition would decline over the long-term, if Coles began to preference its own brands over competitors in the procurement of farm suppliers and sales in its retail outlets.
ADF does not wish to see a sale that disadvantages dairy farmers in the long-term.
The Competition and Consumer Act 2010 requires the ACCC to approve the acquisition. The legal test the ACCC applies in considering the acquisition is in Section 50. This requires proposed acquisitions to not have the effect of substantially lessening competition in a market.
In theory, Coles already can (in effect) set the retail price of competitor brands in its stores. This deal would give Coles total control of every fresh milk price within its sphere of influence.
An incentive already exists for Coles to act in this way, however, the proposed acquisition, bringing with it increased vertical integration, maximises the potential financial gains for the retailer.
If the sale proceeds, we want Coles to guarantee that all existing Saputo farmers supplying milk to the processing plants will be offered milk supply agreements with either Coles or another party over the long-term. We do not want to see contracts restricted to Coles’s suppliers only.
Dairy farmers need strong competition for their milk. They do not want a deal that could reduce competition for their milk and reduce the supply or choice of products for consumers.
ADF is seeking an outcome from the ACCC that does not reduce competition in the value chain and benefits – or at least does not disadvantage – dairy farmers and the market, more generally.
ADF not want to stand in the way of Saputo, one of the country’s largest dairy processors. We hope, irrespective of the outcome of the investigation, that Saputo and Coles will act in the best interests of the dairy farmers of Australia.