The Australian Competition and Consumer Commission will oppose the proposed acquisition by the Australian Wheat Board of Goodman Fielder's flour milling operation, Milling Australia, ACCC Chairman, Professor Allan Fels, said today.
The AWB is Australia's monopoly exporter of wheat and the largest domestic grain trader. Milling Australia is one of Australia's leading flour milling operations with production facilities in most Australian states.
The ACCC conducted market inquiries regarding the proposed acquisition of Milling Australia, among millers, grain traders, food manufacturers, storage and handling companies, growers and others.
The ACCC found that AWB's acquisition of Milling Australia would be likely to substantially lessen competition in the markets for flour milling and mixing across Australia, and in grain trading in Queensland, in contravention of section 50 of the Trade Practices Act 1974. Section 50 prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market.
The ACCC was concerned that the market power that AWB derives from its strong position in grain acquisition through its monopoly over the export of wheat, and its leading position in the domestic trading market would enable it to substantially lessen competition in the market for flour milling and mixing were it to acquire a flour milling and mixing business.
The ACCC's market inquiries found that market participants were concerned that the AWB has significant market power based on substantial influence over wheat pricing through AWB's management of the National Pool, and logistical advantages through its discretion over grain "swaps" to millers, and an informational advantage based on superior knowledge of likely National Pool price movements.
Market participants expressed concern that the AWB would be able, and would have an incentive, to use this market power to raise rival flour millers' costs, were the acquisition to proceed.
Among these concerns, a key concern of market respondents was that AWB might discriminate against them in terms of providing swaps of grain which the ACCC found were important to millers to lower grain acquisition costs. A swap, is the swapping of one parcel of grain with another at a different location which can substantially reduce transport costs for millers. AWB is the largest provider of swaps in Australia.
The ACCC was also concerned that the discretion that AWB had over setting the price of wheat for the National Pool, on which domestic wheat prices were based, could give it the ability to raise rival millers' costs of purchasing wheat.
The ACCC also found that the proposed acquisition would have been likely to lead to AWB exclusively supplying grain to Milling Australia. This would be likely to substantially lessen opportunities for other traders to supply grain, particularly in Queensland where Milling Australia is a large purchaser of grain. Accordingly, the Commission found that the proposed acquisition would substantially lessen competition in the market for grain trading and marketing in Queensland. AWB's substantial presence in the grain trading market was a factor in this element of the ACCC's view.
"The ACCC's view was based on its desire to ensure that flour milling and mixing markets in Australia remain competitive, and that the benefits of this competition, in the form of lower prices, flow to the consumer", Professor Fels said.
The ACCC advised AWB that it was opposed to their proposed acquisition. AWB considered it could address the ACCC's concerns with undertakings. However, as Goodman Fielder announced the sales of its milling assets prior to any undertakings being offered, the ACCC did not assess whether they would address the competition concerns.