Preliminary concerns on Saputo buying cheese business

8 August 2019

The ACCC has preliminary competition concerns about dairy company Saputo’s proposed acquisition of the Tasmanian-based cheese business of competitor Lion Dairy & Drinks.

Saputo owns a milk processing plant in Smithton, Tasmania. It proposes to acquire Lion’s Tasmanian cheese processing plants, located in Burnie and King Island, as well as Lion’s cheese brands, including South Cape, King Island Dairy and Tasmanian Heritage.

The proposed acquisition would combine processing plants of the second and third biggest buyers of raw milk in Tasmania, which currently compete separately with the biggest buyer, 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 Chair Mick Keogh said.

“If Saputo acquires the Burnie and King Island 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.

Some farmers have told the ACCC that Lion has 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.

The ACCC has also examined the impact of the proposed acquisition on the supply of cheese in Australia. Saputo’s cheese brands include Coon, Sungold and Devondale. The ACCC’s preliminary view is that the proposed acquisition is unlikely to raise competition concerns in this area.

“Lion focuses on premium speciality cheeses, and Saputo focuses on everyday cheeses. 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,” Mr Keogh said.

The ACCC has today released a statement of issues outlining its preliminary concerns. It invites submissions from interested parties by 22 August 2019. The ACCC’s final decision is scheduled for 26 September 2019.

The statement of issues is available at Saputo Dairy Australia Pty Ltd - Lion Dairy and Drinks Pty Ltd's cheese business

Background

Saputo produces dairy products in Australia, including cheese, fresh milk, butter, cream and milk power. Saputo’s Smithton dairy processing plant in Tasmania produces bulk milk power and bulk butter and cream.

Lion is a food and beverage company. It produces dairy products in Australia, including cheese, white and flavoured milk and cream. It has dairy plants in different parts of Australia, including cheese processing plants in Burnie and King Island, Tasmania.

Release number: 
141/19
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