The competition watchdog says it would not approve the proposed $1.3 billion foreign takeover of Australian dairy co-operative Murray Goulburn in its present form, due to concerns for dairy farmers in Victoria’s south west.
The deal, announced last year, would see Canadian dairy giant Saputo acquire all of Murray Goulburn’s assets and operating liabilities, subject to regulatory and shareholder approval.
If the deal is successful in its proposed form, Saputo would control around three billion litres of raw milk supply in Victoria, about half of the state’s total, and a third of the national milk pool.
In 2015, Saputo acquired South West Victorian dairy processor Warrnambool Cheese and Butter, based in Allansford, 250 kilometres south west of Melbourne.
It is just 30 kilometres east of Murray Goulburn’s Koroit factory, and the ACCC said Saputo owning the Koroit plant would substantially lessen competition for raw milk in region, and the past behaviour of major milk processors meant the Fonterra and Saputo would be more likely to offer low prices again.
“This is what’s known in the trade as a ‘red light’ statement of issues, so we do have fairly strong views and we do know a lot about the dairy market,” ACCC chairman Rod Simms said.
“We’re open to new input, but it would have to be pretty compelling, to be blunt, I think the better outcome would be to find another buyer for the Koroit plant.
“That would maintain competition in the interests of those south west Victorian farmers.”
It’s at odds with Macarthur Murray Goulburn supplier Craig Dettling, who supplies the Koroit plant.
Supplier and shareholder approval
“In the south west there’s about seven or eight difference processors we can choose to sell our milk to at the moment.
“It’s probably the most competition in the state, and I don’t think it will have a big impact.
“And as we can see elsewhere in the state, there’s still plenty of people wanting to build processors and factories, so I don’t think it will impede competition.”
The deal still requires approval from the Foreign Investment Review Board (FIRB) and Murray Goulburn’s suppliers and shareholders before it can be completed.
Murray Goulburn is aiming to complete the transaction by June 30 this year.
In a statement to the Australian Stock Exchange (ASX), Murray Goulburn said it would continue to work with Saputo and the ACCC to compete the deal.
MG said it plans to hold an Extraordinary General Meeting “shortly after there is clarity around the ACCC process”.
A final decision on the deal from the ACCC is expected by March 29.
Suppliers keen to move on
ACCC consultations with farmers revealed many were keen to see the deal completed so they could move on from the disaster created when Murray Goulburn and Fonterra slashed farm gate milk prices in 2016, nearly three years ago.
“So in the past you’ve got a lot of farmers that put a lot of faith in Murray Goulburn as a cooperative,” Mr Simms told the ABC.
“So not only did they lose financially, they lost faith in a model they believed was looking after their interests, and that faith was blown apart.”
“The fact farmers now won’t put long term loyalty ahead of getting the best price for their milk makes it even more important we have a competitive market in that south western area.
“However, if the acquisition of Koroit by Saputo proceeds, our view is that dairy farmers in the region will be worse off and face lower raw milk prices in the longer run.
“It’s important to preserve competition in these markets so dairy farmers get a price for their product determined by healthy competition.”
Mr Dettling echoed the concerns, and said the 2016 price cuts had reset the trust farmers had toward processors.
“A lot of commentary throughout this process is that you must look after yourself first, and that’s going to be even more so from now on.”
“So it’s just a dog eat dog world at the moment.”
By: Clint Jasper
Source: ABC Rural