ACCC concerned about Saputo and Lion dairy acquisition

Saputo’s proposed acquisition of Tasmanian-based cheese business Lion Dairy & Drinks has raised preliminary competition concerns for the ACCC. Saputo’s Smithton dairy processing plant in Tasmania produces bulk milk powder, butter and cream.

The proposed acquisition comprises Lion’s Tasmanian cheese processing plants at Burnie and King Island and two dairy farms located on King Island. Producing dairy products in Australia, Lion has dairy plants across the country, producing cheese, white and flavoured milk and cream.

Saputo’s 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. ACCC Deputy Chair Mick Keogh expressed concerns that, “Combining these two operators may lead to Tasmanian dairy farmers being paid lower prices for their raw milk.” He added: “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% of the raw milk produced in Tasmania.”

After the proposed acquisition, Saputo and Lion would have a considerably larger market share than Mondelez-Cadbury, the next largest buyer of raw milk. The ACCC is investigating how the proposed acquisition will affect Australia’s cheese supply and price competition, as Saputo’s cheese brands include Coon, Sungold and Devondale. The ACCC’s preliminary view is that the acquisition is unlikely to raise competition concerns in this area.

Farmers have informed the ACCC of Lion offering competitive contract terms, such as 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 investigating whether these features will be lost after the potential acquisition.

“Lion focuses on premium specialty 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,” Keogh said.

The ACCC has outlined its preliminary concerns in a statement of issues, available at Saputo Dairy Australia and Lion Dairy and Drinks’ cheese business. The ACCC invites submissions from interested parties by 22 August 2019, and is due to make its final decision on 26 September 2019.

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