SAPUTO Dairy Australia (SDA) welcomed the announcement this morning that the Australian Competition and Consumer Commission’s (ACCC) will not oppose Coles’ (ASX: COL) proposed acquisition of their two fresh milk manufacturing plants noting that ‘fresh milk products remain an important part of SDA’s business’ and that ‘there will also be no changes to SDA’s valued farmer relationships.'

The plants are located at Erskine Park, NSW and Laverton North, Victoria.

Coles and Saputo both currently acquire raw milk from dairy farmers in Victoria and NSW. Coles currently has its milk processed at the Erskine Park and Laverton North plants by Saputo. After the acquisition, Saputo will have its raw milk processed by Coles at these facilities under similar arrangements.

Following engagement with key stakeholders, the ACCC released a Statement of Issues in July 2023 identifying its preliminary concerns that the proposed acquisition may increase Coles’ bargaining position in the dairy supply chain.

Concerns were also raised that the acquisition may change Saputo’s incentives and result in it exiting the raw milk market in NSW, which would reduce the number of buyers of raw milk.

“We acknowledge the strong concerns raised by some dairy industry participants about Coles’ acquisition of milk processing facilities,” ACCC Deputy Chair Mick Keogh said.

“We explored the industry’s concerns very closely through discussions with farmers and their representative bodies, and conducted a detailed review of Saputo and Coles’ internal documents and their incentives.”

“After careful consideration, we concluded that, compared with the current state of competition where the majority of the capacity at these facilities is already contracted to Coles, the acquisition is unlikely to result in a substantial lessening of competition in breach of section 50 of the Competition and Consumer Act,” Mr Keogh said.

The ACCC took into account Saputo’s financial data which indicates that it has a commercial incentive to continue selling its Devondale milk in NSW. Saputo also recently entered into a five-year toll processing agreement with Coles at the Erskine Park processing plant.

“We considered that the proposed acquisition would be unlikely to change Saputo’s incentives to continue acquiring raw milk from farmers in NSW for at least the next five years,” Mr Keogh said.

“We also found that other dairy companies such as Lactalis and Bega would continue to be competitors for raw milk in central NSW, and that the proposed acquisition is unlikely to change this.”

The ACCC also looked closely at concerns that the acquisition would strengthen Coles’ position in the dairy supply chain, and that it would give Coles the incentive and ability to adversely affect other processors.

“While we found that Coles may have an incentive to consolidate some of its milk volumes in the eastern states, this was unlikely to lead to a substantial lessening of competition,” Mr Keogh said.

“Coles will likely continue to face financial incentives to stock and support branded milk from other processors, due to the higher retail margins it earns on these products.”

In addition, the ACCC found that Coles’ commercial incentives to consolidate its milk supply would exist with or without the transaction due to the significant excess capacity at the Laverton and Erskine Park facilities.

The ACCC acknowledges that some stakeholders asked that conditions be imposed on Coles so its relationships with processors and farmers are effectively covered by existing industry behavioural codes.

The ACCC considers that these safeguards are already in place, given that Coles’ conduct with farmers it purchases raw milk from is covered by the mandatory Dairy Code of Conduct in the same way as other processors and purchasers of raw milk.

Saputo Dairy Australia’s statement on the decision:

Saputo Dairy Australia (SDA) is pleased with the Australian Competition and Consumer Commission’s (ACCC) decision not to oppose the sale of its two fresh milk manufacturing sites at Laverton North and Erskine Park to Coles Group Limited.

Fresh milk products remain an important part of SDA’s business and as part of the sale agreement with Coles Group Limited, SDA will continue to have fresh milk products processed at the two manufacturing facilities.

There will also be no changes to SDA’s valued farmer relationships. SDA retains its direct Milk Supply Agreements with farmers, and suppliers’ milk will continue to be collected and processed throughout Victoria, New South Wales, South Australia and Tasmania.

Approximately 48 roles across the two sites will transfer to Coles Group Limited upon completion of the sale process, which is expected to occur towards the middle of calendar 2024.

SDA will continue to work closely with Coles Group Limited to finalise the transaction and ensure the transition has minimal impact on operations and all stakeholders involved.

With a long-term vision for success in Australia, SDA remains committed to the Australian dairy industry. The company will continue to make investment and strategic decisions to maximise its return for every litre of milk and further strengthen its position as a high-quality, low-cost processor.