Coles Proposed Acquisition of Saputo Milk Plants Raises Competition Concerns

Key Highlights:

• The Australian Competition and Consumer Commission (ACCC) has expressed initial competition concerns over Coles' plan to acquire two Saputo milk processing plants.
• Coles procures raw milk from farmers in both states and processes it at these plants through an arrangement with Saputo.
• This would mark the first time a supermarket owns and operates its own milk processing facilities, leading to a major structural change in the industry.

The Australian Competition and Consumer Commission (ACCC) has expressed initial competition concerns over Coles' plan to acquire two Saputo milk processing plants located in New South Wales and Victoria. The concerns were detailed in a Statement of Issues released today.

Currently, Coles procures raw milk from farmers in both states and processes it at these plants through an arrangement with Saputo. However, industry participants have raised significant worries about the potential acquisition. Of particular concern is the fact that this would mark the first time a supermarket owns and operates its own milk processing facilities, leading to a major structural change in the industry.

The ACCC is closely examining the potential consequences of the acquisition, questioning whether Coles might gain undue influence over the market beyond its current role as a retailer of dairy products and purchaser of raw milk.

For NSW dairy farmers, there are fears that the acquisition might alter Saputo's incentives to continue procuring raw milk in the region. Should Saputo decide to exit NSW due to the acquisition, it could result in limited competition in certain areas, leading to possible lower prices for raw milk received by farmers.

The ACCC has taken note of the widespread concerns expressed by industry participants, who worry that Coles' strengthened position in the dairy supply chain could lead to the consolidation of its private label milk production. This consolidation, in turn, might increase Coles' bargaining power during negotiations with dairy processors and wholesalers.

The regulator is particularly concerned that this heightened bargaining power could lead to reduced competition at the wholesale level, potentially impacting the long-term viability of processors and having subsequent effects on farmers in Queensland and other regions of NSW.

The ACCC has called for submissions from interested parties in response to the Statement of Issues by 3 August 2023. The proposed acquisition and its potential implications on competition and the dairy industry are being closely monitored by various stakeholders.

Coles, one of Australia's largest grocery and general merchandise retailers, aims to acquire Saputo's fresh milk processing facilities in Laverton North (VIC) and Erskine Park (NSW). While Coles is the major customer of these plants, they also supply milk products to other retailers.

Saputo, a subsidiary of Canadian-based dairy product company Saputo Inc., is one of Australia's largest dairy processors with ten manufacturing facilities. It produces and wholesales a wide range of dairy products for the domestic market under popular brands such as Cheer, Devondale, and Sungold.

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