The Australian Competition and Consumer Commission (ACCC) is considering industry “concerns” regarding retailer Coles’ proposed acquisition of two Saputo Dairy Australia milk processing plants in New South Wales (NSW) and Victoria.

In a Statement of Issues published on 20 July, the ACCC said a “significant number of industry participants” have raised strong concerns about the acquisition, saying it could result in a “major structural change” as the retailer would become the first to own and operate its own milk processing facilities.

Saputo entered into a definitive agreement to sell two fresh milk processing facilities to Coles in April, in a transaction valued at AUD 105 million (approx. $72.4 million).

Coles currently acquires raw milk from farmers in Victoria and NSW and processes it at these plants under an arrangement with Saputo.

The ACCC is examining whether the acquisition would give Coles the ability to influence the market in a way that is currently not possible in its current position as a retailer of dairy products and purchaser of raw milk.

Deputy chair of the ACCC, Mick Keogh, said: “For NSW dairy farmers, concerns have been raised that this acquisition may change Saputo’s incentives to continue acquiring raw milk in NSW. If Saputo does exit NSW as a result of the acquisition, this would leave limited competition in regions of NSW, which could result in farmers receiving lower prices for their raw milk”.

The ACCC is also considering whether Saputo would be likely to exit NSW after the acquisition, which could lead to reduced competition at the wholesale level. It said that this would potentially impact processors’ long-term viability and farmers in Queensland, Australia and regions of NSW.

Keogh added: “We have heard strong concerns across the industry about how the acquisition will strengthen Coles’ position in the dairy supply chain. Many industry participants have expressed concerns that the acquisition will result in Coles consolidating its private label milk production, which would increase its bargaining power in negotiations with dairy processors and dairy wholesalers.”

Coles proposes to acquire Saputo’s fresh milk processing facilities in Laverton North, Victoria and Erskine Park, NSW.

Coles CEO, Leah Weckert, said: “We will continue to work constructively with the ACCC on these issues. From Coles’ perspective, we see no lessening of competition in any relevant market, noting that Coles already acquires approximately 80% of the volumes at the facilities and will provide milk processing services to Saputo Dairy Australia under a tolling arrangement. We remain confident that any outstanding concerns can be addressed so that the proposed transaction can proceed to completion.”

The proposed acquisition is subject to ACCC approval and other customary closing conditions. The ACCC invites submissions from interested parties by 3 August 2023.