MG needs new buyer for problematic milk plant

ACCC tells MG, `find another buyer' for problematic Koroit site


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Australian Competition and Consumer Commission agricultural commissioner, Mick Keogh.

Australian Competition and Consumer Commission agricultural commissioner, Mick Keogh.

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Koroit and Warrnambool are too close to foster a truly competitive farmgate milk price in the area if Saputo owns both factories, says ACCC

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The national consumer watchdog’s agricultural commissioner, Mick Keogh, says Murray Goulburn (MG) will have to look seriously at selling its Koroit factory to a buyer other than foreign dairy giant, Saputo Inc.

He said MG’s plans to include Koroit in Saputo’s $1.3 billion asset acquisition swoop would give the owner of Warrnambool Cheese and Butter almost three quarters of the dairy industry’s processing capacity in Victoria’s south west.

WCB’s plant is less than 30 kilometres from Koroit, at Allansford, outside Warrnambool.

“One solution is to find someone else to buy this particular plant, instead of Saputo,” said Mr Keogh, who represents the agriculture sector’s interests on the Australian Competition and Consumer Commission (ACCC).

“There were quite a lot of parties from outside the region who declared an interest in buying Murray Goulburn’s business, or parts of it, before Saputo was announced as the successful bidder in October.

“It’s pretty clear Koroit’s proximity to Warrnambool makes it very difficult to have a truly competitive farmgate price operating in the area if Saputo were to acquire it.”

The ACCC’s concerns about Koroit and the potential for Saputo to gain too much buying power in Victoria’s Western District are, so far, the only negative observations the competition regulator has to MG’s deal with the North American giant.

We are at pains to make it understood that the Koroit plant is the only problematic area in the Saputo deal we can see. - Mick Keogh, ACCC

“We are concerned this transaction would ultimately lead to lower prices being paid to dairy farmers in the region,” said ACCC commissioner, Rod Sims, when releasing an issues statement on the proposed takeover on Thursday.

He said the other notable competitor for milk was New Zealand-owned, Fonterra, which has a plant at Dennington, near Warrnambool.

It also has a factory nearby at Cobden.

“The ACCC is concerned Saputo and Fonterra would be more likely to offer lower prices if Saputo acquired Koroit, and there would be very limited alternatives for many farmers,” Mr Sims said.

He noted when MG dropped its prices, triggering the big price crash in mid 2016, Fonterra was quick to follow.

A third Warrnambool-headquartered processor, Union Dairy Company, opened its factory 230 million litre a year capacity plant at at Penola in South Australia last year, however it was considered unlikely to be a significant competitor for milk against Saputo.

The ACCC has given MG, Saputo and dairy farmers, four weeks to come up with some alternative thoughts and respond to its concerns.

“They could be formal submissions or informal discussions during the next few weeks,” Mr Keogh said.

He recognised many dairy farmers simply wanted the Saputo deal to go ahead as planned because it offered the prospect of industry stability after a shocking 20 months of price disappointment and uncertainty about MG’s future.

“Many farmers are also MG shareholders and want to redeem their units for a satisfactory financial result when the sale concludes,” he said.

“We do understand they have been through enormous uncertainty and this sale is something they would prefer to get out of the road as soon as possible.

“We are, however, at pains to make it understood the Koroit plant is the only problematic area in the Saputo deal we can see.”

While the Koroit factory alone may not be as appealing to the host of potential bidders who were eyeing off MG’s business six months ago, some are still likely to be interested.

Bega Cheese was among the strongest bidders, while China’s Yili Industrial Group from he Inner Mongolia was apparently upset the takeover process closed earlier than expected leaving it out in the cold.

Also understood to be in the running earlier in the tender process were French-owned Parmalat and Lactalis, the Asian-owned Goodman Fielder group, and trans-Tasman players A2 Milk Company and Fonterra.

Meanwhile, the ACCC is now assessing submissions into its dairy industry inquiry which followed the collapse in milk prices triggered by MG reversing its promised $5.60 a kilogram farmgate payments in April 2016.

Mr Keogh said three main areas of concern about the market had been highlighted by farmers – retrospective cuts to step up payments; the one-sided nature of obligations in milk supply contracts and the lack of reasonable transparency in pricing arrangements drawn up by processors.

“It’s obvious it’s been very hard a farmer to work out what a milk pricing offer really meant, unless they had a company rep available with spreadsheets and detailed explanations of bonuses, production restrictions and so on,” he said.

“We heard of one former accountant who was now dairying taking three days to get to the bottom of what her contract arrangements really offered.”

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