ACCC concerned Saputo-Lion deal to hurt farmgate milk price

Questions are also being asked about how Saputo's $280 million acquisition may impact cheese market supplies and price competition in Australia.

The Australian Competition and Consumer Commission (ACCC) estimated at least 80 per cent of the Tasmanian milk market would be controlled by Saputo or Fonterra if Saputo's buyout goes ahead.

Saputo, which already owns the former Murray Goulburn milk processing plant at Smithton, is poised to buy Lion's cheese processing plants at Burnie and King Island.

The deal will include Lion's premium cheese brands, such as South Cape, King Island Dairy and Tasmanian Heritage.

It would effectively combine Tasmania's second and third biggest buyers of raw milk for processing.

Saputo's Smithton dairy processing plant also buys milk to make bulk milk power and bulk butter and cream.

The regulator wants farmers and other interested parties to draw up submissions about its preliminary findings before it makes a call on whether the merger should go ahead.

Farmers have already told the ACCC Lion had been notable for offering competitive contract terms, including better prices for winter milk.

It also offered producers options to fix the price of a percentage of their milk for up to three years.

"We are concerned combining these two operators may lead to Tasmanian dairy farmers being paid lower prices for their raw milk," said ACCC deputy chairman, Mick Keogh.

"If Saputo acquires the Burnie and King Island Lion plants, we will be left with a structure where two companies buy more than 80pc of the raw milk produced in Tasmania."

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Mr Keogh said each processor would have a market share several times bigger than the next largest buyer of raw milk, confectionary maker Mondelez-Cadbury.

The ACCC was further investigating whether Lion's milk contract features and competitive strategies to secure winter milk supplies may be lost it the proposed acquisition went ahead.

The competition watchdog was also examining cheese supplies in Australia, although its preliminary view was the proposed acquisition was unlikely to raise competition concerns in this area.

"Lion focuses on premium speciality cheeses, and Saputo focuses on everyday cheeses," Mr Keogh said.

Saputo's cheese brands include Coon, Sungold, Great Ocean Road, Cracker Barrel and Devondale.

"Our initial analysis suggests that a combined Saputo-Lion offering would face continued competition from a range of suppliers, including domestic cheese producers, supermarket private labels, and cheese importers," Mr Keogh said.

Saputo responded to the ACCC commentary saying it acknowledged the statement of issues raising concern about a potential loss of competition in the raw milk market, but said the regulator had not yet made a final decision

"Saputo will carefully review the statement of issues and continue to work closely with Lion Dairy and Drinks and the ACCC with a view to securing the ACCC's approval as soon as practicable," a company statement said.

The ACCC has just released a statement of issues outlining its preliminary concerns and invited submissions from interested parties by August 22.

Its final decision is scheduled for September 26.

Although a major cheese producer in Australia and overseas, Saputo's dairy production includes fresh milk, butter, cream and milk powder, while Lion's dairy business focuses on specialty cheeses, white and flavoured milk and cream.

Lion has milk dairy plants nation-wide processing about 1 billion litres of milk annually sourced from about 550 farmers.