ACCC will not oppose Coles plan to buy Saputo Sydney and Melbourne factories

Coles plans to buy milk factories at Laverton North, Victoria, and Erskine Park, NSW, for $105 million.

The ACCC had been looking at whether the acquisition would impact prices and terms of supply for dairy farmers in NSW and Victoria.

It was also looking at whether the acquisition would increase Coles's bargaining position in the dairy supply chain.

Concerns were also raised that the acquisition might result in Saputo exiting the raw milk market in NSW.

ACCC deputy chair Mick Keogh said the ACCC acknowledged the strong concerns raised by some dairy industry participants.

"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's internal documents and their incentives," he said.

"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."

The ACCC took into account Saputo's financial data, which indicates that it had 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."

Mr Keogh said although the deal could give Coles an incentive to consolidate some of its milk volumes, it was unlikely to lead to a substantial lessening of competition.

"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," he said.

The ACCC also declined to impose conditions on Coles.

It said safeguards were already in place as Coles purchases of raw milk from farmers were covered by the mandatory Dairy Code of Conduct.

It said Coles's interactions with processors were covered by the voluntary Food and Grocery Code of Conduct.

Coles and Saputo have welcomed the announcement.

Coles chief executive Leah Weckert said it expected the transaction to be completed in the first half of next year.

"Once completed the acquisition of these state-of-the-art facilities will enable Coles to improve security of our milk supply and supply chain resilience and allow us to continue to build on the strong relationships we have developed with our dairy farmers," she said.

Saputo said fresh milk products remained an important part of its business and it would continue to have fresh milk products processed at the two manufacturing facilities.

"There will also be no changes to SDA's valued farmer relationships," it said.

In September the ACCC announced it was delaying its decision on the proposal to seek more information.

The inquiry started in May, focusing on the impact of the proposed acquisition on competition.

In July, Ms Weckert said the company saw no lessening of competition in "any relevant market".

She told the ASX Coles was already taking about 80 per cent of the volumes from the facilities and would continue to provide milk to Saputo, under a tolling arrangement.

But farmer groups had expressed concerns about the proposal.

In June, Australian Dairy Farmers president Rick Gladigau said he was concerned about issues around price transparency, competition, market power and control.

"Already, Coles has the theoretical ability to set the retail price of its competitor brands in all its supermarkets," he said.

"This deal would make Coles a processor, affording total control of every fresh milk price within the Coles sphere of influence."

Coles and Saputo announced the plan sale of the factories in April.

The two huge plants were built by Murray Goulburn as part of its ill-fated push into the Australian domestic fresh milk market.

The Laverton North facility cost $80 million and was opened in 2014, while the Erskine Park plant cost $60 million and was opened in 2015.

Saputo chair and CEO Lino Saputo said at the time the company was continually working to ensure it had the right manufacturing footprint and product offering to enhance its position as "a high-quality, low-cost processor".

"This marks an important step in executing our long-term vision for success in Australia as we maintain a sharp focus on efficiency to ensure we maximise the return on every litre of milk," he said.

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