The nation’s second-largest supermarket chain, Coles, is considering an unprecedented move of owning and operating its own milk processing plants. This development has raised concerns about potential reduced competition in the market. The Australian Competition & Consumer Commission (ACCC) has expressed preliminary worries about Coles’ proposed acquisition of two Saputo milk processing plants located in New South Wales and Victoria, as this could lead to a significant structural shift in the dairy sector.
Coles’ decision to bid for the Saputo milk factories comes as a measure to safeguard its access to private label milk, as Saputo was struggling with declining earnings and reducing its presence in Australia. The ACCC is closely examining the potential implications of this acquisition, given that it would be the first time a supermarket owns and operates its own milk processing facilities. The regulator has received concerns from various industry participants who fear that Coles might gain excessive influence in the dairy supply chain, leading to reduced competition and possible negative impacts on processors’ viability and farmers’ incomes.
In response to the ACCC’s concerns, Coles assured that it would cooperate with the regulator, but it believed that the acquisition would not negatively affect competition. Coles argued that it already acquires a significant portion of the volumes at the Saputo facilities and would continue providing milk processing services to Saputo Dairy Australia through a tolling arrangement.
One of the major concerns raised by NSW dairy farmers is the potential change in Saputo’s incentives to continue acquiring raw milk in the region if the acquisition goes through. This could result in limited competition in certain areas, leading to lower prices for raw milk.
Overall, the ACCC is evaluating whether this acquisition could give Coles too much bargaining power in negotiations with dairy processors and wholesalers, ultimately affecting competition and prices in the dairy industry. Coles’ previous acquisitions, such as the ready-made meals business and factory Jewel Fine Foods in 2020, and a retail-ready meat and poultry manufacturing facility in 2015, show some precedence in the company’s efforts to secure its supply chain and improve product shelf-life. However, owning both the supplier and supplier facilities in the dairy sector is relatively unusual for a supermarket.