Processing acquisition will boost raw milk competition, not reduce it – Fonterra
Earlier this month, the New Zealand Commerce Commission received an application from Fonterra Co-operative Group seeking clearance to acquire the dairy processing assets of NZDL.
NZDL was placed in receivership on 17 May 2012 after its owner, Nutritek Group, was declared bankrupt in Russia. Until that time, it had been collecting milk from farmers in the South Canterbury and North Otago regions.
It is the Commerce Commission’s job to determine whether the acquisition will substantially lessen competition in the South Island.
In its application, the co-operative claimed that its purchase of the plant will stimulate competition among other New Zealand processors seeking milk for high value nutritional products.
Post-acquisition choice
“Milk supply has increased by about 50% over the last decade, but Fonterra’s share of that increased volume has steadily reduced,” said the application lodged with the Commerce Commission.
“Fonterra now collects and processes approximately 82% of the raw milk in the South Island. Fonterra’s plant there account for approximately 82% of the available processing capacity.”
The Studholme plant collects and processes around 2% of raw milk in the South Island, as well as approximately 2% of processing capacity there.
If completed, the acquisition would increase Fonterra presence on the island to around 84% in terms of raw milk collection and processing capacity.
“Most suppliers in the South Island now have a choice of processor and will continue to so post-acquisition. There is plenty of evidence of suppliers exiting Fonterra to independent processors (and the reverse),” said the application.
Fonterra also claimed that it will continue to be constrained by established and expanding competitors in the country and the Dairy Industry Restructuring Act 2001 (DIRA) regime.
Advanced nutrition opportunity
According to the Fonterra application, acquisition of the Studholme plant offers the firm an “excellent opportunity” for the rapid expansion of its Advanced Nutrition business, as it looks to increase its share of the international paediatric nutrition market.
“The plant is capable of manufacturing standard whole milk powder (WMP) in the interim and delivering a sound commercial return while Fonterra is growing its paediatric nutrition business,” added Fonterra’s application.
“To become the world’s most efficient dairy producer, Fonterra must be able to respond quickly to business opportunities – including whether to buy or build new processing capacity. Continuing rational expansion of milk processing capacity in areas of increasing milk supply is vital.”
