The Commerce Commission has approved Fonterra’s purchase of the Studholme milk processing plant formerly owned by New Zealand Dairies.
Comparing the acquisition by Fonterra to the scenario where another bidder would acquire NZDL’s assets, the Commission is satisfied that the acquisition would not be likely to result in a substantial lessening of competition. The Commission also considers that Fonterra’s cooperative ownership structure and the regulatory environment in which it operates, together with its national raw milk pricing strategy, removes Fonterra’s incentive and ability to depress the prices it pays farmers for raw milk in the South Canterbury and North Otago regions,” said Commerce Commission Chair Dr Mark Berry.
Dr Berry added that given that the Studholme factory produces milk products for export rather than domestic consumption, and would likely continue to do so whoever acquires it, the Commission has not had to consider downstream markets in New Zealand for dairy products such as butter and cheese in this instance.
In addition to the clearance decision, the Commission also decided that it was unlikely that the Operational Agreement between the Receivers and Fonterra, which provided for the continued operation of the Studholme plant for the 2012/2013 milking season, resulted in a substantial lessening of competition.
Fonterra has, not surprisingly, welcomed the decision:
The Studholme site becomes the Co-op’s 27th processing factory and the 11th in the South Island accepting about 800,000 litres of milk a day from former NZDL suppliers and Fonterra shareholders.
Fonterra CEO Theo Spierings said the Commerce Commission’s decision provided certainty for NZDL’s suppliers and would be a welcome addition to the Co-op’s processing capacity.
“This investment in the Studholme plant underpins our commitment to the dairy industry in Canterbury, one of the fastest growing dairy regions in New Zealand. We’re pleased we have been able to offer certainty to the former suppliers of NZDL and staff at the factory.
“The Studholme site also complements our new Darfield plant operating for the first time this season.”
“We’ve been operating the Studholme plant for the receivers over the past couple of months to ensure supplying farmers could sell their milk from the start of this season,” he said.
“We started collecting milk from NZDL suppliers at the beginning of August and processed it at other sites and fired up the Studholme plant on August 14. We’re now processing more than 800,000 litres per day of milk into whole milk powder for export.”
This is very good news for the suppliers and workers at the plant who have been in limbo since NZ dairies went into receivership.
It is also good news for wider South Canterbury and North Otago both of which would have suffered economically and socially had the factory closed.