ANDREA FOX.Competition watchdog the Commerce Commission says Fonterra’s farmgate milk price-setting will be a key competition issue it considers when deciding if the dairy giant can buy failed Russian-owned New Zealand Dairies in the South Island.The commission has released a statement of preliminary issues it considers important in deciding whether to give Fonterra’s proposed acquisition clearance.
It says it will consider whether Fonterra, as the buyer of more than 80 per cent of raw milk from farmers in the South Island, in practice sets the price for farm gate milk and whether that would be the same with and without the acquisition.
The commission will also consider whether South Island farmers have the choice and range of processors Fonterra contends they will still have if it takes NZ Dairies out of the competition.
Fonterra in its application says farmers will continue to have alternative supply options to itself if it is allowed to buy the Studholme processor, which was put into receivership in May.
The commission analysis will include studying existing competition and the degree to which existing processors compete and their ability to expand production in the event the proposed new entity raises prices; the ability of businesses to easily enter the market against the new entity; and whether the acquisition would help market players collude.
Fonterra contends that the relevant markets in this case should be the South Island market for the supply and collection of raw milk and the South Island market for raw milk processing.
The commission says it will consider the competitive alternatives for existing suppliers to NZ Dairies and whether the geographic size of the markets is as broad as Fonterra suggests or is limited to perhaps, Canterbury.
The commission expects to make its final decision by August 31, but that may change.
The commission will contact industry players it says can help it address these preliminary issues.