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Fonterra purchase 'not seen as threat'

ANDREA FOX
Last updated 05:00 13/07/2012

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Failed Russian-owned NZ Dairies is such a small and "stranded" milk processor that its purchase by Fonterra does not pose a competition threat – unless it opened the door to more takeovers by the dairy giant, says Synlait chief executive John Penno.

Competition watchdog the Commerce Commission will be talking to industry players like Synlait as it analyses Fonterra's application for clearance to buy the Studholme, Canterbury NZ Dairies plant in a deal understood to involve around $55 million.

Penno said Synlait was still forming its view on the application.

"We are more concerned about the precedent than the deal itself. It's a small plant with a very small milk supply ... it's an uneconomic asset on its own. I don't think others see as much value in it as Fonterra.

"It doesn't really change the competition [landscape], it's a stranded asset, so this is quite a good solution." For the 30-odd farmers left high and dry by NZ Dairies receivership in May, Fonterra's offer was "a great deal" because they would have a secure future, Penno said.

But if the commission gives the green light for the deal, the concern would be to ensure this did not set a precedent for larger, more complex acquisitions by Fonterra, which controls 88 per cent of the country's raw milk market, he said. Fonterra has said the purchase would only boost its milk collection by around 2 per cent.

Penno's comments confirm another industry player's view that far more important right now is that Fonterra's milk price-setting power is controlled under industry reform legislation going through Parliament.

The Commerce Commission yesterday said Fonterra's farmgate milk price setting would be a key competition issue it considers when deciding if it can buy NZ Dairies.

The commission has released a statement of preliminary issues it considers important in deciding whether to give Fonterra the all-clear.

It said it will consider whether Fonterra, as the buyer of more than 80 per cent of raw milk 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.

It will also consider whether South Island farmers still have the choice and range of processors Fonterra contends they will, and whether the geographic size of the markets is as broad as Fonterra suggests or is limited to perhaps Canterbury.

Its final decision is expected by August 31.

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- Waikato Times

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