The Commerce Commission today cleared Kiwi Co-operative Dairies Ltd to acquire all the assets of Tui Milk Products Ltd.
Commission Chairman Dr Alan Bollard said the Commission was satisfied that if the proposal went ahead, then Kiwi would not acquire or strengthen a dominant position in any market.
The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened.
Dr Bollard said that when a company applies for a clearance, the Commission must determine what are the relevant markets and what impact the proposal would have on competition in them. If the Commission is satisfied that dominance is not acquired or strengthened in any market, it will grant a clearance.
In this case there are three relevant markets: the market for buying unprocessed milk in the greater part of the North Island, the market for the processing and wholesale delivery of town milk in the greater part of the North Island, and the market for manufacturing and supplying dairy products in New Zealand.
Dr Bollard said that one of the primary issues in considering the clearance was defining the geographic extent of the market for the acquisition of unprocessed milk.
The Commission looked at the ability of farmers to switch between dairy co-operatives, including the costs of switching, and concluded that in view of current transport technology and costs, the market included the greater part of the North Island.
In considering whether Kiwi would be dominant in that market, the Commission concluded that the New Zealand Dairy Group (NZDG) already has an almost 50 percent market share, and given the ability of Kiwi suppliers to switch if the Kiwi payout reduced, Kiwi would not acquire or strengthen a dominant position.
In the market for town milk, there are currently seven dairy companies processing milk in the North Island. Considerable competition would remain if the acquisition does go ahead, and NZDG would remain the largest competitor.
Supermarket chains have considerable buying power in this market and can easily switch between milk companies if prices increase.
The market for dairy products other than town milk is national, and this proposal will cause no material change to the level of competition.
Commission clearance does not mean that the acquisition will go ahead, that is a decision for the companies' shareholders and boards. The clearance does protect the acquisition against court action under the Commerce Act.
Copies of the Commission's 31 page report are available from its Wellington office.
