The Commerce Commission today cleared Mainland Products Limited to acquire some of the assets of South Island Dairy Farmers Co-operative Limited (SIDF).

Kiwi South Island Co-operative Dairies Limited would first acquire all of SIDF's business and immediately sell the fresh milk and cream, and yoghurt and other cultured dairy food assets to Mainland. Clearance was sought only for the assets which are to be sold to Mainland. Mainland is 83 percent owned by Kiwi.

Commission Deputy Chairman Terry Stapleton said that the Commission was satisfied that the acquisition would not result in the combined entity, or any other party, acquiring or strengthening a dominant position in any of the relevant markets.

The relevant markets are those for the:

  • processing and wholesale supply of town milk in the South Island;
  • acquisition/supply of unprocessed milk in the South Island;
  • manufacture and wholesale supply of yoghurt and other cultured dairy products in New Zealand; and
  • processing and wholesale supply of powdered milk products in New Zealand.

In all markets, except that for the processing and wholesale supply of town milk in the South Island, the combined entity would be within the "safe harbours" published by the Commission in its Business Acquisitions Guidelines. These safe harbours are up to 40 percent market share or up to 60 percent market share if at least one competitor has 15 percent market share or more.

The Commission also investigated the ability of existing competition, potential competition and buyers to constrain the combined entity in the South Island town milk market.

The Commission found that new entry to the market was comparatively easy in that other South Island dairy co-operatives could enter the market if they chose to.

Mainland had submitted that New Zealand's largest dairy company, Waikato-based New Zealand Co-operative Dairy Company Limited, could enter the market by shipping milk from the North Island or by processing milk in the South. The Commission concluded that although inter-Island shipping of milk is not economically viable at present, it may be viable in the future.

The Commission found that supermarket chains and oil companies have considerable buying power. Supermarkets are able and willing to switch between processors if unhappy with price, quality or service. Oil companies are selling increasing volumes of milk through service stations, at the expense of home delivery and corner dairies. There is also a trend towards oil companies negotiating nationwide purchasing contracts for supplying town milk to service stations.

The Commission found that, overall, the constraint from existing and potential competition and the countervailing power of supermarkets and oil companies would constrain the combined entity and prevent it acquiring or strengthening a dominant position in the South Island town milk market.

Media contact: Commerce Act Manager Jo Bransgrove

Phone work (04) 498 0958

Communications Officer Vincent Cholewa

Phone work (04) 498 0920

Commission media releases can be viewed on its website www.comcom.govt.nz