Commission declines to clear Kiwi to acquire SIDCO
Published26 Feb 1999
The Commerce Commission today declined to clear Kiwi Co-operative Dairies Limited to acquire South Island Dairy Co-operative Limited (SIDCO).
Commission Chairman Peter Allport said that the Commission was not satisfied that Kiwi would not acquire or strengthen a dominant position in a South Island market for the acquisition/supply of unprocessed milk.
The Commission found that, should the merger go ahead, a merged Kiwi/SIDCO would have 73.3 percent of this market and would not be constrained by competition from other South Island dairy companies. The Commission did not accept Kiwi's submission that competition between Kiwi and the Waikato-based New Zealand Dairy Group (NZDG) in the North Island, would constrain a merged Kiwi/SIDCO.
Mr Allport also said that the Commission did not accept Kiwi's submissions that there is a nation-wide market for the acquisition/supply of unprocessed milk.
The Commission accepted that it is technically possible to transport unprocessed milk between the North and South Islands. However, it concluded that ongoing inter-Island transportation of unprocessed milk is not economically viable as a means of providing farmers with a choice of co-operatives.
"The Commission concluded that the geographic market is not larger than the South Island," Mr Allport said. "In terms of the present application, it might be smaller than the entire South Island because of doubts that Tasman and Marlborough actually compete with Kiwi and SIDCO, given their relative geographic isolation."
Whether there is one South Island market or several would not change the Commission's decision in this case. If the Tasman and Marlborough dairy companies do not compete with Kiwi and SIDCO, then the merged entity would have even greater market power.
In addition to market shares, the Commission also investigated the possibility of other factors constraining a merged Kiwi/SIDCO and preventing it from being dominant.
In this case these other factors are existing competition, potential competition, Kiwi and SIDCO's co-operative structures and the ability of dairy farmers to switch to domestic milk supply or leave dairying all together.
The Commission concluded that, while providing some constraint, these factors are not sufficient to satisfy it that a merged Kiwi/SIDCO would not be dominant in a South Island market for the acquisition/supply of unprocessed milk.
Kiwi and SIDCO also operate in the New Zealand market for the manufacture and wholesale supply of cheese. The Commission concluded that in this New Zealand market a combined Kiwi/SIDCO would not acquire or strengthen a dominant position.
Background
The Commerce Act prohibits business acquisitions that result in dominance being acquired or strengthened in any markets.
Parties can apply for clearance, which the Commission will grant if it is satisfied that dominance is not acquired or strengthened. A clearance, if granted, protects an acquisition from court action under the Act.
The Commission's decision can be appealed in the High Court. An appeal must be lodged within 20 working days of the decision being made.
Kiwi also has the option of applying for an authorisation. While authorisation is a longer process, an authorisation, if given, allows an acquisition that would otherwise be prohibited because of dominance concerns to go ahead. An authorisation is granted if the Commission is satisfied that public benefits from an acquisition outweigh its detriments to competition.
Public copies of the Commission's decision are available from its website, www.comcom.govt.nz, and from reception at its Wellington office, level 7, Landcorp House, 101 Lambton Quay.
