The supermarket giant is proposing to buy the plants in Victoria and NSW from Canadian dairy company Saputo.
The Australian Competition and Consumer Commission, along with a “significant” number of industry players, have raised concerns given it will result in major changes to the industry.
The watchdog will consider whether the acquisition will give the supermarket giant greater power and bargaining influence on the market.
That could lead to reduced competition at the wholesale level, impacting milk processors with flow-on effects to farmers in NSW and Queensland.
Coles chief executive Leah Weckert is confident any concerns can be addressed.
“We see no lessening of competition in any relevant market, noting that Coles already acquires approximately 80 per cent of the volumes at the facilities,” she said on July 20.
The ACCC will also weigh up the chances of Saputo leaving the NSW milk market after the acquisition, which deputy chair Mick Keogh said would concern farmers.
“If Saputo does exit NSW as a result of the acquisition, this would leave limited competition in regions of NSW, which could result in farmers receiving lower prices for their raw milk,” Mr Keogh said.
“We have heard strong concerns across the industry about how the acquisition will strengthen Coles’ position in the dairy supply chain.
“Many industry participants have expressed concerns that the acquisition will result in Coles consolidating its private label milk production, which would increase its bargaining power in negotiations with dairy processors and dairy wholesalers.”
Should Coles’ bid be successful, it will be the first time a supermarket will own and operate its own milk processing facilities.
NSW and Victorian farmers currently sell raw milk to the supermarket giant, which is turned into Coles-brand fresh milk under arrangements with dairy processors, including Saputo.
The two Saputo plants Coles wants to buy are at Laverton North in Victoria and Erskine Park in NSW.
While Coles is by far the largest customer of these two facilities, they do supply a range of other milk products to retailers.
Australian Dairy Farmers president Rick Gladigau said ADF was reassured by the ACCC’s announcement that it would progress the review of the proposed acquisition with a formal Statement of Issues.
Mr Gladigau said this decision suggested the ACCC recognised there were potential competition concerns that warrant further investigation.
“Dairy farmers need strong competition for their milk at the farm gate. ADF does not wish to see a sale that disadvantages dairy farmers in the long-term,” Mr Gladigau said.
“ADF looks forward to engaging with the ACCC further to ensure an outcome is achieved that benefits — or at least does not disadvantage — dairy farmers and the market, more generally.”
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