Tuesday, December 5, 2023

Fonterra engaging with Brazil competition watchdog

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DPA-Lactalis deal held up while ‘reservations’ are unpacked.
Fonterra holds a 51% stake in DPA Brazil and expressed concerns about the sale of Dairy Partners Americas Brazil to French dairy company Lactalis.
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Fonterra is engaging with Brazil’s competition authority after concerns were raised about the sale of Dairy Partners Americas Brazil to French dairy company Lactalis.

Joint owners Fonterra and Nestlé agreed last December to sell DPA Brazil for approximately $210 million.

The deal was expected to be completed by mid-2023, subject to regulatory authority approvals.

The sale, however, hit a potential snag when the competition authority expressed reservations about certain aspects of the sale and escalated the matter to its tribunal. 

“We are aware that Brazil’s competition authority has raised potential competition concerns relating to limited parts of the DPA Brazil business and has referred the matter to its Administrative Tribunal for decision,” a Fonterra spokesperson said.

“We are engaged with the regulatory authorities to gain a fuller understanding of their concerns, as part of the regulatory process.”

Nestlé declined to comment.

Administrative Council for Economic Defense (CADE) officials received two requests for intervention from interested third parties, Vigor Alimentos and Danone.

The officials looked at the impact of combining the companies’ activities in the national markets for fermented milk, yoghurt, petit suisse, dairy desserts and requeijão, a Brazilian-style cream cheese. 

It also looked at the vertical integrations between milk collection in the states of São Paulo, Pernambuco, Paraná and Minas Gerais, the supply of milk powder, and the supply of whey powder as inputs for the production of refrigerated dairy products.

Among other things, it concluded there are “significant barriers to entry in the dairy refrigerated market”, which includes fermented milk, petit suisse and dairy desserts.

It also pointed to a limited number of rival companies and the impact of the extensive combined portfolio of brands from Lactalis and DPA. 

In evidence included in the file, Danone argued the resulting company will have high market shares, exceeding 40% in yoghurts, fermented milks and refrigerated dairy desserts. 

CADE officials, meanwhile, did not identify any competition risks in the requeijão and milk collection markets. Documents show it noted concentration in the yoghurt market, but said its analysis suggested “there is sufficient remaining competition” to mitigate. 

Fonterra holds a 51% stake and Nestlé 49% in DPA Brasil. Fonterra has said the sale is aligned with its strategy of prioritising its NZ milk pool.

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