"The Australian Competition and Consumer Commission will not oppose the proposed acquisition of Goodman Fielder's flour milling operation, Milling Australia, by a GrainCorp/Cargill joint venture", ACCC Chairman, Professor Allan Fels, said today.
The ACCC considered whether the proposed acquisition would lead to a substantial lessening of competition in markets for flour milling and mixing in New South Wales and south eastern Australia, in contravention of section 50 of the Trade Practices Act 1974. Section 50 prohibits mergers and acquisitions that will have the effect, or are likely to have the effect, of substantially lessening competition in a market.
"The ACCC did not believe that the proposed acquisition would substantially lessen competition in the markets for flour milling and mixing in New South Wales and south eastern Australia", Professor Fels said.
GrainCorp is predominantly involved in the provision of storage and handling services in NSW and Victoria and grain trading. GrainCorp's joint venture partner, Cargill, is a grain trader in Australia. Milling Australia is one of Australia's leading milling operations with production facilities in most Australian states.
The ACCC conducted extensive market inquiries regarding GrainCorp's bid. Market inquiries revealed that many market participants were concerned about the proposed acquisition, particularly about the possibility of GrainCorp discriminating against particular users of its storage and handing system and raising the costs of rival millers.
In particular, market respondents were concerned that GrainCorp could use market power against rival millers by raising their storage charges, denying them access to storage, strategically purchasing grain that rival millers were short of, and blending rival millers' grain with lower grades of grain.
The ACCC's market inquiries found that there were strong constraints on GrainCorp's ability to discriminate against particular users of its storage and handling facilities.
The main constraint was that the ownership of grain was not fixed and millers could, and did, buy and sell large amounts of grain within GrainCorp's storage system. This means that GrainCorp would not be able to target grain within its system because the owner of that grain could change.
In terms of access to storage, a large amount of grain entered its system in the name of growers or traders and was then purchased by millers. Therefore GrainCorp would not know who the grain was destined for when it entered GrainCorp's storage facilities.
In terms of raising rival millers' storage costs, the ACCC considered that millers' ability to contract for traders to hold grain on their behalf, thereby defeating the price rise, would deter GrainCorp from attempting to raise charges.
In terms of GrainCorp using knowledge of where millers' might be short of particular types of wheat and bidding up the prices of those stocks, the ACCC found that GrainCorp did not have complete information of millers' stocks either because millers used some storage other than GrainCorp's, or because wheat was held for millers by traders in the traders' names, effectively disguising the wheat. This was, to some extent, part of millers' current commercial practice.
In terms of GrainCorp blending differing qualities of grain, within a defined band, known in the industry as "co-mingling", to disadvantage millers, the ACCC found that this was a current practice in the industry and would be unlikely to be used to any greater extent against rival millers in the future.
The ACCC therefore did not see how GrainCorp could raise rival millers' costs through its storage and handling network in such as way that would lead to a substantial lessening of competition in the markets for flour milling and mixing in New South Wales and south eastern Australia.