Coles’ $105M Dairy Coup: Why Farmers Fear a Retail Squeeze
Source: dairynews.today
The recent acquisition by Coles of two milk processing plants fr om Canada’s Saputo for $105 million marks a significant shift in the Australian dairy industry. This move by Coles, a major supermarket chain, signifies the first instance wh ere a major retailer in Australia owns processing facilities, effectively transforming itself into both a processor and retailer.
Since the acquisition in June 2024, Coles has streamlined operations in both Sydney's Erskine Park and Melbourne's Laverton North to produce milk under its brand. The consolidation of power has raised alarms among farmers and industry leaders. Bernie Free, representing the United Dairy Farmers of Victoria, expressed deep concerns over the increasing 'paddock-to-plate' control exerted by Coles.
He believes this newfound vertical integration equips Coles with a greater understanding of manufacturing costs, potentially squeezing producers over time as they face unmatched pressure on price negotiations. In the backdrop, other key players like Lactalis and Bega Group have been dynamically restructuring their portfolios. Lactalis recently strengthened its footprint with a $3.4 billion acquisition of Fonterra’s brands in New Zealand, whereas Bega previously expanded by acquiring Lion’s milk business for $534 million in November 2020.
Despite the market consolidations, the Australian Competition and Consumer Commission (ACCC) has approved the Coles acquisition, citing continued strong competition from Bega and Lactalis, and suggesting that Coles’s increased margins will dissuade it from sidelining branded products. Nevertheless, the dairy sector faces an evolving landscape characterized by intense structural changes and persistent pricing pressures, with smaller and mid-tier operators expected to engage in mergers and acquisitions to achieve the necessary scale for competition, as indicated by ANZ’s Michael Whitehead.
He believes this newfound vertical integration equips Coles with a greater understanding of manufacturing costs, potentially squeezing producers over time as they face unmatched pressure on price negotiations. In the backdrop, other key players like Lactalis and Bega Group have been dynamically restructuring their portfolios. Lactalis recently strengthened its footprint with a $3.4 billion acquisition of Fonterra’s brands in New Zealand, whereas Bega previously expanded by acquiring Lion’s milk business for $534 million in November 2020.
Despite the market consolidations, the Australian Competition and Consumer Commission (ACCC) has approved the Coles acquisition, citing continued strong competition from Bega and Lactalis, and suggesting that Coles’s increased margins will dissuade it from sidelining branded products. Nevertheless, the dairy sector faces an evolving landscape characterized by intense structural changes and persistent pricing pressures, with smaller and mid-tier operators expected to engage in mergers and acquisitions to achieve the necessary scale for competition, as indicated by ANZ’s Michael Whitehead.
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