The competition watchdog is worried that Canadian dairy giant Saputo's proposed takeover of Murray Goulburn could have a negative effect on competition for farmer's milk in one region.
The Australian Competition and Consumer Commission (ACCC) says it has concerns about the combination of Saputo's Allansford plant in western Victoria, and Murray Goulburn's Koroit plant, also in western Victoria.
"While Saputo is proposing to acquire most of the Murray Goulburn business, our only concern is in relation to Murray Goulburn's Koroit plant," ACCC chairman Rod Sims said in a statement.
"Our view is that Saputo owning the Koroit plant would substantially lessen competition for the acquisition of dairy farmers' raw milk in the region."
The two processing facilities at Allansford and Koroit currently acquire most of the raw milk in the area, with New Zealand dairy giant Fonterra the only other major operator with a processing plant in the region.
The ACCC said it was concerned that Saputo and Fonterra would be more likely to offer lower prices to farmers for their milk if Saputo acquired Koroit, and there would be very limited alternatives for many farmers in south-west Victoria and south-east South Australia.
Murray Goulburn said the successful completion of the sale to Saputo remains the company's key focus, and it will work closely with its suitor and the ACCC to be able to achieve the deal.
The ACCC is inviting submissions from interested parties in response to its initial statement of issues, and a final decision is expected on March 29.
