The Australian Competition and Consumer Commission (ACCC) long left the agribusiness sector to its own devices. The industry has developed its own standard operating practices and, outside of a few ACCC prosecutions, has done so without any real oversight.  However, the new focus on Agriculture demonstrated by the ACCC’s Interim Report for its Cattle and Beef Market Study (‘Interim Report’) heralds that the status quo is no longer, particularly for mergers and acquisitions (‘M&A’).

Some M&A deals in the agribusiness space attract a great deal of attention, but the vast majority of activity in the industry occurs quietly, if not smoothly. M&A opportunities to better control supply chains, vertically integrate or take advantage of economies of scale can be attractive; promising better alignment and profitability. As we’ve mentioned in a previous blog , the creation by the ACCC of the new Agricultural Enforcement and Engagement Unit and the position of Agriculture Commissioner mean that future deals will be more closely scrutinised. Businesses looking to formally merge or enter into other understandings in the agricultural sphere should expect ACCC interest. By proactively addressing possible concerns in structuring your deal, you can minimise the competition compliance issues that may otherwise derail a transaction.

The ACCC’s purpose is to make sure markets in Australia are competitive. It has the power to prosecute companies and individuals for anti-competitive behaviour (which can include cooperating with another company) and to prevent mergers that it considers will ‘substantially lessen competition’ in the market.

In the Interim Report the ACCC has revealed serious concerns about consolidation in the beef processing sector, in which:

• there are two dominant companies; and
• 54 per cent of total slaughter capacity is met by Australia’s five largest processors.

As a result, the ACCC warns that it will ‘carefully scrutinise proposed future aggregation’ of processors.

While there is not the same concentration in the major cattle companies, the ACCC is unlikely to favourably view moves to vertically integrate due to their concerns regarding the level of competition in the processing sector. The ACCC is concerned that vertical integration will make processors less active in markets for buying prime cattle (substantially lessening competition in the market as a whole) and so the ACCC will look closely at any mergers and acquisitions activity involving beef processors.

The factors that the ACCC will take into account in assessing whether future transactions in the cattle and beef markets may substantially lessen competition include:

• transport costs
• the size of cattle farms and their ability to switch to produce different breeds and weight ranges of cattle
• the extent of excess processing capacity within geographic markets
• factors that constrain a processor’s ability to transact or process different types of cattle, including long-term service-kill contracts.

These factors focus on the ability of producers to sell their herds at a competitive price in the event a processor merger or acquisition takes place.

The ACCC is also undertaking an inquiry into the dairy industry and has consulted with the horticultural and viticulture sectors on competition and fair trading issues. While the Interim Report concerns the beef and cattle industry, it provides insight on how the ACCC is likely to approach M&A in other agricultural markets.

Under this new scrutiny, Agribusinesses need to consider competition issues at an early stage in any proposed merger or acquisition (or other agreements or arrangements involving any degree of cooperation). Early advice can ensure your deal is structured in a way to maximise your chances of receiving clearance to merge and avoid any allegations of anti-competitive behaviour.