Competition Bureau statement regarding the acquisition by Saputo Dairy of Scotsburn Co-operative’s fluid milk activities

OTTAWA, March 21, 2014 —This statement summarizes the approach taken by the Competition Bureau in its review of the proposed acquisition by Saputo Dairy Products Canada G.P. (Saputo) of the fluid milk and related industrial milk business of Scotsburn Co-operative Services Limited (Scotsburn), pursuant to an agreement announced on January 17, 2014.

On March 12, 2014, the Bureau issued a No Action Letter (NAL) to Saputo and Scotsburn indicating that the Commissioner of Competition does not, at this time, intend to make an application under section 92 of the Competition Act in respect of the proposed transaction.Footnote 1

In conducting its review of the proposed transaction, the Bureau obtained information from Saputo and Scotsburn, as well as information from a number of market participants, including regulators, competitors and customers.

Background:

On January 17, 2014, the parties announced that they had entered into an agreement whereby Saputo would acquire substantially all of the assets of Scotsburn’s fluid milk and related industrial milk business, thereby excluding Scotsburn’s ice cream business.

Saputo and Scotsburn are both dairy processors in Atlantic Canada, producing fluid milk products such as milk, skim milk and cream, and industrial milk products, including yogurt, cottage cheese, butter, sour cream and ice cream mix.

Unlike fluid milk products that are subject to provincial regulations, industrial milk products are generally distributed further distances, including across provincial borders. Therefore, industrial milk processing facilities outside of Atlantic Canada provide effective remaining competition and the transaction is unlikely to result in a substantial lessening or prevention of competition with respect to industrial milk products.

With respect to fluid milk products, Saputo has processing facilities in Dartmouth, Nova Scotia and St. John, New Brunswick. Scotsburn operates fluid milk processing facilities in Sydney, Nova Scotia and Mount Pearl, Newfoundland and Labrador.

In order to assess the competitive impact of the transaction, the Bureau evaluated several factors, including existing regulations, barriers to entry and expansion, excess processing capacity of fluid milk plants in Nova Scotia and effective remaining competition from third party fluid milk processors.

Based on current provincial regulation relating to licensing of fluid milk processors and distributors, and evidence that distribution of fluid milk products is generally limited to the province where the products are produced, the Bureau concluded that geographic market is likely not broader than provincial. Both Saputo and Scotsburn have overlapping fluid milk operations in Nova Scotia.

While barriers to entry are high, the Bureau noted that third-party fluid milk processors in Nova Scotia currently face low barriers to expansion because of available excess processing capacity. The Bureau also concluded that remaining third-party fluid milk processors would provide an effective constraint against the combined business.

Based on current regulation, low barriers to expansion and effective remaining competition, the Bureau concluded that the parties would not likely be able to sustain an exercise of market power. As such, the transaction is not likely to substantially lessen or prevent competition for fluid milk products in Nova Scotia.

The Competition Bureau, as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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