ACCC will not oppose Teys Bros / Cargill Beef proposed merger

Issued: 6th July 2011

The Australian Competition and Consumer Commission will not oppose the proposed merger of the meat processing operations of Teys Bros (Holdings) Pty Ltd and Cargill Beef Australia.

"The ACCC formed the view that the proposed merger would be unlikely to substantially lessen competition in any of the markets examined," ACCC chairman Graeme Samuel said today.

Cargill operates two abattoirs and a feedlot in New South Wales which supply both the domestic and export beef markets, with the abattoirs in Tamworth and Wagga and the feedlot at Stockinbingal.

Teys operates four beef abattoirs at Biloela, Beenleigh and Rockhampton in Queensland and Naracoorte in South Australia. Teys also operates a feedlot near Condamine in southern Queensland.

The ACCC carefully considered the competition effects of the proposed merger in a number of markets including in relation to the acquisition of 'fat' cattle ready for slaughter, the acquisition of 'feeder' cattle which are destined for feedlots, and for the supply of processed beef to retailers and wholesalers.

In addition, the ACCC also examined whether, after the merger, Cargill would be able to use its position in grain trading and marketing to deny supply or to raise prices of grain to competing feedlot operators.

"The ACCC concluded that the proposed merger would be unlikely to result in a substantial lessening of competition in any of the markets it examined, largely due to the fact that the operations of Teys and Cargill have limited geographical overlap," Mr Samuel said.

The costs of transporting cattle over long distances and the damage and stress that extended road travel can have on cattle mean that fat and feeder cattle are generally acquired from areas within reasonable proximity of abattoirs and feedlots. Competition between Teys and Cargill is limited as their abattoirs are located in different states and their feedlots are approximately 1100 kilometres apart.

In considering whether the merger would enable the merged firm to depress fat cattle prices in the locations where both Teys and Cargill currently compete, the ACCC was satisfied from its inquiries that several existing competitors in these locations would be capable of responding by attracting business and winning market share away from the merged entity.

In the feeder cattle market, the ACCC found that the significant geographical separation between Teys and Cargill's feedlots means that there is currently very limited competition between the merger parties for the acquisition of feeder cattle.

There are also several competing feedlots situated between Teys and Cargill's feedlots which compete to acquire feeder cattle from the same geographic areas. Hence the proposed merger did not raise substantial competition concerns in this market.

In the market for the supply of processed beef to retailers and wholesalers, the ACCC considered that any attempt by the merged entity to increase processed beef prices was unlikely to be successful as the merged entity will continue to face competition from a large number of existing competitors in this market.

The ACCC also concluded that the proposed merger is unlikely to give Cargill the ability or incentive to deny supply or to raise prices of grain to competing feedlot operators given the several remaining options available for sourcing grain, including from other grain traders and direct from growers.

In reaching its view on the proposed merger, the ACCC conducted extensive consultation of interested parties including cattle producers, feedlot operators, saleyard operators and agents, industry associations, abattoir operators, supermarkets and other suppliers and buyers of meat products.

The test applied by the ACCC when considering mergers or acquisitions under section 50 of the Competition and Consumer Act 2010 is whether the transaction would have the effect, or likely effect, of substantially lessening competition in a market. The Foreign Investment Review Board separately considers issues concerning foreign ownership—foreign ownership is not a relevant consideration under the section 50 test and therefore did not form part of the ACCC's competition review.

The basis upon which the ACCC reached its decision will be outlined in a Public Competition Assessment, available in due course on the ACCC's website, www.accc.gov.au/publiccompetitionassessments.