Affected market: Milk Processing
No. ME/1482/03
Please note that the full text of the decision can be downloaded by using the link on the right of this page . What follows are extracts regarding the parties, the transaction, jurisdiction, assessment, and decision.
The OFT's decision on reference under section 22(1) given on 26 February 2004
PARTIES
Milk Link is a farmers' cooperative active mainly in the south west of England. Dairy Farmers of Britain is a farmers' cooperative active mainly in the west of England and Wales. First Milk is a Farmers Cooperative active mainly in Wales, the west of England and Scotland. United Milk was a small farmers' cooperative who owned the Westbury plant. United Milk entered into receivership on 19 August 2003. Westbury Dairies Limited (WDL) is the joint venture company (JV) set up by Dairy Farmers of Britain, Milk Link and First Milk to acquire and operate the Westbury plant. The turnover of the acquired business accounted for less than £70 million for the financial year ended 31 March 2003.
TRANSACTION
The parties acquired joint control of United Milks' processing plant at Westbury on 28 October 2003. The transaction was notified on 15 December 2003 and the administrative deadline expired on 12 February 2004. The statutory deadline will expire on 27 February 2004.
JURISDICTION
The acquisition is treated as one overall transaction because the parties are regarded as associated persons within the meaning of section 127(4) (d) of the Enterprise Act 2002. The parties overlap in the procurement of raw milk and raw milk processing and the share of supply test in section 23 of the Enterprise Act 2002 (the Act) is met. A relevant merger situation has been created.
ASSESSMENT
The acquisition of the Westbury Plant by the parties resulted in an increment of between 1-5 per cent in the procurement of raw milk and none of the parties has a share of supply above 15-25 per cent as a result of the transaction. The parties jointly account for about 5-15 per cent of raw milk processing in Great Britain. The downstream markets for SMP, cream and butter are at least EU-wide in scope and no horizontal issues are raised.
With regard to possible foreclosure effects, responses from farmers confirmed that there remains a choice of potential purchasers of raw milk. Potential coordination between the parties to the JV appears to be an improbable outcome of this transaction, given that there is buyer power downstream, no credible punishment mechanism and withholding raw milk from the market would be damaging to the cooperatives.
Consequently, the OFT does not believe that it is or may be the case that the merger may be expected to result in a substantial lessening of competition within the UK.
DECISION
This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.
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