SYDNEY: The ACCC has published a Statement of Issues outlining preliminary competition concerns with Olam Agri Holding’s proposed acquisition of Namoi Cotton Ltd (ASX: NAM).
Olam, through its wholly owned subsidiary, Queensland Cotton, and Namoi both supply cotton ginning, cotton lint classing, logistics and warehousing services in Australia. Both Olam and Namoi also engage in the acquisition and marketing of cotton lint and cottonseed.
The ACCC is concerned that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton ginning services in the Lower Namoi Valley in New South Wales and the supply of cotton lint classing services.
‘Ginning’ involves receiving raw cotton from growers and separating the cotton lint from cottonseed. Cotton gins are generally located in the cotton growing regions and serve the growers in those regions.
“The proposed acquisition would reduce the number of competing ginning suppliers in the Lower Namoi Valley from three to two, with Olam operating four of the five cotton gins if the acquisition proceeds,” ACCC Commissioner Stephen Ridgeway said.
“Post-acquisition, there would only be one alternative cotton gin in the Lower Namoi Valley region operated by Australian Food and Fibre.”
“Olam may be able to significantly reduce competition for cotton ginning services, resulting in higher prices for cotton growers in the Lower Namoi Valley who are unlikely to transport their cotton to gins outside of the Lower Namoi Valley due to transport costs,” Mr Ridgeway said.
The ACCC is also concerned about the impact on the supply of cotton lint classing services in Australia.
‘Classing’ occurs at the conclusion of the cotton ginning process when a sample is collected from each bale of cotton lint and sent for grading.
“The acquisition would result in Olam having ownership interests in both ProClass and Australian Classing Services, which together class more than 80 per cent of all cotton lint in Australia,” Mr Ridgeway said.
The ACCC is also concerned that the proposed acquisition would provide Olam with the ability to negatively impact competing cotton merchants from acquiring and marketing cotton lint and cottonseed.
This may occur due to Olam’s increased ginning presence in certain cotton regions of Australia, including the Lower Namoi Valley.
“This acquisition may give Olam the ability to tie cotton lint and cottonseed purchasing contracts to cotton ginning contracts, as well as limit competing merchants’ access to cotton lint and cottonseed from Olam’s gins,” Mr Ridgeway said.
“If competing merchants struggle to compete against Olam, the proposed acquisition may result in growers being paid less for their cotton.”
The ACCC is also investigating the impact of the proposed acquisition on competition for the supply of cotton lint marketing and cotton warehousing services, as well as the risk of coordination in the cotton lint marketing market through Olam and Louis Dreyfus Company’s common involvement in the Namoi Cotton Alliance and Namoi Cotton Marketing Alliance.
A further issue being examined is whether the acquisition would enable Olam to increase prices for warehousing services for the export of cotton out of the Port of Brisbane or ports in Sydney.