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ACCC raises concerns for north over LDC’s bid for Namoi

Grain Central, May 16, 2024

THE ACCC has raised concerns with Louis Dreyfus Company’s proposed acquisition of Namoi Cotton citing a possible reduction in competition for the burgeoning northern Australian industry if the sale progresses.

Australia’s competition watchdog has published a Statement of Issues today following an investigation into the proposed sale.

It highlighted concerns that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton ginning services in the north of Western Australia and Northern Territory and the supply of cotton lint classing services.

The ACCC is also considering whether the proposed acquisition may substantially lessen competition in the marketing of cotton lint and seed.

ACCC commissioner Stephen Ridgeway said concerns regarding the north of Western Australia and Northern Territory stem from the emergence of two new cotton gins in Katherine, NT and Kununurra, WA.

Namoi has been contracted to build and operate the Kununurra cotton gin, and is a minority shareholder of this gin’s holding company.

LDC has entered into a joint venture for the management and operation of the Katherine cotton gin, due to commence operations in mid-2024.

“If this acquisition proceeds, LDC will be involved in operating the only two cotton gins in the north of Western Australia and Northern Territory,” Mr Ridgeway said.

“We are concerned it would result in LDC being able to reduce competition between these two cotton gins, which may result in higher prices or reduced service levels for ginning services.

“Growers benefit from competition between cotton gins, and once both are operational, the Katherine gin will be by far the closest competitor to the Kununurra gin.”

Classing competition issues

The ACCC is also concerned that the proposed acquisition would be likely to substantially lessen competition in the supply of cotton lint classing services in Australia.

Classing occurs at the conclusion of the ginning process, when a sample is collected from each bale of lint and sent for grading.

“The acquisition would result in LDC having ownership interests in two providers of cotton lint classing services, ProClass and Australian Classing Services, which together class more than 80 percent of all cotton lint in Australia,” Mr Ridgeway said.

The ACCC is also investigating the impact of the proposed acquisition on LDC’s ability and incentive to negatively impact rival merchants’ access to cotton lint, and its ability to limit access to or increase prices for warehousing services for the export of cotton out of the Port of Brisbane.

LDC responds

In the Statement of Issues, the ACCC said LDC had offered to exit its interests in Proclass and terminate the WANT agreement.

This would be via a “court-enforceable undertaking” to order the ACCC’s competition concerns.

The ACCC said it had “not has not formed a view as to whether any competition concerns are capable of being addressed” by the proposal.

“The ACCC will not accept an undertaking if it is not satisfied that it will address the ACCC’s competition concerns,” the statement said.

A spokesperson for LDC said the company was “committed to fully co-operate with the ACCC to ensure they have all the information required to complete their assessment”.

“As a well-established player in the Australian market, with over 110 years of operations in the country and a strong balance sheet, LDC is committed to continued investment in ginning infrastructure to ensure a competitive and thriving industry,” the spokesperson said.

“Equally, Namoi Cotton’s extensive network of cotton gins and well-established industry relationships offer valuable synergies with LDC’s own operations in Australia.

“As such, we are confident that the acquisition of Namoi Cotton by LDC would support the long- term future and growth of the cotton industry in Australia, enhancing our service offering and creating added value for the grower community, wider agricultural sector and other stakeholders.”

The ACCC invites submissions in response to the Statement of Issues by 30 May 2024.

The ACCC is also investigating Olam Agri’s competing offer to purchase Namoi Cotton with findings expected to be released on July 4.

Source: ACCC, LDC

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