Potential Reduction in Competition in Ginning and Lint-Classing Services Raises Regulatory Eyebrows
The Australian Competition and Consumer Commission (ACCC) has expressed apprehension regarding Olam Agri’s proposed acquisition of Namoi Cotton, citing concerns over potential market competition reductions in ginning and lint-classing services. The ACCC’s preliminary review, initiated in April, highlighted significant implications for the agricultural sector in the Lower Namoi Valley of northern New South Wales.
Olam Agri, through its subsidiary Queensland Cotton, currently provides lint classing and related services across New South Wales and Queensland. If the acquisition proceeds, Olam would operate four out of the five cotton gins in the Lower Namoi Valley, diminishing the number of competitors from three to two. This consolidation could lead to higher costs for local cotton growers, as reduced competition typically correlates with increased service prices.
The ACCC also expressed concerns about Olam’s concurrent interests in lint classing services. With stakes in ProClass and the potential acquisition of Australian Classing Services, Olam could wield significant influence over the majority of lint classing operations in Australia, potentially limiting options for cotton producers and increasing dependency on Olam’s services.
Moreover, the ACCC raised alarms over the potential impact on cotton marketing competition. The acquisition might enable Olam to tie lint and cottonseed purchasing contracts to ginning agreements, potentially disadvantaging competing merchants and affecting grower incomes.
The regulatory body is further investigating the implications of the acquisition on lint marketing and warehousing services, particularly concerning potential coordination between Olam and Louis Dreyfus Company (LDC) through their joint involvement in the Namoi Cotton Alliance. The ACCC seeks public input on these issues until July 4, with a final decision expected by August 22.
In a related concern, the ACCC has also scrutinized LDC’s proposed acquisition of Namoi Cotton, highlighting similar competition-related worries in cotton ginning and lint classing services in other regions of Australia.
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