ACCC says GrainCorp-XFA deal won't monopolise molasses supply

GrainCorp expects to significantly expand its own stockfeed business footprint by early April after getting the Australian Competition and Consumer Commission's green light to buy XF Australia's Performance Feeds.

The big eastern states grain handling, marketing and processing business announced plans to buy the liquid supplements and livestock nutrition advisory business in November.

Although GrainCorp and XF Australia both serviced the molasses-based liquid animal feed supplements in eastern Australia and concerns have been rising about the availability of molasses supplies for livestock producers, the ACCC has confirmed it would not oppose the acquisition.

"We have listened to the concerns expressed by some businesses about shortages of molasses supplies from time to time, particularly during periods of severe drought," said ACCC Commissioner, Stephen Ridgeway.

"We have been very careful in examining this proposed acquisition to ensure that it does not exacerbate these existing challenges in a way that breaches our merger laws."

GrainCorp would still face significant competition from other animal feed supplement suppliers such as Bundaberg Molasses and Riverina.

Queensland-based XFA makes the Anipro stockfeed supplement range, among other liquid and loose lick nutrition products for beef and sheep feedlots, dairy cattle and paddock livestock.

XFA also runs the feedlot performance and nutritional consulting business, Nutrition Service Associates, providing advice and trace mineral premix production services.

GrainCorp's existing stockfeed division already makes molasses and vegetable oil-based feed supplements for beef and dairy cattle, sheep and other livestock under the Molafos, Rumifeed and Energro brands in Australia, plus bulk ration mixes and pellet feeds in New Zealand.

The ACCC noted GrainCorp acquired molasses as a high energy input for its feed supplements from sugar mills, selling surplus amounts to other distributors and competing animal feed supplements manufacturers and farmers.

XF Australia also bought molasses from sugar mills to make its supplement products but did not resell to third parties.

The takeover deal required the ACCC to assess the closeness of competition between GrainCorp and XFA, including whether the XFA takeover would substantially lessen competition in the supply of animal feed supplements in regional markets.

It also explored if the acquisition would provide GrainCorp with the ability or incentive to restrict sale of molasses to other third-party distributors and animal feed supplement manufacturers.

GrainCorp managing director, Robert Spurway, said the XFA acquisition would enhance the company's existing livestock nutrition capabilities.

The 30-year-old business, currently owned by a majority US shareholder, US Australia Investments, and XFA management, had become a leading provider of feed supplements.

"The transaction is in line with our strategy of disciplined growth in targeted business areas and ensuring ongoing earnings and counter-cyclicality in our business," Mr Spurway said.

"We look forward to welcoming the XFA team into our nutrition and energy business group and expanding our animal nutrition offering to Australian producers and customers."

He said the proposed acquisition, announced in November, was expected to be completed in the next few weeks.

The ACCC's Mr Ridgeway said the regulator had carefully examined the molasses supply arrangements between GrainCorp, XFA, other animal feed supplement suppliers and sugar mills, concluding "there would be no substantial lessening of competition".

The ACCC considered the acquisition would not create the ability, or incentive, for the combined entity to reduce molasses supplies to downstream players.

"We concluded that competing animal feed supplement suppliers will still be able to obtain molasses supply directly from sugar mills, distributors and other resellers," Mr Ridgeway said.