Australian competition watchdog flags concerns over QAF's proposed Rivalea sale

AUSTRALIA's competition regulator, the Australian Competition & Consumer Commission (ACCC), has raised concerns over Brazilian animal protein giant JBS' proposed acquisition of pork-processing plant Rivalea Holdings, which is a subsidiary of Singapore-listed food company QAF.

QAF had in June agreed to sell the entire issued share capital of its Australian businesses Rivalea and Oxdale Dairy Enterprise to Industry Park, which is part of JBS. The estimated price was A$107.9 million (S$106 million), while the enterprise value of the entities that were to be sold stood at A$175 million.

QAF had then said it wanted to focus on its bakery and distribution segments and warehousing in its core markets of Singapore, Malaysia and the Philippines. The company said Rivalea had "reached the necessary scale" for a new owner with a strong focus on the animal-protein segment, to bring it to its next growth phase.

In a statement on Sept 16, ACCC identified certain issues that could arise if the transaction goes through successfully.

For instance, it said, JBS would control three of the seven export-accredited abattoirs in Australia, and would have a significant proportion of pork-processing capacity.

ACCC expressed concerns that JBS could have the incentive to leverage its increased upstream presence to either directly or indirectly raise the costs of its downstream smallgoods or for its wholesaling rivals by frustrating or foreclosing their access to fresh pork.

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The regulator also noted that JBS will be the majority owner of Rivalea's Diamond Valley Pork (DVP) - the largest pig abattoir in Victoria, Australia. JBS could then be in a position to increase the prices of fresh pork or offer less-favourable terms to producers, which could result in a substantial lessening of competition in related upstream markets.

"Given the abattoir's location, any majority owner of the asset would have the ability to frustrate or foreclose access to third-party service kills at DVP," said the regulator.

"JBS' incentives to foreclose may also be increased if it were to increase its use of domestic pork, as is its stated intention, which could make DVP less reliant on third-party customers," it added.

If the acquisition is successful, JBS will also have operations at all levels of the pork supply chain including pig production, service kills, processing as well as the supply of various pork products.

The regulator said market participants have also raised concerns that JBS may prioritise the service kills of Rivalea pigs, or pigs that are used as inputs for its Primo business or its wholesale supply of fresh pork. This could in turn cut DVP's capacity for service kills for third parties, or make the terms of the service kills (such as timing and scheduling) less favourable.

ACCC said it is inviting submissions from market participants on the issues it has raised, and that it intends to publicly announce its final view by Dec 9.

Shares of QAF last changed hands at 90.5 Singapore cents, ahead of a trading halt called before market open on Thursday. The halt was lifted after market hours on Thursday.