Westland Milk Products believes Fonterra's acquisition of New Zealand Dairies Ltd's factory at Studholme would have "far-reaching implications" for the wider New Zealand dairy industry.
In June, Fonterra confirmed it had entered into a conditional agreement to acquire the milk-processing assets of the factory, subject to Commerce Commission clearance. A decision from the commission is due by the end of the month.
In a submission, Westland, an independent co-operative dairy company, said approval would substantially lessen competition in the specific market for farm gate milk relevant to the NZDL plant, removing opportunities for both affected farmers and potential investors in that geographic area.
It would enhance Fonterra's already dominant market position and allow it to "aggressively target" other independent processors.
It would also reduce the incentive for existing or prospective independent processors to invest in new processing facilities.
Those consequences would lead to a "substantial lessening of competition" across the industry.
Westland said there were viable and substantive options for the purchase of NZDL outside of the Fonterra bid that would provide the same, if not greater, benefits as those outlined by Fonterra.
Federated Farmers believed the acquisition was good for the industry, as well as for Fonterra itself, and showed the strength of the co-operative model.
However, the rural lobby organisation felt it important the commission understood the obligations that Fonterra was placing on affected farmers.
In its submission, Federated Farmers said the placing of NZDL into receivership had left its farmer suppliers facing what could easily having been a disaster, given that once the dairy season started, cows needed milking every day. They were also owed money for milk supplied last season.
Fonterra had handed those farmers a "lifeline" but it came at a price and Federated Farmers believed that price was achieved by giving the farmers no choice.
Fonterra agreed to buy the plant on the basis that all NZDL suppliers signed up with Fonterra.
For the current season, suppliers would get 10c per kg ms less than the Fonterra farm gate price.
For the following three years, any unshared supply would be 5c kg ms less than other Fonterra suppliers with unshared milk.
Year five would be as per the normal growth contract for all shareholders.
All farmers must be fully shared up by year six. Farmers could start sharing up from next season but were not allowed to buy any shares this season, and all farmers were locked into a seven-year contract.
In return, Fonterra had undertaken to pay all the suppliers the money they are owed.
That did offer farmers a "good deal", given they broke away from the co-operative or chose to supply NZDL from the start of their own business.
However, the prospect of farmers recouping all the money owed to them had given Fonterra "considerable leverage".
While many did very well supplying NZDL (due to the milk price being within 10 cents of Fonterra's own milk price without the need to buy shares to supply NZDL), the thought they could only get their money back if they brought every farmer to Fonterra has led to "farmer being pitted against farmer", the submission said.
Many farmers were concerned that with the advent of Trading Among Farmers, the price of Fonterra shares would increase dramatically and they would like the option to start buying shares this season.
The obligation of locking farmers in to supplying Fonterra for seven years was also severe.
Federated Farmers argued that farmer choice of whom to supply was what the Dairy Industry Restructuring Act (Dira) was all about.
In support of its application, Fonterra said its acquisition of NZDL did not create any additional barriers to entry. It also illustrated the large geographical spread of the suppliers to the competing processors and the distances those processors were now transporting milk.
