Fonterra tips rival for NZ market

Fonterra is talking up the possibility that Australian rival National Foods may be about to expand into the Auckland market.

In a submission to the Commerce Commission - to make its case for buying Kapiti Fine Foods - Fonterra says National Foods is likely to establish a milk-processing plant in Auckland.

That would give it entry into the retail milk sector and allow it to take advantage of the contract it has to supply Woolworths with house-brand products.

Earlier this year, Woolworths bought local supermarket operator Progressive.

National Foods - which makes Yoplait brand products - already has a yoghurt factory near Palmerston North but its entry into the retail market was "likely, timely and sustainable", the submission says.

Fonterra tried to buy National Foods last year but eventually pulled out of a bidding war with Filipino giant San Miguel.

San Miguel has signalled its intention to expand aggressively throughout Asia in the next few years.

No one from National Foods was available for comment yesterday.

National Foods had already taken the first step towards entering the retail market with the launch of its Big M flavoured milk in local supermarkets, Fonterra's submission said.

Fonterra announced plans to buy Kapiti Fine Foods from supermarket chain Foodstuffs last month.

The dairy company has $60 million of revenues and can produce up to 18 million litres of icecream annually and up to 200,000 litres of milk daily.

As part of the deal, Fonterra gets rights to supply Pam's brand milk in the lower North Island.

In its submission, Fonterra says the acquisition will result in a "minor aggregation of market share" in the milk, cheese and icecream markets.

But it said each sector was characterised by low barriers to entry and a variety of competitors so the effect on competition would be minimal.

With cheese and icecream, the gains in market share would only be at the specialty end of the market.