CADE’s investigative arm recommends blocking Lactalis acquisition of DPA Brasil

The Office of the Superintendent-General of the Administrative Council for Economic Defense (SG/CADE) submitted for analysis of the agency's Tribunal the acquisition by Lactalis Brasil of the total share capital of DPA Brasil, currently held by Fonterra and Nestlé. On 25 July, the opinion of CADE’s investigative arm on blocking the deal was published in the Federal Official Gazette of Brazil.

Lactalis is a company that operates in the development and production of dairy products in Brazil.  On the other hand, DPA develops and produces cold dairy products in the country through Nestlé Group brands.

The Office of the Superintendent-General (SG) analysed the effects of the merger in the Brazilian markets of fermented milk, yogurt, petit suisse, dairy desserts and cream cheese, as well as in the markets of milk production in the states of São Paulo, Pernambuco, Paraná, and Minas Gerais. It also examined the vertical integration in these states between the activities of milk production and powdered milk and powdered whey supply for the production of cold dairy.

For the authority, the case raised likely competition concerns related to horizontal effects in the markets of cold dairy, especially in the markets of fermented milk, petit suisse, and dairy desserts. The high market share of the merged companies required a deeper analysis in these segments.

The investigative arm concluded there are high entry barriers in the market of cold dairy, which relates, in its majority, to the need for consolidated-strong brands for the entry and remaining of new competitors.It also observed that the market of cold dairy would be affected by the reputation and impact of brands on consumers, increasing the importance of new competitors having strong brands able to consolidate their business in the market.

Moreover, regarding competitiveness, the authority found a small number of competitors in the market—particularly in Brazil—and that competitors have little ability to challenge the market power resulting from the transaction in the sectors of fermented milk, petit suisse, and dairy desserts.

Such difficulty would be reinforced by the extensive combined brand portfolio of Lactalis and DPA and the resulting gains in scale and scope related to marketing, the logistic and distribution capillarity of the companies, and the privileged access to store shelves in the points of sale. In addition, according to a study on competitiveness issued by CADE’s Department of Economic Studies, there is a tendency to price increase in the three markets at issue.

Finally, the Office of the Superintendent-General concluded that there is likely coordinated effects due to the reduction from three to two effective players in the markets with a possible price increase by both competitors to the detriment of consumers.

Regarding the yogurt, cream cheese, and milk production markets, the authority did not identify competition concerns arising from the transaction.

After the case submission for a final decision by the Tribunal, it will be assigned to a commissioner of the collegial body for close analysis and subsequent adjudication of the Tribunal.

Access Case no. 08700.001128/2023-18