Australia’s competition watchdog is concerned about a forest plantation manager’s proposed acquisition and how it might affect softwood log supply pricing and service levels.
The Australian Competition & Consumer Commission (ACCC) has outlined preliminary concerns with Forestry Corporation of New South Wales’ (FCNSW) proposed acquisition of the assets of Hume Forests Ltd (Hume) in a statement of issues.
Hume is being sold in a competitive bid process.
FCNSW is a state-owned corporation that manages commercial native and plantation forests on behalf of the NSW Government.
Market feedback, according to ACCC, indicates that FCNSW accounts for over 60 per cent of the plantation area in the Tumut/Tumbarumba region and over 75 per cent of the plantation area in the Bathurst/Oberon region, and consequently is the dominant softwood log supplier in the regions.
Hume owns softwood plantation estates in the Tumut/Tumbarumba and Bathurst/Oberon regions of NSW.
Hume is the only alternative supplier of significant size in the Bathurst/Oberon region and one of the few alternatives of significant size in the Tumut/Tumbarumba region.
“We are concerned that this acquisition is likely to lead to price increases or reductions in service levels for the supply of softwood logs in the Tumut/Tumbarumba and Bathurst/Oberon regions by removing a significant competitor to FCNSW,” said ACCC Deputy Chair, Mick Keogh.
“Barriers to entry and expansion are very high in the forestry industry. Market shares reflect access to land in these regions and that is unlikely to significantly change in the long term.
“Given the nature of the industry, we are considering competition issues with a long-term time horizon of 25 years or more.
“This industry is characterised by long-term contracts and infrequent tenders by plantation owners. In this context, we are carefully considering the extent to which FCNSW and Hume are likely to competitively constrain one another.”
The ACCC is considering the claims by FCNSW that it will be constrained from exerting market power post acquisition due to its status as a state-owned corporation, existing long-term contracts, the constraint from downstream imports, and customer buying power. The ACCC is exploring these issues, taking into account the potential for FCNSW to be privatised in the future.
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