Competition Bureau statement regarding La Coop fédérée’s proposed acquisition of Cargill Limited’s grain and retail crop inputs businesses in Ontario

Introduction

On November 13, 2018, the Commissioner of Competition (the Commissioner) entered into a consent agreement with La Coop fédérée (LCF) and Cargill Limited (Cargill) related to LCF's proposed acquisition of Cargill's Ontario grain business, retail crop inputs business and 50% equity interest in South West Ag Partners, Incorporated. The consent agreement is necessary to remedy the likely substantial lessening of competition that would have resulted from the proposed transaction with respect to the retailing of crop inputs in certain areas of Ontario.

In carrying out its investigation the Bureau consulted extensively with, and obtained information from, a wide range of stakeholders including growers, grower organizations, competitors and suppliers. It also relied heavily on the analysis of documents and data obtained from the parties and stakeholders.

The Parties and the Proposed Transaction

LCF is a large Quebec-based agri-food enterprise with revenues of $6.3 billion and is owned by 120,000 members, producers and consumers divided among 70 cooperatives throughout Canada. Its agri-business division provides growers with goods and services to support both crop and animal production operations.

In Ontario, LCF's agri-business division operates primarily through a wholly owned subsidiary called the Agronomy Company of Canada which sells crop inputs (including fertilizers, seeds and crop protection products such as herbicides, fungicides, and pesticides) to crop input retailers in which it owns a 50% interest (the Agromart JVs). There are 16 Agromart JVs in Ontario. LCF, either directly or through related entities, also has grain handling operations in Ontario. Grain handling involves one or more of the purchasing, receiving, processing, storing, marketing and selling of row crops (e.g. wheat, soybeans, corn).

Cargill is the principal Canadian entity within the Cargill Group. It is the holding company for various subsidiaries involved in the agricultural, food, beef, poultry, animal nutrition, manufacturing, financial and risk management industries. Cargill's holdings in Ontario include a 50% equity interest in a joint venture with Kent Holding Company Inc., called South West Ag Partners, Inc. (SWAG), which operates a grain handling and crop input retail business in southwestern Ontario.    

 On March 22, 2018, LCF announced that it had signed an agreement to purchase the Ontario grain and crop input assets of Cargill, including Cargill's interest in SWAG. These assets include 12 Cargill crop input retail locations, four of which are co-located with grain handling sites, in addition to one standalone grain handling site. The assets also include Cargill's 50% interest in five SWAG crop input retail sites, two of which are co-located with grain handling sites, in addition to another four standalone grain handling sites. The proposed transaction is expected to close in November 2018.

Competitive Effects Analysis

Early in its investigation the Bureau was able to conclude that the proposed transaction was unlikely to result in a substantial lessening of competition with respect to grain handling due to LCF's limited pre-existing grain handling infrastructure in Ontario and the existence of effective remaining competition from well-established grain handling entities. The primary focus of the Bureau's review was therefore on determining whether the loss of rivalry between the Agromart JVs and Cargill's crop input retail sites would likely result in a substantial lessening of competition with respect to crop input retailing in specific areas of Ontario.  

The three major row crops cultivated in Ontario are grain corn, soybeans, and winter wheat. There is also significant specialty crop production including apples, potatoes, onions, peppers, tomatoes, grapes, tobacco and ginseng which often require significant volumes of fertilizer and specialized crop protection products. As a result there are meaningful differences in both the types and volumes of crop inputs used in Ontario vis-à-vis the Western Canadian prairies where the primary crops are canola and spring wheat. Consequently, the Bureau's analysis took into account the particular mix of products used by growers in Ontario in addition to the high level of service typically provided by crop input retailers in the province.

Based on its analysis the Bureau concluded that the proposed transaction would likely substantially lessen competition in the retailing of crop inputs, and specifically fertilizers and crop protection products, within certain local areas of southwestern and central Ontario.   

In determining the relevant geographic areas for evaluating the likely competitive effects of the proposed transaction the Bureau was able to supplement extensive information from market participants and the parties' own strategic documents with a rich set of data that allowed for the empirical implementation of the hypothetical monopolist test. The boundaries of each local geographic market therefore reflected the particular characteristics of the market as opposed to a mechanical reliance on a particular distance or drive time.

However, the Bureau notes that relative to agricultural production on the Western Canadian prairies agricultural production in Ontario tends to be conducted on a smaller scale. As a result, the ability for growers to store large quantities of crop inputs on-farm is much more limited. This scarcity of on-farm storage creates a "just-in-time" demand for crop inputs and crop input application services that limit the arena within which significant substitution occurs. As a result, the Bureau found that the relevant geographic markets for crop inputs retailing in this matter tended to be narrower than those it has investigated on previous matters in Western Canada.  

Within each of the areas at issue, the Bureau's competitive effects analysis revealed that:

  • The parties' combined market shares were high;
  • The parties were close rivals; 
  • The proposed transaction would likely result in the closure of one or more of the parties' sites, thereby eliminating choice from the marketplace; and
  • New entry would be unlikely due to the high costs of entry relative to anticipated long-term profitability.

The Bureau found the parties' own documents to be highly probative in understanding the likely competitive effects of the proposed transaction. Furthermore, their documents were also very useful in framing the Bureau's empirical analyses. Both pricing pressure and merger simulation analyses were employed to quantify the likely harms to growers resulting from the loss of price competition between the parties and the loss of choice resulting from anticipated site closures.

Remedy

In response to the Commissioner's finding that the proposed transaction would likely result in a substantial lessening of competition in certain local areas in Ontario, LCF has agreed to divest Cargill's retail locations in Alliston, Harrow, Tilbury, and Waterford to a purchaser acceptable to the Commissioner.

The Commissioner is satisfied that this consent agreement addresses the competitive issues arising from the proposed transaction.

This publication is not a legal document. The Bureau’s findings, as reflected in this Position Statement, are not findings of fact or law that have been tested before a tribunal or court. Further, the contents of this Position Statement do not indicate findings of unlawful conduct by any party.

However, in an effort to further enhance its communication and transparency with stakeholders, the Bureau may publicly communicate the results of certain investigations, inquiries and merger reviews by way of a Position Statement. In the case of a merger review, Position Statements briefly describe the Bureau's analysis of a particular proposed transaction and summarize its main findings. The Bureau also publishes Position Statements summarizing the results of certain investigations, inquiries and reviews conducted under the Competition Act. Readers should exercise caution in interpreting the Bureau’s assessment. Enforcement decisions are made on a case‑by‑case basis and the conclusions discussed in the Position Statement are specific to the present matter and are not binding on the Commissioner of Competition.


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