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The CC Clears Purchase of SIA Rīgas piensaimnieks



On 25 September, the Competition Council (CC) of Latvia cleared Meridian Capital CIS Fund purchase of SIA Rīgas piensaimnieks. In the decision, the competition authority foresees that such merger will not to distort competition and will develop export capacity and increase the purchase of raw milk in Latvia.

Merger Participants

Holding company Meridian Capital CIS Fund registered in Cayman Islands thought holding company Shiner Macost Limited registered in Cyprus exercises decisive influence in undertakings of Rīgas piena kombināts group. The group includes following undertakings – AS Rīgas piena kombināts, AS Valmieras piens and AS Premia FFL –, as well as milk processing undertakings of Latvian neighbouring countries – Nordic Foods Holding AS (Estonia), AB Premia KP (Lithuania), and Premia Tallina Külmhoone (Estonia).

SIA Rīgas piensaimnieks is owned by DCEMF Holdings Ltd – a company registered in Cayman Islands.

Group undertakings of Rīgas piena kombināts in Latvia market goods of following brands: Limbažu piens, Rasa, Rasēns, Valmiera, Lakto, Mana Saime, Ekselence, Pols, Nu fruits, Tio. SIA Rīgas piensaimnieks markets goods of following brands: Kārums,  Dzintars, and Jungle Pop.

Purchase of Raw Milk from Latvian Producers

Due to the merger, the combined market share of both dairies in the market of purchase of raw milk will increase insignificantly – by less than for 5% –, therefore the competition will not be substantially reduced. If the merged undertaking increase the rate of production, the purchase of raw milk will be increased fostering the growth of dairy farming in Latvia.

Wholesale of Dairy Products to Stores

The CC assessed the impact of the merger to the wholesale market, in which the merging parties market milk, kefir (as well as buttermilk and similar products), yoghurt, processed cheese, soft cheese, sour and sweet cream, butter and margarine, ice cream and frozen juice.

The CC stated that the merger is not a threat to the competition – increase of the market share is insignificant, there are many competitors in Latvia and its neighbouring countries, for retailers it is easy to replace one producer with another, consumers are not loyal to any particular producer or even country. Furthermore, there are other market forces prohibiting the merged undertaking to operate independently from suppliers, competitors and clients.

Relatively small market share of SIA Rīgas piensaimnieks, the competition in the Baltic countries and easy substitutability of goods will not allow the merging parties to abuse the so-called portfolio effect when stores choose a particular producer because of its products of wide range and popularity.

Furthermore, the CC took into a consideration the focus on the export of the merging undertakings – during the previous four years assortment has been gradually adapted to the offer for foreign markets.

Trends of the Dairy Industry

Information acquired during the market research allows for the CC to state that the industry of milk processing in Latvia remains fragmented – there are many undertakings with underloaded capacity, which in a long-term is a threat to the competitiveness of Latvian entrepreneurs in the Baltic region.

Furthermore, fragmentation of raw milk producers is not sustainable. Smaller producers cannot be protected from the need to increase capacity and efficiency if they are willing to compete with larger producers within the procurement market. Remaining alternative to the cooperation with larger producers is to operate in segments of specific niche, for example, home production of traditional products or direct sales.

Unfair Retail Practice Prohibition Law

Considering offer and volume of the newly merged market participant, the CC evaluated risks, whether the undertaking is able to restrict other competitors’ product sales in retail. In this it has to be noted that starting from 1 January, 2016, a new law – Unfair Retail Practice Prohibition Law – in Latvia will enter into the force. According to the law, in the relations between producer and supplier it is prohibited to directly or indirectly pay for location of goods into the store, including the shelf fee.