Antitrust watchdog blocks URC’s acquisition of Batangas sugar mill

The Philippine Competition Commission (PCC) has decided to block food giant Universal Robina Corp.’s (URC) acquisition of Roxas Holdings Inc.’s sugar mill, Central Azucarera Don Pedro Inc., in Batangas.

URC’s buyout of its only competitor in the sugarcane milling services market leads to a monopoly in Southern Luzon, the PCC said Thursday, citing its decision on Tuesday, February 12.

The commission earlier raised concerns about URC’s proposed acquisition of the milling and refining assets of Roxas Holdings’ wholly-owned subsidiary Central Azucarera Don Pedro in Batangas.

This prompted the parties involved to voluntarily submit commitments, which include higher sugar recovery rates for 10 years after the acquisition is completed.

The food conglomerate also committed to help farmers with fertilizer, cash loans, and mechanical harvester, and raise their share of raw sugar from the mill.

The PCC, however, found the voluntary commitments do not sufficiently address its concerns. 

The PCC decision took into consideration how farmers are really on the losing end should this transaction push through, according to Luzon Federation of Sugarcane Growers Association (LuzonFed).

“We are thankful that the PCC considered the concerns raised by our farmers. The Competition Act is a living and breathing law as shown by the PCC,” LuzonFed corporate secretary Rene Atienza told GMA News Online.

“Monopolies in guise and any form, if it impacts directly the welfare of the marginalized, should be curtailed if not totally prohibited,” Atienza said.

“The prohibition prevents this deal from creating a monopoly in the relevant market that could harm the welfare of the sugar cane planters,” PCC Chairman Arsenio Balisacan said in a statement on Thursday.

“It is the duty of the commission to prevent the creation of monopolies when applying the merger control powers conferred on it by the Philippine Competition Act,” Balisacan said.

In a separate statement, URC said it accepts the PCC decision and affirms its commitment and support to government efforts for a strong market economy.

The antitrust watcher’s decision does not materially affect the business plans of URC, which is a leading food and beverage company in the country, the food maker said.

The antitrust body noted URC’s sugar mill is in Balayan while Central Azucarera’s milling facilities are in Nasugbu, both in the same province.

Both mill operations are in Batangas, but the monopoly to be created by the merger will substantially lessen competition in the sugar milling services market not only in Batangas, but also in Cavite, Laguna, and Quezon, according to the PCC.

It noted that while the transaction mainly affects sugarcane farmers in Southern Luzon, the sugar processed from these facilities serve nationwide demand, including Metro Manila.

The commission’s market investigation earlier found that farmers stand to lose the benefits of competition due to the merger, especially in terms of planters’ cut in sharing agreements, sugar recovery rates, and incentives.

The PCC’s Mergers and Acquisitions Office raised the following competition concerns regarding the transaction:

• a merger-to-monopoly that will eliminate URC’s only competitor in the relevant market

• to create market power for URC and allow it to unilaterally reduce planters’ share in planter-miller sharing agreement, theoretical recovery rates quoted to planters, and incentives provided to planters

• other sugar mills outside of Batangas are too far (Pampanga, Tarlac, Camarines Sur), thus not sufficient to constrain URC from exercising market power

• barriers to entry are high and possibility of new entrant seems remote and, if at all possible, may not be immediately forthcoming as to constrain URC from exercising market power after the transaction

URC is in the business of a wide-range of food-related businesses, including the production of packed foods and beverages, sugar, agro-industrial products, and bioethanol.

The Gokongwei-led food manufacturer also owns and operates sugar mills in Iloilo, Negros Oriental, Negros Occidental, and Cagayan. The mills produce raw sugar, refined sugar, and molasses and supply other URC business segments and third parties.

Roxas Holdings owns 100 percent of Central Azucarera, which operates an integrated sugar cane milling and refining plant in Batangas. It is also engaged in trading raw and refined sugar and molasses.

“A merger-to-monopoly deal is among the most detrimental types of business transactions. The URC takeover removes its only competitor, erodes the benefits of competition for sugarcane planters, and leaves market power in the hands of a single provider in an area,” Balisacan said.  —VDS, GMA News