The Commerce Commission said it had cleared Fonterra to acquire the dairy processing assets of New Zealand Dairies, which is in receivership.
NZ Dairies processes raw milk at its Studholme factory near Waimate, in the South Island.
The commission said it was satisfied that the acquisition was not likely to result in a substantial lessening of competition.
Chairman Mark Berry said the commission considered that Fonterra's cooperative structure and the regulatory environment in which it operates, together with its national raw milk pricing strategy, removed any incentive for it to depress the price it pays farmers for raw milk in the South Canterbury and North Otago regions.
Berry said that given that the Studholme factory produces milk products for export rather than domestic consumption, and would likely continue to do so whoever acquired it, the commission has not had to consider downstream markets in New Zealand.
NZ Dairies was placed in receivership in May, owing money to its supplier farmers for the raw milk they supplied in the 2011-12 season. Its factory produces milk powder solely for export markets. Fonterra acquires and processes about 90 per cent of the raw milk produced by New Zealand's dairy farmers.
- APNZBy Jamie Gray Email Jamie