* Australian regulator says deal would reduce competition
* Murray Goulburn has said deal to dictate future
* Saputo may have to cave out dairy plant - analysts (Recasts, adds details, quote from analyst)
By Colin Packham
SYDNEY, March 1 (Reuters) - Australia's competitionregulator has raised concerns about a planned $1.0 billiontakeover of Murray Goulburn Co-operative MGC.AX by Canada'sSaputo Inc SAP.TO , threatening a deal Australia's largestdairy processor says is key to its survival.
Canada's biggest cheesemaker Saputo last year agreed to payup to A$490 million for debt-ridden Murray Goulburn following afailed expansion in China, in a deal valued at about A$1.3billion ($1.0 billion) including debt. Australian Competition and Consumer Commission (ACCC)said on Thursday the takeover could lead some dairy farmers inthe state of Victoria, the country's largest milk producingregion, with little choice when selling their milk.
"We are concerned this transaction would ultimately lead tolower prices being paid to dairy farmers in the region," saidRod Sims, chairman of the ACCC, in a statement.
Analysts said it was not yet clear whether the ACCC'sobjection, which related to a single dairy plant, the Koroitplant in western Victoria, would scupper the deal.
"It is one plant out of eight owned by Murray Goulburn soyou would expect they will amend the deal, but it's an importantregion for Australian milk production and no doubt attractive toSaputo," said Belinda Moore, equity analyst at RBS (LON:RBS) Morgans.
The region in western Victoria accounts for about a fifth ofAustralia's national milk production, according to data fromindustry body, Dairy Australia.
Murray Goulburn shares fell more than 5 percent, but partlyrecovered to be down 1.8 percent at A$0.83, well below theirA$2.10 listing price in 2015.
Saputo, which entered Australia three years ago by acquiringa local producer, said it would await the ACCC's final decision,due by March 29.
The Canadian firm would process nearly half of Australia'smilk output under the current deal, Dairy Australia data showed.
Murray Goulburn was left reeling in 2016 after aggressiveplans to sell high-margin products such as infant formula inChina led it to overpay for source milk, while sales fell farbelow expectations.
The processor's financial difficulties forced it to cut theprice it pays farmers for milk, leading many to sell elsewhere.Milk intake fell 30 percent in the half-year to end-December,the company said last month.
"Further losses of milk flow may trigger an impairment toMurray Goulburn's assets that could breach banking covenants andresult in potential withdrawal of creditors' support," it warnedin its half-year results.
Other suitors for Murray Goulburn had included Australia'sBega Cheese Ltd BGA.AX , Italy's Parmalat PLT.MI and China'sInner Mongolia Yili Industrial Group Co Ltd 600887.SS .
($1 = 1.2883 Australian dollars)