Fair Trade Commission approves Namyang Dairy's consent decree on 'agency power abuse'... "Implement self-reform measures for 5 years"

Final Decision on 'Consent Decision' Procedure Instead of Sanctions for Unfair Reduction of Dealer Commissions
Strengthening Prior Consultation for Important Transaction Condition Changes, Pilot Introduction of Cooperation Profit Sharing System, etc.

Namyang Dairy Products

[Asia Economy Reporter Moon Chae-seok] The Fair Trade Commission (FTC) has ordered Namyang Dairy Products to implement a self-corrective plan for five years after being accused of unfairly cutting agency commissions. Last November, the FTC suspended sanctions against the company and decided to monitor the implementation of the self-corrective measures, concluding the consent decree procedure and making this final decision.

The FTC announced on the 6th that it finalized the consent decree for Namyang Dairy Products on the 29th of last month. The main points of the consent decree include ▲guaranteeing the right of agencies to form associations ▲mandatory consultation with individual agencies and agency associations before changing important transaction conditions ▲pilot introduction of a voluntary profit-sharing system. Namyang Dairy Products will implement the voluntary corrective measures for the next five years. The consent decree was prepared based on the voluntary corrective plan submitted by Namyang Dairy Products to improve relations with agencies regarding the unilateral reduction of agency commissions.

According to the FTC, around 2013, when Namyang Dairy Products faced a consumer boycott that reduced agency sales, the company raised commission rates by 2.5 percentage points in 2014 to compensate but lowered the commission rates by 2 percentage points on January 1, 2016, without sufficient consultation with the agencies.

The FTC reviewed whether Namyang Dairy Products’ reduction of the entrusted commission fees for 255 agencies transporting and displaying Namyang products at Nonghyup Hanaro Mart constituted an abuse of superior bargaining position, following the "agency volume push-out" power abuse case where the company had previously raised agency commissions. During this process, Namyang Dairy Products applied for a consent decree on July 26 last year, and on November 13 of the same year, the FTC decided to proceed with the consent decree procedure. On January 10, the FTC prepared a provisional consent decree with Namyang Dairy Products, gathered opinions from stakeholders and related ministries for 40 days, and finalized the consent decree on the 29th of last month. No objections were raised by stakeholders or related ministries.

The consent decree includes provisions for Namyang Dairy Products to guarantee the right of agencies to form associations for five years and to strengthen prior consultations with individual agencies and agency associations when changing important transaction conditions. It also includes sharing a portion of operating profits with agencies.

First, Namyang Dairy Products will maintain the Nonghyup entrusted commission rate above the industry average to prevent unilateral commission cuts. To this end, every year, the company will commission a reputable market research or credit rating agency to investigate the commission rates of similar companies at Nonghyup. If the company’s commission rate is below the industry average, Namyang Dairy Products will raise its rate above the average. Additionally, the company will pay an extra 2 percentage points commission for agencies dealing with Hanaro Marts in remote areas and small-scale Hanaro Marts.

Going forward, Namyang Dairy Products and its agencies will sign the "Namyang Dairy Products Agency Win-Win Agreement." Agencies will be free to join and participate in agency associations, and Namyang Dairy Products will not impose disadvantages for joining or participating in such associations. Furthermore, if Namyang Dairy Products intends to change important conditions, it must conduct prior written consultations with individual agencies as well as prior consultations with agency associations. Namyang Dairy Products will pay 2 million KRW monthly as activity expenses to agency associations.

The plan also includes measures to improve agency welfare. Namyang Dairy Products will pilot a voluntary cooperative profit-sharing system, sharing 5% of operating profits generated from Nonghyup entrusted transactions with agencies. Even if business conditions worsen, a minimum of 100 million KRW will be guaranteed as shared profits. Additionally, the company will provide interest-free emergency living funds in case of disability of agency owners, scholarships for their children’s university education, childcare products for children and grandchildren, and establish or expand reward systems for long-operating agencies.

The FTC expects that this consent decree will guarantee agencies the opportunity to express their opinions during commission negotiations. Since prior consultations with individual agencies and agency associations are required when changing important transaction conditions, it is anticipated that a culture of mutual cooperation will be promoted as headquarters and agencies share the goal of profit increase through the profit-sharing system.

Lee Ji-hoon, head of the Manufacturing Industry Monitoring Division at the FTC, said, "This consent decree will swiftly remedy agency damages and improve transaction order. The FTC plans to receive reports from Namyang Dairy Products on the implementation status of each corrective measure every June for the next five years and monitor whether the consent decree is faithfully implemented."

Corrective measures Namyang Dairy Products must adhere to for the next five years. (Data provided by the Korea Fair Trade Commission)