[Seoul Milk Power Abuse]②Did It Pressure Suppliers for a 'Uniform Price Increase'? Referred to the Fair Trade Commission

"Accept Only 4.9%"... Uniform Price Increase Rate Applied
Key Issues: Whether Manufacturing Was Commissioned and Uniform Price Increase

Seoul Dairy Cooperative, the leading domestic dairy company with annual sales of around 2 trillion won, has come under investigation by the Fair Trade Commission over allegations that it effectively forced identical price increase rates on its milk carton suppliers.

According to official documents from Seoul Dairy suppliers obtained by this publication on September 8, four milk carton suppliers-Korea Package, SIG Packaging Korea, Samryung Corporation, and Samyoung-requested a 15-20% increase in supply prices to Seoul Dairy in April 2022, citing a sharp rise in costs. However, Seoul Dairy reportedly pressured Samyoung, a latecomer to the market, to accept only a 4.9% increase and then demanded that the same rate be applied to the other suppliers as well, according to Samyoung's claims. At the time, Seoul Dairy was negotiating to acquire Samyoung's carton pack division.

"Accept Only 4.9%"... Uniform Application of Increase Rate

The complaint Samyoung submitted to the Fair Trade Commission details the negotiation process. On May 16, Seoul Dairy's purchasing team called in representatives from the four companies to a cafe near headquarters for private negotiations, and on May 19, held a bid for the revised contract.

During this process, Seoul Dairy allegedly told Samyoung's representative separately, "Even if other companies request a 17-18% increase, Samyoung will soon become part of Seoul Dairy, so don't bother joining them," and added, "There is the acquisition issue as well, so nothing good will come of it." The complaint also notes that Seoul Dairy stated, "We originally considered a 5% increase, but set it at 4.9%," and, "The bid is just a formality; if it fails, we will eventually settle at 4.9%."

The revised contract signed in May specified the exact unit prices: the price for 200ml cartons rose from 25.1 won to 26.3 won, a 4.8% increase; 500ml from 44.3 won to 46.5 won, a 4.9% increase; and 1,000ml from 71.7 won to 75.2 won, a 4.8% increase. Compared to other dairy companies, which agreed to 5-10% increases with their partners during the same period, Seoul Dairy's rate was lower.

Samyoung argued, "Even though milk carton suppliers directly requested a 15-20% increase based on factors such as higher raw material costs, Seoul Dairy forced a uniform 4.9% increase on all suppliers, including the complainant," pointing to a violation of Article 4 of the Subcontracting Act (prohibition of unfair determination of subcontract payments). The law prohibits determining subcontract payments by uniformly raising or lowering prices without just cause. Samyoung calculated the damages from the price difference at approximately 1.38 billion won over one year and attached this figure to the complaint.

Key Issues: Whether Subcontracting Applies, and Uniform Increase

The central issue in this case is whether the Subcontracting Act applies. The law prohibits unfair practices by major contractors, such as large corporations, when entrusting manufacturing, repair, construction, or services to small or medium-sized suppliers. 'Entrusted manufacturing' is defined as cases where the main contractor provides raw materials or blueprints, or specifies requirements for manufacturing or processing products.

Samyoung claims the supplied milk cartons were not generic products but "custom packaging (OEM) printed with the Seoul Dairy logo and design," arguing, "Seoul Dairy specified the requirements, design, and printing details, and we manufactured and supplied accordingly." In fact, the supplied products were printed with both the 'Seoul Dairy' logo and 'Samyoung Crown Pack.' In contrast, Seoul Dairy reportedly denied the application of the Subcontracting Act, stating, "Milk cartons are standardized products according to international specifications, and we did not entrust any separate design or technology." The key legal question is whether specifications, printing, and design designated by the contractor for a standardized product can be considered actual manufacturing instructions.

The second issue is whether the 'uniform application' of the increase rate was justified. The Subcontracting Act prohibits the main contractor from unilaterally determining payments or restricting competition without just cause. If Seoul Dairy effectively forced the same increase rate on multiple partners without considering their individual cost structures, it could be problematic. On the other hand, some argue that if the decision was rational, considering the standardized nature of the products and the high proportion of raw material costs, it would be difficult to deem it illegal.

Samyoung claims, "Even though each company has a different cost structure, Seoul Dairy forced a 4.9% uniform increase on all partners." Conversely, Seoul Dairy maintains, "These are standardized items with a high proportion of raw material costs, so there is no need for differentiation." Whether either side is closer to having 'just cause' will be determined by the Fair Trade Commission.

Milk cartons are a key packaging material in the dairy supply chain. Even a 5% increase in rates, when combined with raw milk prices, logistics costs, and retail margins, can impact consumer prices. Above all, fairness in the price-setting process is directly linked to the survival of small partners. Some point out that when volume allocation is tied to supply prices, it can become a means of pressuring the survival of small suppliers.

Seoul Dairy stated, "Samyoung has filed a complaint with the Fair Trade Commission alleging a violation of the Subcontracting Act by the cooperative, and the case has been referred to the mediation process. While it is true that the applicability of the Subcontracting Act is at issue, as the case is currently under mediation by the Fair Trade Mediation Agency, we believe it is inappropriate to comment further at this time."