KFTC Examination Report Includes Opinion for "Price Readjustment Order"
Some Milling and Sugar Companies Voluntarily "Cut Prices"
Uncertain Whether Final Consumer Food Prices Will Fall
The Korea Fair Trade Commission (KFTC) has decided at its full committee meeting to deliberate on allegations that seven milling companies, including CJ CheilJedang and Daehan Flour Mills, repeatedly colluded to fix flour sales prices and allocate sales volumes in business-to-business (B2B) transactions in Korea from November 2019 to October last year. Attention is focusing on whether an order for price readjustment will be issued.
According to the food industry on the 21st, the seven milling companies - Daesun Flour Mills, Daehan Flour Mills, Sajo DongAOne, Samyang, Samhwa Flour Mills, CJ CheilJedang, and Hanhtop - account for 88% of the B2B flour market share. The KFTC estimates that the related sales affected by their collusive conduct amount to approximately 5.8 trillion won.
The KFTC’s examination report includes the view that their collusion constitutes a serious violation of the law, warranting corrective orders and the imposition of surcharges. It also contains an opinion that a “price readjustment order” should be issued, under which each milling company would voluntarily reset its prices.
Previously, in 2006, the KFTC imposed a total of 43.5 billion won in surcharges on eight milling companies, stating that they had violated the Fair Trade Act by jointly restricting flour production and sales volumes or colluding to raise sales prices, and issued corrective orders that included a price readjustment order. Some companies filed lawsuits challenging the surcharges and corrective orders but lost.
Recently, milling companies have preemptively lowered sugar and flour prices. CJ CheilJedang first cut prices of sugar and flour for business use by an average of 6% and 4%, respectively, and then reduced the ex-factory prices of all consumer sugar and flour products. The targeted items are 15 consumer sugar products, including Baeksul White Sugar and Baeksul Brown Sugar, with reductions of up to 6% (an average of 5%). Sixteen consumer flour products, including Baeksul Glutinous Flour and Baeksul first-grade cake flour, all-purpose flour, and bread flour, were also reduced in price by up to 6% (an average of 5.5%).
Daehan Flour Mills also cut the ex-factory prices of some products by an average of 4.6% from this month. The price reductions mainly apply to 20 kg bulk products supplied to restaurant businesses, such as Gompyogogeupjemyeonyong (Australian wheat), Gom (first-grade all-purpose flour), and Kokkiri (first-grade bread flour), as well as 3 kg, 2.5 kg, and 1 kg small-pack products supplied to retailers.
If the KFTC issues a price readjustment order, there is interest in whether food companies that raised prices due to higher raw material costs will lower consumer prices for products such as instant noodles. However, since product price increases are driven not only by raw material costs but also by various other expenses such as logistics and labor costs, it remains uncertain whether this will actually lead to lower final consumer prices.
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