Kuang-Chuan violated the Fair Trade Law by using improper restriction
on the business activities of its trading counterparts as the condition
to trade with it in the raw milk purchase contracts
raw milk, raw milk purchase contract, purchasing price, dairy farmer,
dairy product factory
Fair Trade Commission Decision of December 23, 2004 (the 685th Commissioners'
Meeting); Disposition (93) Kung Ch'u Tzu No. 093132
| 1. |
The case originated from a complaint filed by a dairy farmer stating
that in the 2003 raw milk purchase contract entered into by Kuang-Chuan
and its contracting dairy farmers, Kuang-Chuan restrained the dairy farmer
from self-processing, selling or delivering the raw milk produced by the
dairy farmer to the third party who is not subordinate to Kuang-Chuan without
authorization. Additionally, with regard to the raw milk produced that
exceeds the quota in winter, Kuang-Chuan also restrained the dairy farmer
from delivering the milk to another Kuang-Chuan's contracted dairy farmer,
self-processing, entrusting others to process the raw milk, or creating
a new brand to produce and sell dairy products with the same nature as
the products of Kuang-Chuan. The aforementioned conducts might violate
the Fair Trade Law. |
| 2. |
Upon the investigation, the Fair Trade Commission (FTC) found that:
| (1) |
According to relevant statistical data regarding the purchase volume
of raw milk by major dairy product factories, in 2002, Kuang-Chuan was
the number one on the chart with 29.65%, while Wei-Chuan Foods Corp. was
the second with a percentage of 29.18% followed by Uni-President Enterprises
Corp. with a percentage of 21.47%. In 2003, Wei-Chuan Foods Corp. took
the first place with a percentage of 31.13, while Kuang-Chuan took the
second place with a percentage of 28.58 followed by Uni-President Enterprises
Corp. with a percentage of 22.55. Obviously, Kuang-Chuan has a respectable
market position on the raw milk purchase market. |
| (2) |
All of the dairy farmers cooperating with Kuang-Chuan must sign the
raw milk purchase contracts with Kuang-Chuan. Except that the purchase
volume of raw milk might vary based on each dairy farmer's scale, the rest
of the content remains the same. |
| (3) |
According to the three 2003 and 2004 raw milk purchase contracts of
present major companies on the dairy product market provided by the council
of agriculture, only Kuang-Chuan's contract has limitations on the excess
milk produced by dairy farmers, restraining dairy farmers from self processing,
selling or delivering the raw milk to the third party not subordinate to
Kuang-Chuan, while the other two dairy product companies have no such a
limitation. |
|
| 3. |
Grounds for the disposition:
| (1) |
Kuang-Chuan claimed that the aforesaid limitation was to avoid the
situation where a dairy farmer might process raw milk and sell dairy products
without legally obtaining the qualification to operate dairy product factories
in violation of the relevant regulations governing food sanitation management.
If such a dairy farmer moreover declared that the origin of its raw milk
is the same as Kuang-Chuan while failing to comply with the relevant regulations
governing food sanitation management, it would indirectly affect Kuang-Chuan's
reputation. Furthermore, the reason Kuang-Chuan restrained the dairy farmers
from delivering raw milk to the third party was to avoid the situation
where the dairy farmers might sign contracts with more than two dairy product
factories and might fail to provide enough quantity of milk to Kuang-Chuan
when the demand of raw milk goes up in summer and then affect Kuang-Chuan's
business operation. However, in the FTC's opinion, whether the dairy farmers
legally obtain the qualifications to operate dairy product factories to
process raw milk and sell dairy products of their own brands is an issue
of whether the dairy farmers violate the relevant regulations governing
food sanitation management. Kuang-Chuan has no relation with such an issue.
Moreover, in the raw milk purchase contracts concluded between Kuang-Chuan
and the dairy farmers, the monthly volume of raw milk to be delivered by
each dairy farmer has already been stipulated. If any dairy farmer fails
to deliver the quantity as agreed in the contracts, the dairy farmer shall
be held liable for default. However, if the dairy farmers have performed
their duties as agreed in the contracts, they shall have the autonomy of
making profits from the excess raw milk. Therefore, the restraint of the
aforesaid unfair trading term is sufficient to affect the dairy farmers'freedom
of business operation. |
| (2) |
Kuang-Chuan claimed that the reason it set limitations on the production
and sales of the excess raw milk in winter was to solve the purchase problem
caused by the overproduction of raw milk in recent years. However, in the
FTC's opinion, the excess milk shall belong to the dairy farmers, and therefore,
the dairy farmers may choose to trade with Kuang-Chuan or other enterprises
on the market that offer better deals to increase profits or decrease the
loss caused by the overproduction in winter. Therefore, the restraint of
the aforesaid term is sufficient to inhibit the market competition, and
is an improper restriction on the business activities of its trading counterparts. |
| (3) |
After considering the motivation and purpose of the conduct in issue,
market position, the degree of the conduct's harm to trading order, and
its statement showing that it will revise the method for handling excess
raw milk in the next year's contracts, the FTC, in accordance with the
fore part of Article 41 of the Fair Trade Law, ordered the Kuang-Chuan
to immediately cease all aforementioned unlawful practices and imposed
an administrative fine of NT 750,000. |
|