Uni-President Enterprises Corporation, Wei Chuan Foods Corporation and Kuang Chuan Dairy Co., Ltd.

Case:

Key Words:

fresh milk, can prevent but does not, simultaneously raise the prices

Reference:

Fair Trade Commission Decision of August 30, 2007 (the 825th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 096140, 096141 and 096142

Industry:

Dairy Products Manufacturing (0850)

Relevant Laws:

Article 24 and 41 of the Fair Trade Law

Summary:

1. This case was originated from newspaper articles published in July 2007 which stated that three large domestic companies of milk products, Uni-President Enterprises Corporation (hereinafter called "Uni-President"), Wei Chuan Corp. (hereinafter called "Wei Chuan") and Kuang Chuan Dairy Co., Ltd. (hereinafter called "Kuang Chuan"), would simultaneously raise sales prices of their fresh milk on August 1, 2007. In order to find out whether the said enterprises involved in jointly raising the prices, manipulating the prices, price-pushing or other matters which were in violation of law, the FTC therefore set up a case file and conducted an ex officio investigation.
2. Findings of FTC after investigation: Currently, the three largest domestic companies of milk products in the fresh milk market are Uni-President, Wei Chuan and Kuang Chuan and the market share of the three enterprises in total is close to 80%. After the "Appraisal Committee for the Sales Price of Milk, National Animal Industry Foundation" (hereinafter called "Appraisal Committee for the Sales Price of Milk") resolved that the purchase prices of milk were raised by NT$ 3 per liter at the meeting on May 23, 2007, the three largest companies believed that the raise of purchase prices of milk resulted in the increase of their purchase costs of milk. Therefore, they simultaneously raised sales prices of fresh milk on August 1 and had notified the down-stream trading counterparts with letters.
3. rounds for Disposition:
   1. After conducting a comprehensive analysis on Article 10 of the Administrative Punishment Law, Articles 1 and 24 of the Fair Trade Law, we found that the enterprises which obviously have the dominant position and have been adequately informed of the Commission's stance on the enforcement of law are obliged, under the Fair Trade Law, to prevent from engaging in "the obviously unfair act sufficient to affect market order." If the enterprises can prevent the raise of sales prices for maintaining competition order and public interests but they do not take any preventive measures, their acts are not different from those are actively in violation of law.
   2. The market share of the three largest enterprises in this case is close to 80% in total and the enterprises possess considerable market power. Furthermore, since 2000, the FTC has held meetings regularly each year to explicitly declare its stance on enforcement of laws as to prohibiting the three largest milk enterprises from simultaneously raise their prices of fresh milk even due to the raise of purchase prices of milk; and to repeatedly urge them to consider their respective operational cost, individual conditions, as well as different channels or promotion schemes to reflect their final sales prices based upon their respective operation plans. Later, the officials in the meeting of the Appraisal Committee for the Sales Price of Milk on May 23, 2007 announced the aforesaid policy on enforcement of law again and thus apparently the companies had been adequately informed of the FTC's stance on enforcement of law. As the three largest companies' "acts of the raise of price" were dangerous, they should be obliged "to prevent the obviously unfair act sufficient to affect market order,"
   3. All the three companies in this case are the committee members of the Appraisal Committee for the Sales Price of Milk. They could not only directly take part in stipulating the procedure regarding the purchase price of milk, they could also control the time and procedure of the announcement and implementation of the purchase reference price of milk. In addition, because they and those enterprises in the same line of the three companies had simultaneously raised sales prices of fresh milk since April 1, 1999, the Commission has held meetings each year to declare to supervise the situation. Since then there have been no acts similar to the act of simultaneously raising sales prices of fresh milk. The latter fact is sufficient to prove that it is possible for the enterprises to prevent the aforesaid August 1 simultaneously raising the prices from happening. However, each of the three largest companies did not take their respective operational conditions into account and reflect them on the sales price. Also, it was obvious that they could prevent the unlawful facts from happening but they did not take any preventive measures.
   4. The three largest milk companies in this case had the dominant positions on the market and had been adequately informed of the Commission's stance on enforcement of law. As consumers were in general feeling disturbed at that point of time, the companies were obliged to prevent unlawful facts from happening, but they did not choose to do so. The incident that the companies raised the prices of fresh milk simultaneously on August 1 was sufficient to affect the trade order of the fresh milk market; what the enterprises had done was to be reproached in terms of the commercial ethics and constituted the obviously unfair acts which harmed public interests. The enterprises did violate Article 24 of the Fair Trade Law. After the FTC considered the relevant factors, the market shares of and anticipated improper profits of the unlawful acts of the enterprises, as well as the degree of the illegal act's harm to trade order, it ordered the enterprises to cease the aforesaid acts immediately and Uni-President, Wei Chuan and Kuang Chuan were imposed with administrative fines of NT$ 4,500,000, NT$ 3,500,000 and NT$ 3,500,000 respectively in accordance with the fore part of Article 41 of the Fair Trade Law.

Appendix:
Uni-President Enterprises Corporation's Uniform Invoice Number: 73251209
Wei Chuan Foods Corporation's Uniform Invoice Number: 11347802
Kuang Chuan Dairy Co., Ltd.'s Uniform Invoice Number: 04313172

Summarized by Chiang, Hui-yi; supervised by Wu, Pi-ju