37 Wheat Import Enterprises

1245th Commissioners’ Meeting (2015)

Case:

37 enterprises applied for approval to extend the concerted action regarding joint wheat purchases and shipment

Keyword(s):

Wheat, joint purchase, joint shipment, exceptional approval

Reference:

Fair Trade Commission Decision of September 16, 2015 (the 1245th Commissioners’ Meeting), Letter Kung Zhi Tzu No. 1041360518

Industry:

Manufacture of Grain Mill Products (0862)

Relevant Law(s):

Articles 15 and 16 of the Fair Trade Law

Summary:

1. The FTC had previously given approval to the “joint wheat purchases and shipment” concerted action via Decision Kung Lian Tzu No. 101007 dated September 12, 2012 to extend the permission period to September 30, 2015. As the said extension was about to expire, the applicants acted according to Article 16(2) of the Fair Trade Law and applied to the FTC in June 2015 for another extension of the concerted action period.

2. Findings of the FTC after investigation:

   All the wheat that domestic businesses use has to be imported from other countries. Since wheat is imported in large bulk quantities, the purchasing amount and size of shipment will make a difference to the purchasing costs. “Joint wheat purchases and shipment” could increase purchased amounts and enable domestic importers to ask for better prices from grain businesses overseas as well as lower fares from shipping companies. At the same time, it also allowed the said importers to bring in large quantities of wheat and control shipping schedules to provide steady supply. In subsequence, down stream businesses would also be able to obtain the flour they need at stable prices from steady supplies.

3. Grounds for disposition:

   (1)

   Each year, more than 900,000 metric tons of wheat was imported through “joint wheat purchases and shipment.” Every year the Taiwan Fermenting Food Industry Association need about 15,000 to 17,000 metric tons in total to produce soy sauce while the local distilleries consume more than 3,000 metric tons and the remaining amount was used to make flour. Therefore, the “joint wheat purchases and shipment” was mainly to serve the flour market. There were 22 flour mills domestically. Their products were highly homogeneous and their import costs were similar. Since price was the only consideration for consumers when they purchase flour, price competition could only cause gradual fluctuations in flour prices. Wheat import costs and profit rates of flour businesses had an inverse relation.

   (2)

   “Joint wheat purchases and shipment” could add up purchase amount, reduce wheat purchasing prices and shipment costs, and thus enhance trading effectiveness. At the same time, intensive and steady shipping schedules could be maintained (at least one ship per month) under this arrangement. This allowed wheat importers to register and purchase wheat regardless of the prices and split the import costs to prevent drastic fluctuations in wheat prices. Price competition in the flour market was fierce. Furthermore, as the wheat cost accounted for over 80% of total production cost for flour, flour businesses had the incentive to reflect the wheat cost they saved on their flour prices and the economic benefit could also reach midstream and downstream buyers and consumers. For this reason, the concerted action was deemed able to benefit the overall economy and public interest. Therefore, citing Article 15(1)(v)(vi) and Article 16(2) of the Fair Trade Law, the FTC extended its approval for the concerted action for another five years. However, to eliminate the potential risk of competition restrictions associated with the extension and to facilitate necessary supervision, the FTC also acted according to Article 16(1) of the Fair Trade Law and attached conditions and undertakings to the approval.