Wheat Prices Fell 15% but Flour Rose 20%: "Collusion Harms, Consumer Compensation System Needed"

Korea Consumer Organizations Council Issues Statement
Collusion Repeated in Essential Daily Commodity Markets
Consumers, the Real Victims, Still Left Unprotected Despite Fines
Call for Assessment and Disclosure of Consumer Damages in Collusion Cases
Direct Compensation and Remedies for Consumers Needed

While the Korea Fair Trade Commission (KFTC) has imposed fines amounting to hundreds of billions of won on manufacturers of sugar, flour, starch, and starch syrup for engaging in collusive practices, consumer groups have argued that such measures are not directly linked to restoring the rights and interests of consumers who actually suffered damages. They claim that institutional improvements are necessary.

According to the relevant industry on the 16th, the Korea Consumer Organizations Council recently issued a statement pointing out, "Although the KFTC discloses related sales and the size of fines imposed for collusion, it neither calculates nor announces the amount of unjust profits gained by companies or the scale of economic damage suffered by consumers." Earlier in March, the KFTC raised the minimum fine for less severe violations involving collusion from 0.5% to 10.0% through its revised 'Guidelines on the Details of the Imposition of Fines'. For very serious collusion cases, the minimum is set at 18.0%, which means if caught, companies may have to pay a fine approaching the legal maximum of 20.0%.

However, the Council raised doubts about whether fines and criminal penalties alone can effectively deter collusion behavior, citing the fact that sugar and flour manufacturers were penalized for collusion 20 years ago and were found doing the same again this year. They argued that it is difficult to objectively evaluate whether the current fines exceed the economic gains from collusion or serve as a sufficient deterrent.

This year, the KFTC imposed fines of 408.3 billion won on three sugar manufacturers, 671 billion won on seven flour manufacturers, and 747.6 billion won on four starch and starch syrup manufacturers for past collusive conduct.

In this regard, the Council stated, "It is the consumers who are the most direct and substantial victims of such collusion," highlighting the fact that consumer prices for sugar, flour, and other key raw materials rose beyond the decline or stabilization of the cost of those ingredients. Based on its analysis of Korea International Trade Association data, the Council found that as of the fourth quarter of last year, the price of wheat (the main ingredient for flour) had fallen by 15.2% compared to the first quarter of 2022, but the price of flour had increased by 20.3% during the same period. Similarly, the price of raw sugar (the main ingredient for sugar) rose by 7.8%, while sugar prices soared by 37% over the same timeframe.

The Council pointed out, "The government implemented policies such as expanded quota tariffs and tariff reductions to ease companies' cost burdens. These steps were intended to help stabilize prices and consumer costs. However, due to these companies' collusive behavior, it is questionable whether such policies have translated into meaningful price stabilization."

They further noted that, unlike places such as the United States and Europe where victims of competition law violations may claim damages, in Korea, although consumers can theoretically file claims for damages, there is a heavy burden on the consumer to prove direct harm caused by collusion. Additionally, collective redress systems are limited, so cases that lead to actual consumer compensation are rare.

According to the Council, "Rather than merely strengthening administrative sanctions, it is necessary to objectively assess the scale of consumer harm and social costs arising from collusion, and to introduce improvements such as establishing relief funds or a class action system, so that consumers can effectively exercise their rights."

This content was produced with the assistance of AI translation services.