The Fair Trade Commission and the National Tax Service are tightening oversight of distributors and food companies to stabilize prices. President Lee Jae-myung presided over a Cabinet meeting at the presidential office in Yongsan, Seoul, on Sept. 30, saying, "Food price inflation began in early 2023, and we need to have a fundamental question as to why it started to rise then," and noted, "It should be seen that the government has lost its control capacity."
According to the industry on the 31st, on the 27th the Fair Trade Investigation Department of the Seoul Central District Prosecutors' Office sought arrest warrants for a person surnamed Park, business division head at CJ CheilJedang, and a person surnamed Lee, business division head at Samyang Corporation. This was a follow-up measure after the Fair Trade Commission referred CJ CheilJedang, Samyang Corporation, and TS Corporation to prosecutors on charges of collusion. In September, prosecutors launched a compulsory investigation by raiding the three companies—CJ CheilJedang, Samyang Corporation, and TS Corporation—over alleged price collusion.
CJ CheilJedang, Samyang Corporation, and TS Corporation control more than 90% of the domestic sugar market. They have recently faced allegations of colluding on sugar prices over the past few years. The scale of the collusion is estimated in the trillion-won range. The three sugar companies were also fined by the Fair Trade Commission in 2007 over collusive conduct. The penalty surcharges at the time were 22.7 billion won for CJ CheilJedang, 18 billion won for Samyang Corporation, and 10.3 billion won for TS Corporation.
The Fair Trade Commission recently conducted on-site inspections of seven major flour millers. The targets were Daehan Flour Mills, CJ CheilJedang, SAJODONGAONE, Daesun Flour Mills, Samyang Corporation, Samhwa Flour Mills, and Hantop. These are the top corporations by market share in the domestic wheat flour market. The commission is said to have focused on whether companies artificially raised market prices by pre-coordinating factory prices and supply volumes. This comes as processed food inflation has remained in the 4% range for six consecutive months, while bread price inflation alone was tallied at 6.5%.
Remarks by Fair Trade Commission Chairperson Ju Biung-ghi on collusion have also hardened lately. Appearing at a comprehensive audit by the National Policy Committee at the National Assembly on the 28th, Ju said, "We will strengthen monitoring of acts such as collusion in determining materials and supplies prices and will swiftly handle cases under review."
Distributors are in a similar situation. On the 15th, the Fair Trade Commission conducted on-site inspections over alleged violations of the Act on Fair Labeling and Advertising by big-box retailers. The move followed allegations that large retailers raised prices just before the government's agricultural and livestock product discount support program to siphon off subsidies. Ju said the investigation is "under way," adding, "If violations of the law are found, (we will) impose strict (sanctions)."
A National Tax Service probe is also under way. Food service company OURHOME is under investigation by the Investigation Bureau 4 of the Seoul Regional Tax Service. This tax audit is a special audit, not a regular one. A special tax audit may be linked to slush funds or tax evasion.
For now, many assess that the tax audit concerns issues that arose before OURHOME was incorporated into Hanwha Group. Some say the breach of trust case involving former OURHOME Vice Chairman Koo Bon-sung likely had an impact. However, there is also an interpretation that this issue cannot be ruled out from expanding to the entire OURHOME acquisition process. Hanwha Group was able to acquire OURHOME largely because a management control dispute among the siblings of the late honorary chairman Koo Ja-hak had the biggest impact.
Distributors and food companies say they are concerned about excessive government price control. They argue that in an era when domestic and overseas businesses are run simultaneously and each company has different positions, collusion is difficult. An official at a food company said, "We are faithfully cooperating with the on-site inspection. However, these days it is not an era where one can recklessly engage in price collusion. We hope the Korea Food Industry Association will communicate more actively with the authorities."